Q3 2019 Earnings Call
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It is now my pleasure to introduce your host Mr., Jeff Newman Executive Vice President and General Counsel for your widen as well.
Your next worldwide. Thank you Mr. Newman you may begin.
Thank you Bridget good morning, and welcome everyone to Euronets quarterly results Conference call. We will present, our results for the third quarter 2019 on this call.
We have Mike Brown, our CEO , Rick Weller, CFO , Kevin capping Lucky Executive Vice President and CEO , you pay division on the call.
Before we begin I need the call your attention to the forward looking statements disclaimer on the first page of the Powerpoint presentation will be making today.
Statements on this call that concerned euronet sorts management's intentions expectations or predictions of future performance are forward looking statements you're in its actual results may vary materially from those anticipated in such forward looking statements. As a result of a number of factors that are listed on the first page of our presentation.
Euronet does not intend to update these forward looking statements and undertakes no duty to any person to provide any such update under any circumstances.
Please also note that the reconciliation of certain non-GAAP measures to the GAAP equivalents included in the supplemental data.
In Pink is included as an add acts to our Powerpoint presentation.
Now I'll turn the call over to our CFO Rick Weller.
Alright, Thank you, Jeff and thank you everyone Who's joined US today I will begin my comments on slide five.
We delivered third quarter revenue of $787 million operating income of 194 million and adjusted EBITDA of $227 million.
These results represent a 14% constant currency revenue growth, 34% operating income growth and adjusted EBITDA growth of 30% all very impressive double digit growth numbers contributing to the adjusted EPS growth rate.
Our adjusted EPS.
For the third quarter was $2.84.
31% year over year increase and the sixth consecutive quarter that we have delivered double digit growth in adjusted EPS. This strong growth rate was driven by operating income contributions from all three segments and benefits from income taxes.
About half the tax benefit was from certain nonrecurring items, while the other half was from recurring items such as the <unk> recently announced lower tax rate in India.
Additionally, a penny of headwind from changes in foreign currency rate was offset by a penny of favorability from share repurchases.
On slide six we show our three year transaction trends by segment.
We have t. transactions grew 13% driven by expansion of our ATM and point of sale processing networks in Europe and Asia.
[noise]. This included growth in our in our local and international withdrawals and deposit transactions as well as a value added transactions on ATM and point of sale terminals, including dynamic currency conversion domestic and international surcharge.
And foreign currency dispensing.
He paid transactions grew 40% with continued digital media expansion and significant contributions from wallet driven mobile top up transactions in India.
Which earn a small amount of revenue per transaction compared to our more traditional commission based revenue.
Excluding these lower India revenue transactions Epay transactions would have grown at a very nice double digit rate of 11%.
Money transfers grew 5%. This growth was the result of exceptional double digit growth from our U.S. outbound and international originated sands, partially offset by limited growth from our Xcede business stemming from Brexit uncertainty and deep.
Climbed in our U.S. domestic transactions as a result of additional I'd requirements at Walmart.
Next slide please.
Here on slide seven we present, our segment results on an as reported basis.
Year over year, most major currencies, where we operate declined at mid single digit right.
To normalize the impact of currency fluctuations, we have presented our results adjusted for currency on the next slide.
Slide eight here.
For the third quarter, Yeah tea.
Revenues grew 26% operating income grew 42% and adjusted EBITDA grew 38%.
He's very strong double digit growth rates were the result of a 13% increase in both ATM and transactions, new outsourcing agreements and our ability to offer visa DCC on all cards worldwide.
Revenue gross profit per transaction and operating margins all expanded nicely.
He pay revenue grew 7% operating income grew 27% and adjusted EBITDA grew 23%.
The strong growth rates were the result of continued expansion of digital media products and SAS solutions revenue and gross profit per transaction came in a bit as we continue to see a stronger mix of mobile top up transactions out of India. However, operating borrower.
And it nicely. Moreover, constant dollar gross profit grew 11% consistent with the transaction growth when excluding the low margin India transactions.
So for those of you that are more familiar with the pay business and know that we share about 80% or the commission revenue with retailers, leaving the roughly 20% as our share you might say that our E. P. R.
Our E Bay revenues grew double digit this quarter and excellent result for me pay.
Overall this was an outstanding quarter for E Bay, and the fourth consecutive quarter, we have delivered double digit op income and adjusted EBITDA growth.
Money transfer revenue grew 7%.
[noise] and operating income and adjusted EBITDA each grew 6%.
This growth was driven by strong double digit results from our U.S. outbound and international originated remittances.
Partially offset by constrained growth from the Xsix business stemming from Brexit uncertainty and the previously announced decline in U.S. domestic transaction transfers as a result of additional I'd requirements.
As it relates to the Xsix business, you may recall that when the UK voted for Brexit in the second quarter of 2016, we reported stronger than normal profits as a result of the volatile pound.
We continue to expect that the Brexit uncertainties.
As as they as they begin to lift we will start to see the ex the business resume more normal trading patterns and us making larger contributions to the growth of the money transfer segment.
To that end as we have seen the British pound appreciate above.
128 to the dollar in the first few weeks of October we have seen a corresponding up tick in transactions furthering our confidence that this is the transitory event.
To conclude on money transfer segment. This was a solid quarter for our business our core U.S. outbound and international remittances continued to outpace the market rate of growth at very strong double digit rate and as we passed the two isolated.
Events within this segment.
And as we get into this next year, we anticipate the money transfer segment will again be posting double digit growth rates, we are accustomed to reporting.
In summary.
This was an outstanding quarter for your NAV with op income contributions from all three segments.
Now, let's go to slide nine and discuss the balance sheet a bit.
Here, you can see that our balance sheet continues to strengthen.
The cash increase resulted from cash generated from operations and settlement timing in the business.
Partially offset by approximately $40 million in share repurchases in the third quarter.
Of the 1.7 billion in cash we had approximately 650 million in the ATM.
The remaining cash about 40% is related to settlement needs, leaving about 600 million discretionary cash together with about a billion dollars available on our revolver, we are well positioned to fund the liquidity the business needs to grow this.
It was another outstanding quarter for Euronet with that I'll turn it over to Mike.
Thank you, Greg and thank you everybody who's joining us today.
I'll begin my comments on slide number 11, with an update on how our leading edge technology continues to contribute to success across all three of our business segments.
In the quarter, we launched a QR code based payment App with commercial bank of Salon in Sherlock that the App called calm bank.
Plot utilize the digital integrated payments cloud micro services architecture and opened eight.
To develop an end to end solution that included development of the QR code customer App, a merchant athletic QR codes Central processing engine reconciliation and settlement services for all transaction and the associated IP infrastructure on a pay per use model.
GAAP ensure they friction free secure and faster payment experience for customers and merchants and allows customers out the commercial bank of Silanis are locked up to have available at their fingertips QR code based payment service that is easy and simple to use like hourly pay.
Are we chat pay.
In India, we signed agreements with Amazon pay and Google pad with Amazon pay we have signed a strategic agreement as a technology partner to provide a number of services Amazon want to enable for their customers.
In September we launched the first service what bill what the bill pay provider be PCL customers can now make bill payments the BBC l. using their Amazon pay account and we expect more such services will follow in the coming month.
Google pay has signed up for various ebay services and initially launched value added services, such as top up and bill payment.
We also continued the expansion of our alley pay processing to Mueller, and DM stores, and Austria and to multiple retailers in the in Italy.
Quarter, we launched a monthly recurring subscription service for applecare product.
At.
One of the largest retailers in the U.S. target. This implementation allows customers to purchase applecare products.
I phone I pad, an Apple watch watch devices for a low monthly recurring price.
This provides a significant value proposition to both the end consumer and target.
Who could previously only offer a two year subscription to applecare, which had a much higher price point versus the monthly plan.
As a good example of how easy pay through our digital integrated payments cloud provide authorized retailers and products providers, what they convenience that solution for implementing an offering the new product and service to customers.
Now, let me pause here to reflect on the significant our technology played on the delivery of this product for Apple and target.
It leveraged several capabilities from our digital integrated payments Clat technology as you have seen.
As you add do you see we have grown our relationships with our brand and retail partners. We have found that they want to offer new solutions to meet customer needs, but need a partner to develop and deployed the solutions faster and more cost effective than they can do it themselves.
To launch Applecare recurring monthly subscriptions, we brought together several of our micro services, including compliant data protection. The renewal payment engine Tokenization cloud processing and cloud storage of credit card information necessary to facilitate the payment on a record.
Sorry monthly basis as you can see this is not just another transaction process, but this is a software solutions that enable a compelling customer value proposition for Apple and target.
It's also another example of how our technology has enabled us to break into larger retailers.
At which we have historically not have at had access to.
Our SAP solutions are more complex and sophisticated than most that solution in our case, we're combining several functions or capabilities to deliver a new solution for our customer you're at simple connection we are enabling a unique products such as applecare, but to make it work. There's also unique software that track Bill.
Sales and collects returning payment recurring payments.
Cloud hosting host the host connections compliant.
Payment processing and settlement all with one solution.
Finally, with respect to ran as an update we continued to make good progress on the installation of ran as the national switch Mozambique.
We are on track with all of our deliverables and still expect ran to be fully implemented in late 2020.
Moreover, Mozambique won't be the only a month, we continue to have discussions with several customers in fact, as we speak our software solutions theme is holding a conference in Thailand with more than 100 registered attendees, 90% of them prospective clients.
We remain confident and our ability to monetize this groundbreaking solution and look forward to providing new additional updates as we have the as you can see the leading edge nature of our technology assets and our ability to create unique solutions to problems our customers fade.
Continue to contribute to our success in all three segments.
Now, let's move to slide number 14, we'll talk about first segment.
Pete.
Our EFI team continues to knock it out of the park, what can I say here with a 42% constant currency op income growth this quarter during the quarter, we added our 29 country to our.
Network by launching eight dams in Slovenia.
And to update you on the New Asian market, we launched last quarter. The initial results of the first 60, ATM, they're very positive and could be quite advantageous to our results next year and beyond.
Moreover, we have active efforts underway to launching several new key markets in the coming quarters.
We also launched a merchant deposit network participation agreement with one of the largest parcel delivery companies in Poland kind of like a Fedex.
And cash deposits for Central European International Bank in Hungary, and Uganda enabled ATM cash recycling for Dfc, you Bank and finally, we renewed our Pos inquiry and market management services for how the bag in Pakistan next slide please.
Slide 15 give you an idea at some of the value added agreements we have implemented for our customers during that last quarter. The lift is expensive. So I will only highlight a few.
In the Netherlands, we have partnered with Amber alerts Europe to publish alerts and awareness campaigns on our ATM.
Amber alerts Europe at CES in connecting law enforcement with other police expert and with the public across Europe , Our ATM network in the Netherlands is one more touch point for alerting the public to missing children, and we hope to add more country soon.
In Poland, We signed a new merchant cash deposit network agreement at never participation agreement and expanded our Cardless transaction processing services to enable new cardless payout for several new customers in Poland, and New Zealand, we signed a Pos DCC agreement with when cave, the fifth largest merchant acquirer.
In the country.
We also launched a new card issuing products for customers in Sri Lanka, Bahamas, Egypt, Bolivia, and Oman, and finally, we finished the quarter with 47209 active ATM.
13% year over year increase during the quarter, we deployed 922, new high value ATM about 325, new outsourced ATM and a few new low margin ATM in India, We de installed 244 lossmaking ATM from.
Your cash and we'd be activated almost 458 times for the winter season.
For the full year, we have added 3412 independent ATM.
Almost to hitting the low end of our 3500 to 4000 full year guidance range.
At the end of just three quarters bearing in mind that we generally expect about 500 outsource ATM in the 30 504000 goal.
Lets strong ATM deployment, a strong pipeline of new agreements and 42% operating income growth I think it is worth repeating that this was another exceptional quarter for ft.
Now I'll move on to slide number 18, and we will talk about defect.
Okay.
I mean I got to start with look at these brick and result, there both op income and EBITDA in that 20% 20 plus percent range constant currency I'm very proud of these epay result, as they continue to redefine the segment with much more digital media distribution across more.
Channel and development of leading edge technology that provides innovative solutions within the payment space.
Continues to expand its digital media portfolio with digital media and SaaS gross profit comprising more than 70% of the total segment gross profit for the quarter, we've expanded our distribution agreement of Google and Amazon to Austria through lack or land stores and Switzerland way lots.
Sales of Kasperski, Mcafee, and Nintendo and co op stores, and we continue and we sign distribution of Nintendo products through that Fib, ATM network and Portugal. Another example of a customer utilizing our digital integrated payments cloud to offer services from another segment and then.
As Kate Easypay content being sold through ATM next slide please.
In addition to the hourly pay launches we previously mentioned.
Stelea, we signed agreements to launch Sally pay to 170 additional retailer locations. We also signed an agreement to distribute panda anti virus software to all retail partners across Europe .
Finally in India, We signed an agreement to process mobile top up bill payment and other recurring payments through Amazon pay.
E Bay continues to transform itself. It has become much more than a transaction processor ebay has evolved into a sophisticated leading edge electronic product delivery and payments company. This successful transformation as reflected in the 27% constant currency op Ed.
Income growth in the quarter.
Now, let's move on to slide number 22, and we'll talk about money transfer for a couple of minutes.
Our money transfer network now reaches 389000 locations in 161 countries, an 8% year over year increase.
During the quarter, we launched seven new correspondents in 15 countries. The most significant launches include cash pickup and bank deposit service.
Zigbee Bank in Zimbabwe. In addition, we expanded our capability to transfer funds to mobile wallets in Ghana, We can now deliver funds to MTN air tailed tigo and Vodafone mobile wallets and in Bangladesh, We launched service into big cash and you pay.
In addition to these launches we have signed agreements with 23, new correspondents and 16 countries, which will be launched in the coming quarters.
Ria has entered into a new digital partnership with Enabler plc company Travelex.
In support of money transfer engine for Samsung pay Riyadh will provide additional network scale via its cash payout and bank deposit rail.
And we Onboarded the unit transfer network of agents in the USA and Canada partnering with one of the leaders in the pay off market to Haiti. Finally, we launched the new Ria money transfer mobile app on both iOS and Android.
We don't have much more to add regarding the headwinds we weathered regarding the additional non regulatory imposed I'd requirements on our domestic transactions with our partner Walmart.
We look forward to Annualizing the lapping of these new requirements as we enter the new year.
In the meantime growth in our network together, what the diversity of our money transfer business have provided for year over year growth and positions us very nicely for 2020.
As you can see we have a lot of things happening here in the money transfer segment.
On the surface you may look at growth and wonder what's going on in the business. These aren't the growth rates that we prefer to post but we have no doubt that we'll get through these two isolated event happening in the segment the idea requirements of Wal Mart and the uncertainties of Brexit.
However, as we work through those we're pleased to see that the most substantial portion of the money transfer business worldwide is growing at strong mid teens double digit rate that others would helpful and as you remember this is an addressable market of $700 billion. We're.
Confident that our money transfer segment continues in the right direction and we look forward to improved growth in the coming quarters.
As we lap the transitory events and continue to see the double digit growth and the majority of our money transfer business, which is producing now let's go on to slide number 23 and will wrap up the quarter.
First we delivered adjusted EPS of $2.84 at 31% year over year increase and the sixth consecutive quarter of double digit EPS growth.
We continue to develop and launch leading edge satellite solutions that solve problems for our partners DFT delivered exceptional double digit growth rates, while continuing to invest an ATM network expansion, which will continue to pay for us in the in the coming months and years he pays 27.
10% constant currency operating income growth.
Resulted from a continued digital media growth, leading add staff like solutions and network expansion.
Money transfer continues to deliver exceptional double digit growth rate in the us outbound and international remittances.
The generation of free cash flow contributes to our strong balance sheet and finally, we expect the fourth quarter adjusted EPS to be approximately a $1.61 cents, assuming constant foreign exchange rate.
With that operator, I'd be happy to take questions would you. Please.
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Our first question comes from the line of Rayna Kumar with Evercore ISI. Your line is open.
Good morning, Mike and Rick.
Good morning.
So for the third quarter, we saw some strong margin expansion you had adjusted EBITDA margin increased 350 basis points year over year, you, maybe talk a little bit about the key drivers to that expansion and how we should think about margins in the fourth quarter and then going into 2020.
Yes arena the first part of your question.
Had broken up can you repeat that Io, we only got about half of it maybe.
Sure. So your adjusted EBITDA margin expanded 350 basis points in the third quarter. If you can discuss the key drivers to that growth and also.
Expectations for margin expansion into fourth quarter, and then going into 2020.
Yes, well.
As you know one of the big drivers in that was the addition of the additional visa DCC.
That we were able to pick up into business in our ERP segment, we continued to grow and expand our ATM deployment so that.
Again contributed to it in and as as Mike pointed out.
Epay had a very good result, so.
And then I can't help but to emphasize again that third quarter is our seasonally strongest quarters. So as we go into the fourth quarter.
We would again get some on a year over year basis, we'll get some additional benefit from the visa DCC expansion.
And that's also when we come into our strongest quarter for the Epay business and and so we expect to see some some.
Numbers night, so on a on a quarter to quarter.
I think it's fair to say that are art, our margins will come in going from third quarter to fourth quarter because of the seasonality of third but on a year over year basis. We would continue to see that margin expansion be present in our business, particularly in the in the ERP and the ebay business.
That's very helpful. And then just two questions on Walmart when exactly do you lap the Walmart IB requirements that you put into place and second how are your initial talks with Walmart progressing on your.
2020 contract renewal when do we expect to here in updating the conclusion to that.
Well I would say I mean, we the I'd requirements, let's say for the most part when in you know for the in kind of like a third quarter.
Last year, we started feeling some some of it but it wasn't as pronounced we really probably solve the the the lion share of the of the pressure come into the second quarter. You know so I kind of would expect that you know for the for the most part that that that lapping would be kind of.
Give or take the first quarter there as as we get through it okay.
And then as it relates to our discussions I think they're going quite well.
Our product Walmart to.
Walmart has performed very very good and we continue to have those discussions so I think kind of consistent with the last time, we had a renewal.
Get went kind into the next year, but we just have to see.
But but we were we continue to have a very good relationship with Walmart and and would expect to wrap that up at some point here, but.
There's no there's no exact timeline on arena, but things are going well I think last time around we kind of started those discussions in December .
We've kind of the gun those discussions now.
They've got a lot on an airplane.
But I imagine over the next.
90 days or so we'll have a pretty good idea.
Great. That's very helpful and just a final question for me on what progress are you, making towards Surcharging on European ATM, what other countries you expect to implement surcharging in the medium term.
Okay, well, we don't expect any right now.
Because usually these are kind of surprising to us.
We know that there are good economic reasons, why most of the big bricks and mortar banks would like to have.
Surcharging in Europe , there countered by.
That kind of consumer advocate groups, who would like to have all transactions for free in the country.
It's really not up to us it's not our discussions it really is between the banks on the regulator. So we'll just have to wait and see that they're kind of like I guess, you could call kind of eight this up our sleep, but we can't quite plant. So.
Well just have to wait and see yes, I mean is as we take a look at some of the countries over the last few years that have moved too.
To surcharge, you kind of get to a tipping point, where where the economics for the banks just really make no sense. They continue to be pressured by alternative banking products that are living off of the investments as the banks have and so what we've seen is in a few of these.
Markets kind of when you get to that tipping point and the banks really go. This we can't continue to operate any longer that way then they kind of push.
In that direction. So you hear different noises around Europe , and we'll have to see but as Mike said, we don't we don't have any kind of UBS of signals or sense of of which one would be next well just continue to.
Expand in our current market than we're particularly excited about the new international markets that now are high potential due to the visa change.
Understood. Thank you.
Yes.
Thank you and our next question is from Andrew Smith with Citi. Your line is open.
Hey, guys. Thanks for taking my question.
Quick question on the key processing segment, so where do you break down the mix of transactions in the quarter.
In more specifically talk about DCC transactions growth, what's your expectations.
Well I think whether it's back to.
DCC at pretty much.
Right on target with what we expected and what we even forecast that a year ago or so so.
Add that they are that's all good news there, but in addition to that it may let's not forget we make a lot of money up just domestic transactions. We've got a lot of surcharging now that happens across the.
Across the continent, we have DAF, which is direct access fee allows us the surcharge.
Foreign card holders as well so DCC. It certainly has a big component of what we're doing but we we have other products to that garner answer Avenue.
Understood and then the could you hear the commentary on the money transfer segment. It sounds like the underlying growth there is fairly robust, but as we move into 2020.
I appreciate the commentary on the getting back to double digit growth, but it's really talked about some of the underlying assumptions there specifically as it related domestic money transfer.
Is there assumption is there an assumption embedded in there that that improves clearly lapping.
There is some.
That that segment hasn't had an.
Grow too much in the past few years, just curious your break down the assumptions to grow that go into that double digit growth.
Trajectory into next year.
I think what you've got as.
Well, we're not expecting huge amount of growth and the Walmart to Walmart product, we do have opportunities.
To do to continue to grow our international business, both with Walmart and ourselves and that's the neat thing about this is if you are relative you take a look at kind of that triangle of where the transactions are and domestic remittance about 70% of.
All transactions are done at small retailers mom and Pops, Bodega is et cetera, smaller chains of stores and so forth and.
That's the that's the sweet spot for US I mean, we're kind of kings that that we know how to manage both their compliance and their credit we have about our 5% worldwide.
Market share as out of that 70%. So you can say that the markets really 15 times, a bigger than our 14 times bigger than what we have today. That's why we've been in mid teens to higher kind of growth rates for domestic or international regions. So we're kind of the kings there and we will continue.
To grow that business, that's what gives us that the nice thing is the market that 700 billion dollar market out there is really where our sweet spot is thats why were excited about the future.
Got it that's helpful. Thank you and then last question just housekeeping in the fourth quarter, what's the tax rate assumption.
Well I would tell you that we would continue to expected to be kind in the in the mid twentys to a chance that it'll be a little better than that.
As I said, we did see some rate improvement out of India, We got a little bit of extra benefit in the third quarter, because that was a retroactive rate to the beginning of the second quarter. So I would continue to say mid twentys to potentially a little better than that.
Wonderful. Thank you guys see at the conference in a few weeks.
And our next question is from Darrin Peller with Wolfe Research. Your line is open.
All right. Thanks, guys.
Let me start off on the FTP segment, the transaction growth was stronger this quarter than last quarter, but the revenue growth about the same which I think is underscoring the questions were getting around the mix from DCC contribution this quarter versus last can you just help us I guess on pack with the growth rate would have been without the see this on the revenue side without the DCC contribution and then just.
Let me reconfirm, the 65 cents or if thats changed at all in terms of annual impact yes, no. It didnt. The one thing to bear in mind is that the additional.
Margin or benefit we got out of the these the visa DCC was not an extra transactions we were already getting those transactions. It's just that we could not offer DCC on those transactions. Okay. So, yes that didnt stimulate that extra growth the the additional grow.
Both on the transactions I would tell you is right in line lockstep with the number of ATM that we had out there you could see that they were 13% on the ATM, 13% on the transaction. So right. It's the combination of putting out more of our own ATM is more outsourced ATM is et cetera. It wasn't.
Stimuli is by the by the additional visa DCC stuff right now I guess, what I was our leases while mix mix changed because I saw transaction growth accelerated but revenue growth didn't accelerate it was the same growth rate as it was last quarter, albeit a strong growth rate did go as didn't accelerate with transactions and that would be.
The let's say reasonably consistent with with.
Second quarter. It also having part of that additional benefit from the visa DCC.
Lift there.
Okay. I mean is there any way to break out what the actual revenue that came from the new visa rule was this quarter or what the growth rate would have been without that in terms of red well, we we didnt.
We haven't put that number out specifically, but as we've generally shared with folks is that that if you you've kind of go backwards up.
And calculate on the math from the 60 to 65 cents.
That you'll get to and an estimated revenue number and we get about all 45% of that number in the third quarter and we get only about 10% of it in the first quarter and the other different.
The other 45% is a little bit more biased.
To the second quarter than it is the fourth quarter, so with that math, you can kind of.
Get to a rough number on on what it would be okay, and just a quick follow up on the money transfer sites.
Breakdown I know, you're saying the cross border side continues to do well.
Mid teens growth did there was there a change of growth there how do you some sort of a change in growth given that the overall constant currency growth in the segment decelerated a little bit so was it either on the cross border side or was it on the domestic side and maybe just break down what you expected if we anniversary that the Walmart issues really I'd issues in the beginning of the for next year.
What the full segment growth profile could look like.
Well.
Interesting observation and it was we we happen to.
Lose volume from a a larger very price competitive agent in the in the.
Middle East.
And that that brought in those transaction numbers, a little bit compared to like what we saw in the in the second in the second quarter, because our year over year difference on the domestic transactions was relatively this was similar in third quarter as the second quarter. So.
So the map that you have heard there was really kind of out of this middle east large agent.
Okay and just last question guys when I think about guidance on Q4.
Anything we should keep in mind in terms of tough comps are easy comps or anything just unusual or.
Extraordinary and for modeling purposes. It in terms of how to think about the revenue side as well as Lee the profitability.
Well.
No.
I think one on the revenue side of the money transfer has to do with the you know with the I'd requirements and that wasn't showing up as strongly in the fourth quarter as I said earlier, we really saw the pronounced effect of that in the second quarter of this year, so that will still kind of have some.
Some waiting on us in the.
In the fourth quarter.
And.
That would be on the downside on the on the plus side, obviously is that the benefit from the visa DCC lift that we got.
So those are the only couple of things that that I could think of I mean, consistent with our historical fourth quarter, our epay business does better in the fourth quarter, but there isn't any kind of unusual comps in there on the fourth quarter that would.
Call out anything different in the math.
So I think that would be largely yet.
Okay, all right well thanks, guys. Thanks.
Our next question comes from the line of Tim Willi with Wells Fargo. Your line is open.
Hi, Thanks, and good morning at two questions. The first one was that the housekeeping question, Rick I think your discussion around money transfers beginning with call you made some comments.
About.
He and I think I just want to make sure I heard a correctly did you say that so far through this month or sort of sequentially through the quarter and to the current months that there had been some improvements are bottoming out in volumes can you just go back through that will.
Yes.
As as we got into October we started seeing that the the pound started improving on against the dollar and I think that was kind of consistent with what the sentiment was out of out of the UK on.
Having something positive happen with with the Brexit solution and so as that.
You may recall kind in the in the third quarter, we saw.
We saw the the pound is the dollar.
Oh gosh down to about 120 121 tiny in just a few months ago and and so it'd been at pretty much. Some all time lows and when we started seeing at break above the 128 Mark.
We started seeing the volume numbers tick up so.
We do we did see that kind in the first part of October we're cautiously optimistic that you know that that'll that that the good sign of the return of People's trading in person.
And that that will pick up so.
We will kind of wait and see.
There was some more news out you know yesterday on on some Brexit things appeared.
You may or may be though it will get get through it here, but but yeah. We did see some positive movement. There so hopefully at the it's a good.
For teller.
Great and then my second question was about E Bay and obviously.
Versus where we were a couple of years ago. The product set the momentum all are obviously sharply better I'm curious when you think about the new business you're winning.
As a way to think about is it the new cloud based technologies it is getting the attention.
Paul the mobile wallet providers, you've talked about working misuse and or is it sort of this big content catalogs that you've built out over the years that the wallet providers are now realizing we want to have a robust offering within our wallet.
Can we go to that can bring us content is there any way to think about what is reading or if there is a network effects sort of emerging here around those two.
Topics.
Yes. This is Kevin So you hit on a couple of different.
Things, so I would parse it like this first and foremost.
As Rick and Mike commented earlier, it's about technology, having the right technology stack to in April the wallet too.
Usually in Frictionlessly.
Deliver this content. So yes your point about having the portfolio or catalog is important but you also have to have the easy connectivity because the wallet providers are very different than a physical retailer their needs and requirements or are very very different I mean, providing a digital code in a safe.
And can being manner, and then reconciling that transaction with a with a fintech company is very different than distributing a plastic poster card onto Ajay hook into our retail location. So because euronet trashy pay is is really more technology oriented.
We kind of become.
Preferred.
Partner.
These wallet companies and various fintech.
Players and then the second part of the question about kind of what is the overall I think sort of what is the overall driving momentum and what's the mix in the business.
It is a combination of the distribution of more digital media with things like the announcement of Applecare, where we're providing complex SaaS based solutions to both our brand partners and this case, Apple Slash applecare and our retail partner slash.
Target.
If I can cite in one one last one on the subscription stuff you just talked about with target we've talked about this.
A little bit I think maybe on a year ago Kevin is.
We're in a subscription based world now I guess in certain respects right, whether it's things like Netflix or.
Consumer goods being delivered every month and I guess as you think about that markets and what you've done here with applecare. I mean is this a sizable end market opportunity globally or just in the us or is the applecare just sort of a one off innovative.
Opportunity that you saw.
No. Good observation so the engine that was built to support.
Applecare can be applied to any subscription based offering.
The unknown is going to be what percentage of consumers initiate a subscription model.
From a physical retail location.
Were quite optimistic, but thats going to be attractive because fiscal retailer can do merchandising and tell the story and a different way than than a direct sale. So so the solution built for applecare can apply to enhance subscription services we've talked about.
Spot of five Netflix steam whatever.
The unknown is how many consumers will adopt those subscription services from a physical retail location, but it's as large underserved market.
The brands are not able to reach every consumer in a direct fashion. So there is out there is a lot of optimism about the success of the solution.
Globally.
Great. Thank you very much at all I had and I guess I'd make one more comment that came out and Mike Mike's comments the other important feature.
Of the renewal is breaking down the price point, if something thats relatively expensive into something and come monthly bite size pieces and there is a lot of an excitement enthusiasm about how that could also be used with a lots of different products.
Okay.
Operator next question. Please our next question is from Peter Heckmann with D.A. Davidson. Your line is open.
Good morning, gentlemen.
Yes on the integrated payment cloud as you start to ramp up those services, how do we see it manifests in the results clearly, we'll see revenue and likely high margin will be included in the transaction count as well and.
How should we interpret that it sounds like there's a lot of these applications in prepaid, but there may be Adam.
Right.
That was a little bit cut out there.
But.
I think I think you'll see it in the transaction count.
For sure.
And then your other question I couldn't understand what the other question was could you Rick.
No patients essentially we'll see.
We'll see.
Perhaps revenue per transaction fall a bit but.
From the cloud based transactions, but those will be coming through at very high margin. So we should think about that in our modeling.
Yes, as as we think about our technology, it's really going to be let's let's call it across three different kinds of.
Categories. Okay. One is is we're going to get service type of of recurring service and licensing type of revenues from from projects like Mozambique, Okay.
Those those installations, then are going to lead to further transactional types of revenues that we get from the other 21 banks that are involved in that particular central switching infrastructure.
And then we're also we're going to we're going to get more transactions and as you say, we believe at better margins, whether it's from like connecting with the the zooms or the world or the Finagler is of the world or or developing product like the applecare that we just talked about here.
So so there's going to be several different areas that we would see the revenue come in but I would tell you that are our strongest interest is to see that it is is driving continuing.
Recurring monthly transaction type of numbers that would give us better margins per transaction. So I think thats, where we'll probably see at more than anything.
But but as we as we come up with more of those products and have more successes will kind of plug you into the follow along the way, but I think for your modeling I would anticipate that this gives us the ability to continue to drive more transactions had a better at a better margin.
That's helpful. And then just one housekeeping item and I apologize if I missed it did you quantify the tax benefit EPS this quarter.
We didnt quantify it but it's kind of in the.
In the low double digit range, so call. It 10 to 12 cents a trend share.
Okay. Thank you very much.
Yeah.
Thank you and our next question is from Andrew Jeffrey with Suntrust. Your line is open.
Hey, Mike and Rick Good morning.
Good morning.
So.
With regard to ACSI.
What what you're talking about.
Brexit and how that.
Protecting.
Beside your business makes a lot of sense.
Obviously.
We read every day and Fintech about.
A lot of capital being invested at high valuations in some of axes competitors that maybe aren't as profit.
Oriented as your own at generally.
Can you talk a little bit about how you xcede positions itself competitively in the cross border market.
Is it what differentiates akcea in I suppose it's good to see the bounce and transactions with the strengthening of the pound.
How confident are you that that there isn't a competitive risk from some of these disruptors that that as I said really aren't maybe as best price focused as your initiatives.
Well, that's an interesting. Thanks, so I mean for sure we do have competitors, they're out there everywhere lot they've got lots of invest their money that they are below and you know and given people everything for an air freight.
The nice thing that we have though it back the I mean traditionally we were a higher price point product. So where are these the is a little fintech guys wire for somebody said and three or four or 5000, our 10000, where axes numbers were quite a bit higher they might be 13000 per individual and 50000.
Okay.
At CFO of a small medium sized kind of enterprise.
So we've kind of we originally went upscale that way what's interesting now as I think the vintage competitors have shown at the Theres, a big market for odd downscale or medium scale, you might say and.
Since we have read on our both our website and our apps we've been.
Acquiring a lot more of these transactions in the middle range. So yes, we do see competition, but we also see a larger market you might say.
And I would add to that when you asked what really attracts them is.
We've got a we've got a very efficient compliance process because.
And that's really one of our advantages in this business because a lot of these startup folks are struggling and you're beginning to see more of their struggles publicly with things like compliance.
All of the regulators that we deal with whether it's in the United States. It's Europe wherever it is our are concerned with compliance and some of these folks that start up don't have the same level of attention to compliance. So we've really worked on on really.
Making that inefficient effective process when they come in they go through compliance and then they find that the engine is easy to use it simple, it's scott attractive competitive rate and so that kind of experience is a lot better than what they've ever received before certainly at a traditional bank.
I think one of our advantages against some of the other fintech guys is our compliance and how well we've got that process home. So.
We've seen more and more subscriptions, but we will really welcome the opportunity as we get through this Brexit thing to to get the steam back at it.
Okay. Thank you appreciate that.
Your next question is from Mayank Tandon Tandon with Needham and company. Your line is open.
Thank you good morning.
On the FTC side could you talk about the timeline on expanding more aggressively in southeast Asia, and Latin and when we can expect that to start maybe contributing to revenue growth and transaction growth on the side.
Okay. So.
And get into a new country has a bit of a challenge okay, because you've got to in most all the countries in the world that aren't English speaking or are you countries.
It's actually not allowed by the regulator to have a non financial institution own and operate an ATM.
So that makes it it's kind of slow going at first because you've got to get in there you've got to find a potential sponsor bank for visa and Mastercard and number. Two is then you take that sponsor bank into the regulator and you get the regulator to basically changes through this takes I mean, it to invent current market that were and where we only.
60, ATM, that's a two full years and and we've been working out we were working on them long before visa change its rules because we had that we could kind of smell that the rules would change you now and so we've been working on we're working on about five other markets right now and.
So whenever I can get one to but you know when the regulator says go out then I will go into that next market, we feel rather confident that will get one maybe in the first quarter of next year, but it will just have to wait and see and in the meantime, the one that we've got work and.
Map on it is as excellent and we've only got 68, the EMS now, but plans for our big expansion.
Throughout next year, as where it will make it'll actually move our needle 68. The ends I wonder how good they do don't really move.
Our needle cause our.
Division, just a darn big but by next year, we'll definitely due to.
That's helpful and very quickly or Rick could you comment on capital allocation, especially given the stocks office highs would you consider a buyback or as M&A is still the main team that you're looking at from a capital allocation perspective, any thoughts around that would be very helpful.
As we did in the third quarter, we bought when we saw some pressure on the price so.
I guess as we've said in the past if we see some dislocation.
We're prepared to do that.
But we wouldnt, we wouldn't probably state we don't have anything specific plan or number in mind, but if if opportunity presents itself, we we might be buying some.
Acquisition and all in acquisition, where we're just we're always looking at them.
There's there are several on the examination table is just a matter of of whether or not they you know that we get them to the finish line.
We've had some that looks quite promising and fell apart in the latter days because of issues that we found.
We continue to see that.
There's some maybe.
Irrational exuberance.
Expressed in some of the valuations out there.
So if we can see that the that the valuations line up with how we can see that we can make money.
If their fundamental growth.
Engines were not interested in just being what we would call Pac man acquisition.
We're interested in growth engines to our business so.
We continue to look and at some point I'm sure, we'll be successful and in finding one but stay tuned we will will keep we'll keep the examination process going.
Thank you.
All right operator, I think that should probably be the last question those words top of the hour and I'd like to thank everybody, who joined US today and I look forward to communicate some of our good stuff. We've got in the hopper over the next several week. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.