Q4 2020 Euronet Worldwide Inc Earnings Call
Greetings and welcome to the Euro net worldwide fourth quarter and full year 'twenty 'twenty earnings conference call. At this time, all participants are in a listen only mode.
Later, we will conduct a question and answer session and instructions will follow at that time.
If anyone should require assistance during the conference. Please press Star then zero on your Touchtone phone.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Mr. Scott Claassen General Counsel for Europe net worldwide.
Mr. Coffman you may begin.
Thank you.
And welcome everyone. So your net quarterly results conference call.
We will present our results for the fourth quarter 2020 on full year 2020 on this call we have Mike Brown, our chairman and CEO, Rick Weller, our CFO and Kevin <unk>, the CEO of our <unk> division on the call.
Before we begin I need to call your attention to the forward looking statements disclaimer on the first page of the Powerpoint presentation, we'll be making today.
Statements made on this call that concern <unk> or its management's intentions expectations or predictions of future performance are forward looking statements.
<unk> 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.
You are on that does not intend to update these forward looking statements and undertakes no duty to any person to provide any such update under any circumstances.
In addition, the Powerpoint presentation includes a reconciliation of the non-GAAP financial measures, we'll be using during the call. So their most comparable GAAP measures now I will turn the call over to our CEO Mike Brown.
Thank you Scott and good morning actually a good morning. It is to all of you who have joined us today.
Im sure most of you would agree I am sure glad 2020 is behind us what a year it's been.
Net a global pandemic would create problems across so many fronts health economics politics travel work environments, PPE on and on and on and on to say the least 2020 was one heck of a year and I'm sure looking forward to moving on.
But before we do move on to 2021 I am very pleased with the performance of your net and all 8000 plus employees to make it through last year, not just to survive, but to thrive as a company as the old saying goes when you handed lemons make some eliminate well that's just what our employees did an.
Not by happenstance, but through hard work focus and continued investments on the right places and leveraging the vast portfolio of assets, we've built over the years.
<unk> for a minute about what you've already likely read on our earnings release, both our money transfer and <unk> segments grew double digits in both revenues and operating profit and posted record fourth quarter results impressive I think so for sure, especially when just a couple of years.
Or is it goes some folks counted.
And now in this fourth quarter, <unk> posted a brilliant 27% quarter over quarter growth now.
Now thats eliminate an ria, they processed and 18% quarter over quarter growth in money transfer versus the world Bank's outlook for 2020 at 20% decline that might even qualify as Mike hard eliminate so after such a <unk>.
LNG Nir if you sense Im excited Youre darn right I am we grew our business and what will surely go down in history as the most difficult year in a century and on top of that we are off to a great start in 2021, so let's get right into some more of this excitement let's start with the macro we have.
Ceded the earnings expectations, we had set in October as a result of the significant double digit growth in our EPS money transfer segment that included record setting fourth quarter results for revenue and adjusted operating income.
As you will see in the review of the quarterly highlights. These results are a testament to our continued digital transaction growth, our flexible and scalable technology and our talented employees, who are working harder than average to drive this business forward.
Now maybe with a bit of that Mike's hard lemonade, let's do some fantasy thinking for a minute.
Remember from 2013 32019, our Ft segment was a screaming success delivering on average a 30% plus profit growth every single year and beginning January and February of 2020, it looked like <unk>.
Would do it again.
So, let's just assume that ESP.
Stayed flat in profits in 2020 versus 2019.
Then if you take the ipe on money transfer for 2024th quarter results and add <unk> fourth quarter 2019 result, Euro net would have achieved a pro forma 15% quarter over quarter growth in revenue adjusted op income and adjusted EBITDA.
And this would be without any of the FTE growth we're used to.
This is among the reasons why I'm excited I'm also encouraged in my belief that the travel restrictions caused by the pandemic will eventually and vaccines are being deployed in herd immunity is growing.
We cannot predict when the pandemic imposed restrictions will be lifted on travel, but we do know when they are ft business will respond quickly and aggressively based on the clear evidence that we saw during the brief eight weeks when the intra Europe restrictions were lifted.
I am extremely proud of the earnings growth on EPA on money transfer and the flexibility of our ft Tim.
To manage our Atms on such short notice all of which was made possible by our strong balance sheet. So when the vaccines get rolled out borders open plain start to fly again in baggage carousel fill up we'll be ready to regain our revenue and profit results and blow them right out of the water So let's move on to.
Slide number six.
Despite a challenging year and the daily strength of the pandemic I'm proud to discuss two programs, where you are on it stepped up the first is our partnership with Amber alerts and Europe through this agreement we enabled the organization to publish alerts about missing persons on our ATM screen.
The program actually started in 2019 and expand into several other countries in 2020.
Given the number of Atms that we have through these countries. The publication of these alerts generated a tremendous amount of exposure for the plight of missing people.
And in Spain in 2020 alerts on our ATM on our ATM screens generated more than 450 phone calls and led to the location of eight missing people, what a fantastic use of our ATM network and another program Atms in the community is what we call it <unk>.
Filling a void that has been created in recent years as financial institutions have cut their Atms across Europe as bank branches closed many world citizens throughout Europe are left without access to cash unless they drive to another town through this program, we work with the town leaders to locate and maintained on <unk>.
<unk> in their city. This program has gained traction throughout 2020 with several Atms already placed on these rural location.
The response by local citizens has been overwhelmingly positive as you can see in the video on our website. So again and we have found plenty on ways to deploy our resources in 2020, and I am really pleased with the way our employees have stepped up and made a difference in the communities, where they work and we work and live.
And as a reminder, these examples still show the cash is very important so let's go on to the next slide slide number seven.
If you joined our third quarter call you might remember these charts that we have on slide number seven.
Our ft business started 2020, well ahead of 2019 through February our domestic business was 3% above 2019 on a road travel and international markets was up 42% above 2019, and our international Air travel market was $15.
<unk> above 2019.
Then COVID-19 hit in Europe closed for business basically and tourism came to a screeching halt beginning in the second quarter virtually all European countries closed their borders to all countries around the world on June 15th the EU agreed to open borders to its own countries beginning July one but not for <unk>.
Travel from outside of Europe. So during July and August ft experienced a nice little rebound before the lockdown started to reemerge in September country by country.
Graph number one shows that our domestic transactions were about 85% to 95% of last year's transactions and the July August time frame. This was significant because we reached these levels without a vaccine and while travel restrictions on restaurant and public gatherings remained in place.
Domestic withdrawals rebounded quickly as people began to move around using cash to purchase essential.
<unk> number two focuses on markets, where vacationers are more apt to travel by car.
Starting in July you will see a steady increase in transactions, reaching 50% of our prior year's volume in August.
In September the pandemic related restrictions were put back in place and our transaction volumes began to steadily decline. This graph shows the resilience of our business. It bears repeating that we achieved 50% of our 19 volume.
Well the restrictions were lifted with no vaccine on no international travelers at all flying into Europe, If you adjust our numbers to consider the international travel from outside of Europe, which represents approximately a quarter of our business. We would have achieved approximately 70%.
2019 results in July and August in these markets and graph three we see countries in which air travel brings in most of the tariff. This type of travel requires additional safety precautions reservations and generally more time to plan, 20% of 2019 transaction.
<unk> was achieved during July and August of 2020, despite the borders being closed for international flights into Europe, which as a reminder, new represents about a quarter of our business.
Graph number four shows that international travel matches closely with our international transactions and in fact, our results outpaced the international flight information.
So what does all this mean, our FTC business responded quickly when travel restrictions where he's.
Like many across the globe, we see some encouraging signs that the road to recovery has begun with the global deployment of Covid vaccine, we expect the easing of travel restrictions to follow and we know that when if not if not if this happens people will go on vacation the go to restaurants and they'll continue to use cash.
Cash, let's move on to slide number eight.
Because of the issues, we discussed around the pandemic and tourism ft was negatively impacted obviously.
At the same time, we didn't sit around and just wait for things to start happening. We aggressive we were aggressive in scouting new locations and continued to deploy nearly 4000 Atms in areas, where we think it makes sense to have them, including many Atms.
Debt, where targeted wins from the competition. Additionally, we also divested from nearly the same number of locations, which were not profitable. This mindful growing and pruning of art as state of Atms gives us a higher quality ATM fleet entering into 2021 beyond.
On individual ATM deployment, our team has had success entering into strategic agreements to get larger blocks of Atms.
Examples of that success include the December acquisition of the Bank of Ireland fleet of non branch Atms under the terms on this agreement we acquired 700 non branch ATM, which we will begin transitioning in the first quarter. Additionally, our dolphin debit team in the U S.
We renewed and expanded its ATM outsourcing agreement with Murphy USA for three years Murphy operate a chain of retail gas stations that are primarily located in close proximity to Walmart stores with this deal we will continue to service the existing 260 Atms.
And add more than 450, new ATM locations to our ATM network in the United States.
A few more ft noteworthy event in the quarter include the launch of an independent ATM network in Lithuania, and signed ATM network participation agreement, and Romania, Poland and Spain.
The agreements in Spain. For example include eight independent banks under these network participation deals the banks millions of card holders can access cash from their accounts using urine net thousands of ATM a recent industry trend shows that banks are closing branches as.
Banks close these brick and mortar locations Euro net provides an option for banks, who want to continue to provide ATM services to their customers, but don't want to be burdened with all the high cost of maintaining their own Atms. The agreements in Spain are one example of <unk> being well positioned to fill this marketplace.
Neat.
We ended the quarter with almost 38000 active Atms. This is about 8000 less active Atms and prior year. This decrease of 8000 active Atms as a result of 2500 low value Atms in India is shifting to the in source operations are on acquiring bank.
2000 high value outsourced Atms that were taken in house by a bank that operates its own op center something we shared with you a couple of quarters ago 3500, additional Atms, which were winterized due to the pandemic constrained volume. So there is still there just waiting to be opened up <unk>.
Creeping our total at the end of the year to nearly 8000, winterized Atms and to avoid confusion the Murphys and bank of Ireland. Atms are not included in these totals but will be added as we deploy in 2021 as we go on to 2021 where car.
Actually optimistic that will add around 5000 Atms for the year and you can see that we essentially have an installation backlog of nearly a fourth of that lined up beyond our own ATM network, we signed several contracts and launched many products and services such as payment processing switch and card management.
And pass through DCC services with banks and Fintech companies in Europe, and Asia, We were able to successfully launch these products and services by leveraging our Ren and Rev. Technology, We signed the deal with China construction bank per pass through.
Or SaaS software as a service DCC services on its 80000, Atms and we activated pass through DCC processing on Mastercard at 10000, Atms of Punjab National Bank in India. Finally, we signed an agreement with to come bank, one of the largest commercial banks and be it.
Non to provide pass through DCC services on over 1000 Atms in closing there is no doubt that Covid has had a profound impact on our ft segments. In 2020 looking forward, though the health of our core <unk> business remains intact for several reasons for starters we saw.
Our 2020 transaction volume, we're on pace for double digit growth for the months of January and February also the expansion of our business in 2020, and the resiliency of our ATM transactions when the restrictions were lifted in the third quarter underscore that the foundation for post.
Pandemic growth is in place. So now let's move on to slide number nine and then we will talk about ebay.
I am very excited with the pace double digit earnings growth and record fourth quarter results driven by the continued growth trends in digital media content and expansion of mobile content in certain markets.
This growth came from continued strength in our physical retail network as well as triple digit transaction growth in the digital channel growth in the digital channel resulted from our ability to deliver both mobile and digital media products to a growing list of mobile wallets Internet banks and E Commerce sites all made possible.
Through our industry, leading <unk> technology.
<unk> segment continues to innovate and grow with the diversity of product offerings and strategic partnerships in the fourth quarter, we saw strong triple digit growth in online sales of mobile and digital content in both South America and in Asia in the last couple of years, we've invested a lot of time in <unk>.
Resources to develop a platform for subscription renewal services. These investments are starting to pay off with new <unk>.
Multiple contracts and launch <unk> services in the fourth quarter and this quarter, we successfully provide technology to create a promotion bundle featuring recurring Xbox game subscription combined with our hardware purchase for Telstra in Australia in SK Telecom in Korea, we also.
Launch subscription renewals services with the largest tech retailer in Europe from Microsoft and Mcafee products, we expect the market for subscription renewal services to continue its growth trajectory, thereby feeling recurring revenue in lock step with renewals.
You can see here that we signed and launched a number of new digital channels, including per ask banking and grief online marketplace sharpie throughout Asia.
<unk> in Saudi Arabia, and flip cart in India amongst others. The agreement we signed with per ads is a five year exclusive agreement for the distribution of <unk> digital content, starting with Microsoft Sony Blizzard and Twitch on the Banks' Internet and mobile banking platforms as well as its peer has terminals.
We were also successful with new digital content, signing and launching new agreement from coffee and dating with Nespresso and tender to gaming and music with Twitch and Sony We have successfully partnered with these content providers and as I wrap up he pays outstanding fourth quarter, our pipeline of new launches.
Remains robust as we move into 2021 now let's move on to Slide 10, and we will talk about money transfer.
Slide 10, as I mentioned earlier I can't wait to discuss money transfers fourth quarter result revenue grew 18% operating income grew 38% for the quarter compared to prior year. These are fantastic results in a year, but during a pandemic even more impressive.
Keep in mind that many of our correspondent locations were closed for part of the year, excluding the U S domestic business free as international money transfers grew an incredible 24% in the fourth quarter and 16% per the whole year bear in mind that the world Bank forecasted.
Global money transfers would decline by 20%. This year, so growing 24% was a very impressive achievement. So how did we do it really there are four catalysts driving the growth for money transfer market share growth. One is our digital product second is our market leading position in the independent.
Channel. The third is the breadth of our physical sand and received network and number four is our industry leading.
Account deposit network first lets discuss our digital performance, we launched our mobile app in the UK and Spain. During Q4, and we now have digital solutions live in 21 markets as compared to four at the beginning of last year, our digital transactions were up 131 per.
<unk> for the fourth quarter and 103% for the year, 70% of our digital customers are new to our franchise, we achieved triple digit growth in digital transactions. Despite entering many of these markets only midway through the year.
Following digital is our market leading position in the independent channel. This channel represents around 60% of all family remittance in the market.
The independent channel accounts for re is strongest overall gains in absolute transaction numbers and market share are independent agents know our customers well and in fact, many where ria customers themselves. They were always available to help our customers through the pandemic because they understand their needs.
Needs, they give extra urgency to sending money to families depending on the money who depend on the money for healthcare rent and food <unk>.
Supporting the network of independent agents is a physical payout network of 464000 locations together with an operations team focused on agent and customer success. These are critical factors behind that independents channel growth of 36% during the fourth quarter.
<unk> and 23% for the year. Moreover, these same factors contributed to the 20% growth in principal sent to Mexico last year versus the overall market growth of 11%, we are certainly gaining market share.
Now how about our physical send and receive network. It expanded by 17% in 2020 to 464000 locations. We had one of our most productive years in network development. The team launched 24, new correspondents across 21 countries.
During the fourth quarter with some of the more significant agreements involving post offices in Botswana, Indonesia, Moldova and Romania the.
The Romanian post network was exclusive to one of our competitors and we will now give our customers better access to the $6 billion remittance market.
We also launched payout services with the Indonesian post Indonesia is a $10 billion market and our relationship with the post there will give us another 3500 locations in a market that is critical to serving our customers in Malaysia in the middle East.
Finally lets discuss our industry, leading account deposit network.
It too clearly contributes to our growth while building an industry, leading cash payout network. We were also hard at work constructing the largest directly integrated account deposit network in the industry and it too has been fueling our growth we see this as a critical.
Differentiator and now the tables have been <unk> with our competitors now chasing us over the past 10 years, our account deposit volumes have been growing faster than cash pickup while total principal transfer during 2020 grew at a very healthy 23% our account deposit.
Volume grew at an impressive 36%.
We see an outsized demand for bank deposit and mobile money accounts across our customer base as well as our digital customers customers prefer the convenience and speed, where the majority of our account deposit transactions are delivered real time under five minutes.
Today, our account deposit network offers the capability to put funds into three 7 billion bank accounts.
125 countries, yet that's $3 7 billion and we can land funds into 30 wallets held by over 200 million users in 20 countries. Most of our bank deposits are powered by direct integrations with banks and enabling us to optimize the product features such.
Speed account validation and transaction confirmation something that you do not yet using integrators or consolidated.
In summary, 2020 was one heck of a year from money transfer and the business is extremely well positioned to continue its momentum into 2021 and beyond let's move on to slide number 11.
Let's talk a little bit about tech here in this quarter, we will highlight the ran and Rab projects urinate implemented our unique pay as you grow a services model for Cosmos Bank, the second largest cooperative bank.
<unk> Bank in India, and this project includes modernizing existing payment systems, using our <unk> platform. Additionally through rent connect we were able.
To allow the bank to participate in the country's real time payment network. Previously we reported to you that we are live with the Ren Foundation in Mozambique, and the fourth quarter, we on boarded the second participant bank to the system.
We signed a deal with index and bank in India for a prepaid card system using our Rev payments cloud and another deal we are going to provide mastercard visa and Upi Gateway services through the technology of the Rev payments cloud for raise their pay which is considered a unicorn in India as <unk>.
Tech community, while Internet has a long history servicing banks. This deal illustrates again, how ran in Rev technologies expand beyond banking.
The Fintech community.
Let's go on to the next slide please slide number 12 first just take a look at the screenshots here on slide number 12, using Rev. The Amazon pay and Google pay wallets in India get access to <unk> services, including mobile top ups Bill payments gaming codes and other similar services. These are real world.
Samples that demonstrates how ran on Rev perform at the speed and scale to serve millions of.
Customers before we move on to the results portion of today's call allow me to emphasize that it is more clear than ever to see how our physical assets and technologies converge to provide added value for the company and our customers.
About our money transfer example that enables someone to securely deliver bonds from an app to our own global deposit network of $3 7 billion bank accounts and $200 million digital wallet users in real time without using the traditional card payment rail. This is an amazing accomplishment.
Can only be delivered by a company that has made a significant investment in technologies network and asset. It is also just one of the many advancements we are bringing to life on a regular basis.
So take note our company has a large player in the international payments industry, and we look forward to 2021 with that I'll turn it over to Rick.
Good morning, everyone.
Well I can assure you that I did not start my morning, with any of mikes eliminated.
But our share believe that we delivered a fantastic quarter, given the tourniquet applied to the travel industry.
So as I begin my comments I think it is well worth pointing out that one of the factors supporting our success in the fourth quarter and all of 2020 was the strength of our balance sheet. We started the year with $1 1 billion in cash and about $950 million available on our revolving line of credit.
For total accessible capital of a little over $2 billion and no debt due for about four years.
The strength of our capital position gave us confidence that we would not go under.
And more than that it gave us confidence that we could invest in important growth elements of our business and importantly, keep our most valuable assets on board our fellow employees.
We finished the year with more than $1 4 billion in unrestricted cash and about $700 million available on our revolving line of credit.
Nicely, maintaining them and improving more than $2 billion in accessible capital.
Despite the Covid induced challenges, we were able to produce free cash flow and added to our balance sheet strength. So as we go into 2021, our confidence is obviously increasing.
Like Mike and all others on our leadership team.
Are quite excited about the prospects of 2021 we've.
We've got the wind to our back and a long straight stretch of highway in front of us.
Before I turn this page I'd like to point out that the increase in unrestricted cash is largely from drawdowns on the revolving credit facility. Shortly before year end to facilitate effective cash management for year end payment and settlement requirements across many currencies.
Yes.
Debt.
And that draw was fully repaid as we crossed into the new year.
Next slide I'm on slide 15.
For the quarter, we reported revenue of 707 million operating income of $50 million adjusted operating income of $51 million and adjusted EBITDA of $92 million, we delivered adjusted EPS of $1 11, compared to $1 63 for the prior year.
As a result of the transaction declines and high value Cross border transactions in our <unk> segment stemming from Covid.
Next slide please on slide 16, we show you our three year transaction trends.
<unk> transactions increased 11% driven by increased point of sale driving in card processing transactions in Europe, together with payment processing growth for low value transactions in a customer's bank wallet and E Commerce site, partially offset by fewer.
Actions in Europe, and Asia Pac related to pandemic driven government restrictions ease.
<unk> transactions grew 61% from increases in Germany, and Brazil, as well as very strong contributions from Asia, which included a large volume of low value in App mobile top up transactions.
<unk> transfer transactions grew 9% from strong international outbound money transfer transactions in our large largest regions across most channels.
Offset in part by our U S domestic business.
Next slide.
On slide 17, we present, our results on an as reported basis quarter over quarter. Most of the major currencies, where we operate increased at low to mid single digit rates.
Euro increased 2% for example.
To normalize the impact of currency fluctuations, we have presented our results on a constant currency basis on the next slide.
On slide 18 now.
For the fourth quarter <unk> revenue declined 50% operating income declined 139% and adjusted EBITDA declined 98%.
<unk> by pandemic induced impacts of lower ATM transactions in Europe and Asia.
Especially high value cross border transactions across Europe.
Partially offset by more than $20 million in cost savings achieved in the quarter as part of the company's cost savings initiative for 2020.
Ebay revenue growth grew 22% operating income grew 13% and adjusted EBITDA grew 14% driven by continued strength in sales of digital media content and mobile sales through digital channels.
<unk> revenue grew more than operating income because a mobile operator increased retailer commissions from 6% to 9%. This increased our revenue, but not our operating income because of the 3% was passed to retailers as required by the mobile operator.
Money transfer revenue adjusted operating income and adjusted EBITDA grew 14%, 30% and 25% respectively. This growth was driven by strong double digit international <unk>.
Originated money transfer.
Revenue and gross profit per transaction expanded nicely as a result of a shift in transactions from lower value domestic transactions to higher value cross border transactions. It's worth repeating that we are very pleased with the strong double digit growth rates delivered across the <unk>.
<unk> and money transfer segments, while the travel restrictions continued to weigh on our ESP business.
We will refrain from giving official guidance because the changes to the movement restrictions border openings in the ever.
<unk> are ever changing and the economic recovery from Covid remains uncertain.
However, we do believe it is important to give you a couple of data points to help frame expectations.
We would expect first quarter consolidated revenue to grow at the upper single digit range compared to the prior year first quarter.
From these revenue levels.
And continued careful expense management actions, we expect that the first quarter EBITDA will be in the range of $50 million to $60 million.
Now, let's go to slide 20 for a few comments on the full year.
For the full year, we reported revenue of $2 $5 billion.
Operating income of $47 million, adjusted operating income of $153 million and adjusted EBITDA of $302 million.
As you likely read in our press release operating income includes a $107 million impairment charge related to certain entities.
This charge has been excluded from our adjusted operating income adjusted EBITDA and adjusted EPS to facilitate comparisons to the prior year results we.
We delivered adjusted EPS of $2 82.
Compared to $7 one per the prior year again, the result of transaction declines stemming from Covid.
I'm not going to get to discuss in detail. Our annual results on slide 21 through 23 as the full year explanations are very similar to what we have discussed for the quarter.
<unk> and money transfer had outstanding results, while the EFT segment did an admirable job managing through the Lockdowns.
With that I'll turn it back over to Mike <unk> for any final comments.
Thank you Rick.
With this crazy year that was a lot of information to absorb that said I think it all explains my excitement at the beginning of this call. We have just exited what is perhaps the most difficult year for business on the history of the U S and the world and yet we have so much momentum to discuss to recap.
Our key decisions in early 2020 enabled us to take advantage of opportunities we did not ultra conservative in our planning we did not lay off our people, but we did it aggressively look at where we could manage down our expense, especially in the <unk> segment to lineup with travel restrictions from the start of the.
<unk>, we rely on the strength of our balance sheet to grow and invest in our business and in the end, we pulled together and performed admirably in the face of some very difficult circumstances, it's worth repeating that two of our three segments reported fourth quarter.
Our record results. The lemons were turned into eliminate maybe even my Mike's hard lemonade, so as I close.
It truly was my pleasure to spend this time with you today to talk about our performance in 2020.
If you accept X if you sense that this excitement.
Is real that's exactly what it is I am excited for all the reasons, we just covered but especially because we have two segments that have grown double digits and we know eventually people will go back to their travel retained.
Driving around flying around and spending cash in the short term. We know we can't do anything about the rolling out of these vaccines, we will leave that to the scientists the medical community and the government to determine that said I know one thing that we can do in the meantime, and thats to execute we proved it in 2020 and what's on.
All of this momentum we have even more confidence that we can deliver on all of our strategies as we move forward. So goodbye to 2020, Thank God and bring in 2021, you're a net is ready and now we'll be happy to take questions. Operator will you. Please assist.
Thank you ladies and gentlemen, if you have a question at this time please price.
And the number one on your Touchtone phone.
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Your first response is from Darrin Peller of Wolfe Research. Please go ahead.
Alright, Thanks, guys and nice job really managing through what was a pretty tough year for everyone but.
And when we think about the trends on the ft. Seven day here and we're seeing quite a bit of announcements you guys had on the Spanish bank side, and obviously a lot going on in Asia as well.
Mike we've talked about this before but structurally speaking.
For instrument of bank branches should lead to more opportunities for you guys and I think you touched on that too. So when we look forward you said 5000 I believe in terms of incremental for this year.
When we look at 'twenty, two or just maybe medium term.
Is there an opportunity in your mind to get above the run rate you were at before based on what Youre seeing with the Spanish banks.
Just really what youre seeing in the industry and maybe you could also expand on what's driving these new Spanish bank announcements yesterday as well as some of the other some of the other announcements in Asia.
So.
In Europe, the big trend is for banks to close unprofitable branches and the.
The balance sheets of the banks in Europe are pretty crummy, so they're trying to rationalize their cost structure. So they are closing branches and with them goes on ATM. So then they leave their customers kind of out on the call about being able to get cash. So that's why they would find these network participation agreements with us in fact, we did that with <unk> Bank, which is the big digital.
Bank in Spain.
A years ago, and we continue to do this more because the people still need the cash and so what they do is they put our their ATM on our.
Theyre put their card in our ATM and we treat them as if they were one of those local bank and network participation agreement customers and so that solves kind of the issue with the banks that allows them to <unk>.
Not alienate their customers as they kind of pare down their physical presence.
And we will we will continue to see this.
For a long time.
Net.
And it was projected in 'twenty this before the crisis, but in 2019. It was projected that 25% of all the branches in Europe banks would be shut it over the next three years I'm not quite sure what Covid did to all of that because everybody was kind of gone, but still plan on more and more people closing and that gives me more off.
<unk> because as I continue to grow my network bigger.
On the obvious choice because really nobody has an independent network anywhere near what we have in any of these countries.
I would add to that as you just take a look at the ATM penetration around the world. The farther east you go the lighter at GAAP and the farther east you go the heavier the concentration of cash based economies and when you take a look at our network.
Principally in Europe, going east and so I think that that adds yet to the opportunity for us to deploy as well as pick up.
<unk> Atms that that essentially are are being vacated by the banks because they've got the fintech competitions in things like GAAP and to add to that that you didn't ask it but this also drives more outsourcing opportunities for us we've seen them in Asia, we're going to start to see more of them elsewhere.
But these banks are trying to rationalize their cost structures on we can do it cheaper than they can.
So getting back to the 22 levels you should've gone to assess if the pandemic didn't occur as something that in your opinion is that still on the on the horizon.
2019, we added 4200 Atms were projecting about 5000. This year. So we're already off to the races, you might say and that could definitely increased particularly as we open up more new countries and and Youll notice that we said that we.
We added about 4000 and <unk> installed about the same amount we.
The lighter traffic those let's call it marginal or sub par performing Atms, we weeded out so theoretically we're going into this year with a higher quality of state.
So we still added nearly that four or 5000 Atms this year.
Took out some low performers so I think going into the year, we're in a little better stronger position.
Because of the weeding that we did during the year.
And just very quick follow up Rick on the margin side. I know you guys were calling for sequential decrease in margin somewhat but youre still on the upper teens range for money transfer and then even the EPA. When we look at the margins. There are 15% I think we're up there among the higher margin so any color on sustainability there.
What's thought what the thought process is on margins for first quarter. It just seems a little conservative sales. Thanks guys.
Well.
<unk>.
I think it's always hard to out guess what happens in the competitive marketplace out there, but but what we've seen is a number of things here on both the EPA and on the money transfer business.
Been able to target channels that have good margin opportunities in them, that's given us the ability to continue to shift our mix more favorably to the better margin products.
And we continue to add.
Mike pointed out like an ebay more prospects on the drawing board to bring in if you think about EPA in some respects what we're really doing is we're depositing payment in paint.
We're processing deposits into accounts and payments out of accounts and whether youre talking about online purchasing which really is.
Delivery of our physical product, we're really dealing with it in the digital format of getting the money into the accounts and then processing payments on the other side depending on what.
Brand, we're working with so I think we've continued to see those opportunities to take advantage of channels, where there's better margin. We were certainly helped in the in the money transfer business by the fewer domestic transactions, because they're lower price lower value, where we are.
Placing those with more cross border transactions higher price higher value.
So I think we'll continue to see strength in that area.
I know we had a great expansion this quarter, it's always hard to out do those quarter after quarter, but the money transfer team has done a great job in that regard.
Great.
Hey, guys.
Thank you. Your next response is from Andrew Schmidt of Citi. Please go ahead.
Hey, guys Hello, Andrew Thanks for taking my Hey, Thanks for taking my questions and good job on the continued resiliency here.
So starting off with the question on.
<unk> segment I'm wondering if you could help us walk through kind of the quarterly cadence.
Yes.
EBITDA I know, it's a little bit.
Figure with the travel will probably but obviously you have some pretty easy comps given the trough from the second quarter. So is there any commentary just help us think about the.
Quarterly cadence in particular as it pertains to the second quarter recovery off debt easier year over year compare would be helpful.
So so a couple things to remember and Thats one of the reasons are Q1 compared to last year is a little on the weak side because don't forget we started add ft last year in January February we're off to a screaming good start and then it just got shut down by March. So we're not going to have that all three months of this first quarter so that.
Some pressure on it but our typical cadence is that we have about 65% of the of the EBITDA. That's generated in ft is generated in the second and the third quarters combined on that other 35 percentage split between.
Four in one that's about right, Rick well with one being the.
Really weak weaker against before there, yes, yes, yes, so it's really kind of like.
Net.
The steps are kind of like 1423 right.
If you will in terms of the momentum that we gained.
Okay got it.
That's helpful. And then just on Rev payments cloud I think you.
Our capabilities in supporting Fintech, whether it's PSP as a digital wallet. So I'm not sure that that's quite well understood. I'm wondering if you just just briefly walk us through kind of the key things that you'll provide to fin techs, whether it be a real time deposit whether it's issue issuance processing acquiring theres a wide range.
On the services you just help us understand kind of your positioning with SaaS roofing text that'd be helpful.
Yes, Andrew this is Kevin so basically we do transaction processing and we provide all of our products from your net through a set of API to these interested parties and so the so if you think about it really it's about providing the services from your net.
And the products from your net all through a set of of API that can be easily digested.
Either by banks or buyer.
Our financial institutions Fintech firm index.
One of the the real values of crossover into play here is that with the technology. We're not just using old technology. You know if somebody wants to do things like multi factor authentication, we can do it through sending stuff to the old ways like two <unk>.
Messages or we can do biometric authentication, our technology is capable to handle that type of stuff and we can overlay that with products. So it's not just that a party can get their transactions processed they can take delivery of product and make money on it too. So I think that in many of those especially where we are.
Seeing these literally millions of transactions, we're both doing we're both delivering them a technological payment processing function and we're putting in with the product, which is a great way to make the cost side more efficient and make more money on the product side, Patrick I agree with you Andrew.
As more and more people start to understand the industry starts to understand our capabilities. The interest continues to grow and our Rev payments cloud well and customers are coming our way because they recognize that we have modern technology.
And that we are we really have the only modern technology of them of a modern payments company.
And so people are coming our way because it's quick and easy connects and quick and easy solutions.
Got it thanks, a lot guys I appreciate the thoughts.
Thank you. Your next response is from Chris Schuttler of William Blair. Please go ahead.
Hi, guys good morning.
On the on the first quarter.
Guidance, maybe just could you give us a little more detail and your expectations by segment at least at a high level and then on.
On on ebay.
Typically you called out the $10 million of pass through revenue.
Should we think about profitability off of ebay going from Q4, which I know is seasonally strong into.
Into Q1.
Well.
Chris I mean first of all.
On not unlike.
Ft, all of our all of our segments, the lightest quarter as first quarter.
So.
We typically will step down from fourth quarter and the EP segment that you are specifically talking about is we see the benefit retail seasonality for holidays, you've got you've got Thanksgiving Christmas you got new year and all of that stuff drives additional volume then you kind of go.
You kind of go into a bit of a hangover into the into the net into the year, where people have already talked all they need to delivered their presence et cetera.
But there again is as Mike mentioned and you've heard US talk about before we've got a growing suite of products that do things like the recurring payment, where we transition from a one time purchase of our software to being a recurring payment on a monthly basis and so.
That kind of helps bring a little bit more stability to us, but again not different than in the prior years and you can look at what the the transitions from fourth quarter to first quarter events. We would expect similar kind of transitions. This year in the <unk> business, we havent put out numbers on what we think.
The growth rates are going to be from each of our respective segments. We tried to give you a high level number there, but I think it's consistent with what Mike said is we've got good momentum going in money transfer business and EP business and we're still dealing with the with the <unk>. That's applied in travel. So I think the kind of cadence of what <unk>.
You saw in the fourth quarter will be similar going into the first quarter at kind of some of the historical first quarter trends.
Makes sense, Okay, and then just.
Couple of real quick follow ups just on on ebay.
Recurring subscription piece or recurring piece of ebay.
How big is that as part of overall revenue at this point and then on the <unk>.
Ft segment.
I noticed on the ATM deal with China construction Bank for DCC pass through really big number of Atms. Just can you help us think through the economics of the pass through DCC business again, thanks a lot.
In the past through what we do is we share a percentage of those transactions with the with the bank.
In the case of this this one in China, you're right 80000, Atms as an impressive number and as you can fully understand the travel lockdowns to China are in place just like all the other countries. So.
I have to see kind of how they emerge back out of that but.
It's the it's a huge a state of Atms.
I would tell you that the lion's share of the economics of that go to the bank as opposed to us.
So in the in the analogy of building a building.
This isn't another wall in the.
In the building it's another brick in the wall. So we think it'll be a nice piece of business as they come out of the pandemic and start traveling.
But again, it's another addition, another layer into the story.
We have over 200000 Atms owned by banks.
Up in a similar way as that Big Bank in China.
So again, it's there it's there.
Our Atms.
It's their footfall.
Get the lion's share of the DCC profit, but we get a nice little chunk ourself are getting this organized and remember this is a SaaS type of a product okay.
We connect it run it through our software.
And there's really no incremental cost to it and then the first question you asked Chris about the mix or the weight of the recurring payment stuff at this time, it's still a small part of it we really kind of started getting into this only a couple of years ago. We had more success last year you may remember one.
The first ones we talked about.
Probably two years ago was was working with Microsoft on some of it and that was really more of an annual subscription thing. Another one that was noteworthy was when we went into with Apple care and the target stores and then this year with the.
With the combination of of of gaming.
Mobile data et cetera.
And so it's still a small part but as it is just like digital and non mobile was if you will years ago Youll start somewhere it's not a huge part, but it's growing and growing each year. Chris. This is Kevin we have a pretty nice pipeline.
Opportunities that we'll be launching through 2021 are related to this recurring payment solution, probably theres seven maybe 10 10 different new markets something like that.
Great.
And operator, I apologize to everybody that it is already on the hour will allow one more question.
And then we will have to break and let you get back to your jobs.
Okay. Thank you. Your next response is from <unk> Kumar of Evercore. Please go ahead.
Good morning, Mike and Rick Thanks for taking my question.
In October you announced two big money transfer wins krogers. The Aston Martin can you help us understand how those rollouts are going what types of trends youre seeing in transactions.
Both of those retailers and second you had a competitor recently announced in your relationship with Walmart.
Do you expect on the impact.
From that relationship.
Your relationship with Walmart.
Okay. So.
We're not quite sure what to expect with the Wal Mart announcement, we do know that.
That western Union, and Moneygram or kind of similar in their approach to the market and their pricing tends to be a little bit better.
So I don't know if they'll be.
Making life more difficult for us or for the other income, but so I just don't know quite yet and I don't even think thats quite live yet.
It is but just barely.
But we've been growing every week at Walmart, which is good on Kroger. We just basically started there just say even putting their signs up in their stores.
Announcing us.
As a money transfer solutions, because they've had western union for a decade or more.
And those signs are going up I don't know within a week of now or maybe it was last week. So it's just it's just starting and we don't have any significant.
Addition to our P&L yet.
And Ryan I would just add as debt.
In the Walmart our competitors getting after the international side of it and you may recall it wasn't long ago that we announced that we were given an entry year.
On the international side, and then it wasn't long before long after that that Covid hit and so.
We didn't.
Add a lot of international business out of Walmart So.
If we didn't add a lot then we probably arent going to lose a lot right. So.
Yes.
It may be less impact than what one might think.
Very helpful and if I can just add one last question in there.
So with that.
<unk> ecosystem, you've made some real headway with Mozambique.
Could you help us understand what kind of pipeline you could potentially see for.
Adding <unk> additional central banks in 2021.
So remember there's two there's two pieces to ways that ran can do it we could actually do the real time payments for that Central Bank.
Or we can't if they've already there's about 45 to 50 countries right now who have a real time payment system.
But they have very little very few banks that are connected to it because it requires different kinds of connections on the <unk>.
Old fashion Isa, 84% 83 connections.
And so that's where rent that's where rent connect comes in and we are signing those deals kind of left and right right now and we'll have more announcements on them next quarter, but.
That may end up being.
The biggest opportunity for us in the short short term is just going back you might say back filling into the countries that already have an RTP and allowing now banks to connect so thats kind of where we are.
Okay with that I think yes, thank you ranga and with that operator I'd like to.
And the call and thank everybody for their time on the call today.
Look forward to seeing you in about a <unk> <unk>.
90 day.
Ladies and gentlemen. This concludes today's conference. Thank you for your participation and have a wonderful day you may all disconnect.
Alrighty.
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