Q2 2021 Euronet Worldwide Inc Earnings Call
[music].
Greetings and welcome to the Euro net worldwide second quarter 2021 earnings Conference call.
At this time all participants are in a listen only mode.
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It is now my pleasure to introduce your host Mr. Scott Coffin General counsel for.
For your on net worldwide. Thank you Mr. Clawson, you may begin.
Thank you good morning, and welcome everyone for your net quarterly results conference call today, we will present, our results for the second quarter 2021.
On this call we have Mike Brown, our chairman and CEO, Rick Weller our CFO.
And Kevin <unk>, the CEO of our <unk> Division.
For we begin I need to call your attention for the forward looking statements disclaimer on the second slide of the Powerpoint presentation, we'll be making today.
Statements made on this call that concern <unk> or its management's intentions expectations or predictions of future.
<unk> performance are forward looking statements <unk> actual.
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 second slide of our presentation.
Your net does not intend to update these forward looking statements and undertakes no duty to any person to.
Any such update.
In addition, the Powerpoint presentation includes a reconciliation of the non-GAAP financial measures, we'll be using during the call to their most comparable GAAP measures now I will turn the call over to our CEO, Mike Brown Mike.
Thank you Scott and good morning, and thank you to everyone.
Who is joining us today.
I will begin my comments on slide number 5.
As I kick off the quarters review and knowing the Olympic games, just commenced I can't help but to borrow some words that might be used during the boxing matches to describe some of the outcomes. So here. We go in our case at <unk>.
To provide 50, the EPA on money transfer segment punchy.
Punching above their industry weight class.
<unk> second quarter results and double digit revenue and earnings growth rates and all of that to say the least those are some olympian results before I get to the operating results for <unk>.
Sure Greg.
Have been with us for a while you know that 1 of our greatest strength is the diversity of our business diversity and product distribution channels geography and employees.
This diversity can create nuances in the business that make it more challenging to understand when you don't live.
Those of you that every day <unk>.
I wanted to start with the Punch line and then I'll fill in the detail.
<unk> has a strong financial technology company that is ever evolving to be able to continue to deliver the same strong growth trajectory that we have historically.
<unk> achieved.
As I said EPS.
<unk> and money transfer just delivered record second quarter results across all of our reported financial metrics.
Net transactions in our <unk> segment have proven resilient when borders open and movement restrictions are lifted and we have developed brand a world class technology platform.
That has allowed us to.
Stay on the cutting edge of payments trends to take advantage of the ever changing digital landscape.
All of which is made possible.
Because of our strong balance sheet.
I think the fact that we can talk about money transfer any pay earnings in the midst of ongoing Covid pandemic is.
Marketable it is a true testament to the dedication and abilities of our Olympic champion team to stay committed to our long term growth plans and to our conservative financial management, which has given us the balance sheet to retain our employees and continue to execute on our plan.
EBIT.
Remembered its fourth quarter.
Double digit growth from continued sales of mobile or digital media content through both physical retail and digital channel.
Money transfer also delivered a fourth consecutive quarter of double digit earnings growth as a result of continued network expansion.
Dylan.
Allowed for strong double digit growth in U S outbound international and digital transactions.
Technology is really at the core of who we are we have always lead with technical innovation and our development of ran has allowed all 3 of our segments to advance.
Vance our payment footprint, while also offering our customers cutting edge payments technology the.
<unk> results continue to be a bit uneven as travel was slower to resume due to uncertainty around the ever changing policies on border openings in Europe and slower than expected.
Spanned nation rates around the world.
Despite the unevenness the transaction levels improved as we moved through the second quarter with the strongest improvement in the last couple of weeks of June.
Now, let's go on to slide number 6 where we have provided some data points to help you better.
Better understand the transaction trends, we're seeing in ft.
Slide number 6 this is really a great graph I am sure Youre asking the same question that we are when will travel returned in like 2019 levels. As you know when we entered the second quarter. The news in Europe was very optimistic.
<unk> that most of the EU would reopen their borders for both EU and non EU traveler.
And the EU Commission was confident that the majority of EU citizens would be vaccinated by the end of June.
As we move through the quarter it became apparent that the EU vaccination effort was lagging its target in.
In fact at the end of June only about 45% of the adult population in Europe was fully vaccinated that slower vaccination rates and uncertainty surrounding the emergence of the Delta variant of COVID-19 in Europe.
Second quarter caused constantly changing requirements on quarantine.
<unk> restrictions.
This led to unpredictability for travelers and a fear of getting quotes stock you might say in a country, which in turn resulted in a slower return to travel than we expected early in the quarter or in some cases as we have seen.
Curtailment of a trip to.
To return home before more stricter quarantine requirements take effect.
That's the bad news. The good news is is that people want to travel that's pretty clear, they're going to travel and they can't wait to travel again.
The Airbnb CEO and co founder Brian Chesney recently.
We went as far to say as he expects to see a travel rebound of the century further United Airlines CEO, Scott Kirby stated that he expects business and international travel demand to recover to 100%. This confidence is supported by United's unveiling of a $30 billion aircraft order.
Along with hiring of 25000 employees to support the new plan as the carrier navigate its post pandemic growth and it only makes sense. We know that there is a pent up demand for travel is people have delayed vacations for at least a year and that economies of the tourist countries depend on travel.
<unk>.
So as we see vaccination rates continued to improve and more consistent behavior on border openings in quarantine requirements and countries around the world people will travel with.
With the return of travel our ft transactions also returns.
On this slide.
<unk> you can see the eurocontrol traffic data with our cash withdrawals imposed upon at.
What this shows you is that when you have airline bookings with borders opening and no quarantine restrictions our international ATM transactions have bounced back very strongly and in fact as the.
<unk> for illustrates that trajectory of our ATM transaction response quicker than the actual traffic control data, while the international transactions aren't back to the 2019 levels. They are considerably better than 2020 last year. Moreover in July of this year, we're running about.
Charles the transaction rate compared with July of last year.
As you May recall last year, we shared with you. The fact that we saw an increase on the average size of a cash withdrawal. While this year, we're seeing yet another increase in the average withdrawal amount confirming the travelers.
<unk> cash maybe even more in times like these with all these uncertainty.
It's also important to note that in both Europe and Asia as movement restrictions have been lifted within a country domestic transactions have rebounded more quickly and significantly than the international transaction.
Dell another data point, indicating that both domestic users and international travelers will still use cash at similar or better than pre pandemic levels.
So while the recovery in FTE hasn't been as robust as we anticipated last year or even early in the <unk>.
Second quarter of this year, we remain confident in our belief that travel will resume and people will still need cash while they travel.
Transaction trends in FTE may continued to remain uneven for the rest of 2021 as the vaccination efforts continue around the world and countries continue to deal with the more contagious.
<unk> variance of the virus. However, we are monitoring the situation in each market carefully and as you'll see on the next slide we are reopening our Atms and they are ready in order to ensure tourists.
Convenient access to cash when and where they need it next.
Next slide please slide number.
He will give you a few more highlights from our EFT segment over the past several years. We've updated you on how we have built the largest cash deposit network in Poland, making cash deposits safer and more convenient for retailers in the country. This quarter. We further expanded that network signing network participation agreements.
711, new merchants in the country.
We were able to extend and renewed several agreements, including our network participation agreement with Libra Bank and Otp Bank in Romania, as well as our ATM outsourcing agreement with first service credit Union in the United States.
As I mentioned before we are confident.
And our belief that there is a pent up demand for tourism and tourist want cash when they travel we have continued to invest in our ATM network, having added more than <unk> hundred high value Atms, So far this year.
During the quarter, we reactivated more than 6000 of the Atms that had previously.
<unk> within close our teams have ensured our Atms are ready to capture that tourist traffic as it comes back.
We also lost about 600 outsourcing Atms that were largely taken in house.
At the end of the day, our network is stronger than ever and we have an estate of more than 46000 Atms.
<unk> is borders opened we.
We expect that we will reactivate all but about 800 of our Atms as we go through the third quarter, which will leave significantly fewer not activated than the roughly 4300 that remain closed through the third quarter of last year.
While 2021 has been a more uneven than we expected. We are pleased with the uptick in transactions. We are beginning to see we anticipate that we will be able to exceed the 2019 earnings results in the near future. Because we have used this time to make our existing network stronger and we have.
We're at 13% more euro net deployed Atms in more markets than we did in 2019, it's just a matter of when people are able to travel.
And in the spirit of optimism just this morning, we learned that the UK has announced its opening 2 all fully vaccinated.
<unk> U S and EU traveler.
Good news as I close on the ESP segment now.
Now, let's move on to slide 8 and we'll talk about EPS.
Okay. So <unk> growth in the quarter as highlighted by our continued focus on expanding our product portfolio, our network and distribute.
<unk> channels, where we sell this content.
E based product mix remained stable with approximately 72% of the gross profit from digital media content.
This slide includes a list of some of the new agreements, we signed and launched during the quarter.
I'll just mention a few of these agreements.
Following our acquisition of <unk> of the AT&T agreement in the third quarter of last year, we were able to launch prepaid mobile activations for the first time through At&t's subsidiary brand cricket wireless here in the U S.
We furthered our partnership with Microsoft by adding Microsoft 365 subscription renew.
Renewals through the mobile operator, vivo in Brazil, as well as 2 of the largest electronic retailers in the UK Dixons encourage PC world.
We continue to expand the channel through which our digital media content can be sold this quarter, we partnered with resolute.
Our fintech Super App based in the U K to sell digital media content through their app.
In India, we continued to expand on the multi category relationship we have created with Amazon pay enabling bill payments through the India Bill payment system.
Finally in Singapore, we launched QR code.
<unk> based staging and delivering a Microsoft Xbox codes to customers on smartphones and agi stored in.
In addition to these launches we signed several new agreements during the quarter. These include an agreement to distribute gaming content through Kaboom and E Commerce electronics retailer in Brazil, we are.
Signed an agreement to distribute Netflix with selected partners and Malaysia, Our Ipe team continues to focus on leveraging our technology, which gives us the ability to quickly add content grow our geographic presence and expand new distribution channel there.
Also success is highlighted by the record second quarter revenue and earnings that day pay delivered now let's go on to slide number 9 and I will talk about money transfer.
Slide number 9 with.
With 36% U S outbound transaction growth for.
84%.
<unk> growth and overall international outbound transactions and 74% growth in direct to consumer digital transactions, our money transfer segment delivered a very strong quarter.
However, it's important to remember that this quarter compares to the Covid impacted Q2.
For saying next year.
So to point out the consistency of the strong money transfer growth rates, when we calculated compounded annual growth rate since the second quarter of 2019, we see that the U S and international outbound volumes of money transfers grew at 23% in <unk>.
Overlap percent CAGR, respectively, when compared to 2019, driving double digit CAGR expansion in revenue operating income and adjusted EBITDA I would say, that's a pretty stunning expansion under the circumstance in an industry that only will barely recover too.
<unk> thousand 19 levels this year these.
These results are only achieved through continued hard work to grow our network, both digitally and physically more agents more markets more products more channels.
And all summed up together equals more success.
Our retail network now.
<unk> 490000 locations for cash pickup across 160 countries and we are connected to approximately $3.6 billion bank accounts for accounts deposits. This expansion included the launch of 17, new correspondents in 14 countries during the quarter.
Including service to more than 1000 branches of the bank for investment and development of Vietnam 700 locations to the Vietnam Post 1300 locations with United Bank Limited in Pakistan.
<unk> also added service to Lebanon through our partnership with Otp FAL.
We continued to expand our mobile wallet network, which now includes 220 million mobile wallet accounts in 23 countries by launching service with 5 new wallets in Senegal, Ethiopia, Malawi Gambia in Nepal.
We also signed agreements with 22 correspondence and 19th.
Country that will launch in the coming quarters, 1 of the more notable agreements as was BTB in Russia. This is <unk> first direct partnership in Russia, and will help expand our network across the entire Cif and eastern European region.
We are also excited about our agreement.
<unk> TP, our national payments processor, which will facilitate real time, corporate and individual payments to all banks in Mexico as well as instant payments in Brazil to the country's new Pis are pics real time payments network through our previously announced partnership with.
Banco regimental.
As we have mentioned over the last couple of quarters.
The expansion of our digital network has been robust and 1 of the keys to our success through the pandemic. We further expanded our network with the launch of Ria money transfer App and Chile.
The success of this expansion as evidenced.
And our 74% direct to consumer digital growth in the quarter as well as year over year growth and digital account deposit transactions and volume of 61% and 70% respectively.
If you recall from our call just 2 quarters ago our account.
Transactions and volume grew 31% and 36%.
So we are seeing an acceleration of consumer adoption of account deposit services, which now make up about 28% of our total cross border volume.
Aside from the stellar growth that you've been seeing in the money transfer.
Deposit segment, driven by our core business and our digital endeavors. We've also been very busy upgrading and enhancing our network and our our payment network for multiple use cases beyond just family remittances you.
You will notice that we announced that XD can now send business payments from <unk>.
<unk> for the businesses delivered by <unk> network.
What is very exciting inside that comment is that now <unk> network has enabled payments into business accounts not just individuals we.
We have mentioned to you that we believe Ria has the largest bank accounts deposit network in the industry.
Reaching more than $3.6 billion bank accounts across a 125 countries with a big portion of it already with real time payments capability.
If you picture that network fully enabled to deliver payments into business accounts and.
And with our Ren technology acting as a front.
Consumer to access it you can quickly start to see that we intend to expand far beyond a single purpose family Remittance networks, Inc.
In today's.
Environment when technology has enabled instant communication people now expect the same for their payments we have direct connect.
<unk> for the majority of these bank accounts, which guaranteed payment and second.
And because these payments are on our network on our payment rails and through our infrastructure. We are able to provide a more efficient means to send these instant payments with more effective cost structure, which opens the door to a much.
The largest total addressable market or Tam as it's referred to for the money transfer business, which we are morphing into an international payments businesses and that is really exciting and monetary terms. The family remittance Tam is about a $700 billion business.
Which compared to.
National payments business, which is measured in trillions of dollars as I said, we have been very busy and working on this for quite a while and I look forward to sharing more news about this in the near future. Please.
Please move on to slide number 10, and I'll talk a little bit about risks we have.
For the internet to gain even more traction in selling our leading edge technology to external customers as.
As you will recall last quarter, we announced an agreement with standard chartered Bank, which operates in more than 25 countries, where the bank selected <unk> ran technology as their payment stack to be offered as.
Continued their banking as a service model launch in the Indonesian market. This quarter, we expanded our partnership with FCB in their largest market Hong Kong under this project <unk> will be modernizing the banks payment stack using our <unk> technology in a multi phased product project excuse me, which.
We'll cover replacing the existing payment switch card processing and ATM driving system the.
The first phase of this project is enabling the bank to launch multi currency debit cards in Hong Kong, which is scheduled to go live within the third quarter of this year.
In todays times where customers.
Pardon me and absolute convenience and real time payment experiences. We're excited to work with banks like SBB to help them deliver superior digital experiences to their customers with our modern and cloud native technology.
Second as we have told you on previously calls we have.
<unk> ran connect a derivative of the ran ecosystem of payment application that enables banks to participate in domestic real time payment schemes and provides various overlay services to provide superior payment experiences to their retail and corporate customers.
Last quarter.
Developed the deal with 1 of the largest banks in the Philippines. The bank of the Philippine Islands to enable them to connect to the real time payment scheme of the Philippines, which they call instant pay.
This quarter, we received an order from another bank called Security Bank Corporation in the Philippines, where the euro net rent connect will enable.
We and the acceptance of real time payments for the banks merchants and corporate customers using QR codes.
This solution will allow the banks corporate customers and merchants to digitize cash in their day to day operations by collecting payments from their customers <unk> suppliers using QR codes as the.
<unk> factor instead of traditional Pos devices, and the underlying payment rail on which these transactions will be routed and settled will be instant pay.
In this project <unk> will connect the bank to enter to pay using <unk> connect and provide solutions for the bank to enable them to onboard acquired merchants.
These solutions range from merchant mobile App to a portal for managing the lifecycle of merchants, including the generation of compliant and secure QR codes transaction and fee limits reporting and more.
During the quarter, we also launched card issuer processing services.
Services for bank <unk> in Indonesia, Zhengzhou is a publicly traded Indonesian lender, who has a lineup of mark key investors like GIC, which is Singapore's sovereign wealth fund the ride hailing and digital payment services from go Jack and others <unk> is a full digital.
Bank embedded in Indonesia digital ecosystem for <unk>.
Fill the needs of the middle and mass market segment.
On the back of its strategic partner with its strategic partnership with <unk>.
Customers will be able to open bank accounts through the <unk> app, providing <unk> the opportunity to offer loans.
Loans and other financial services to tens of millions of <unk> customers.
Going forward <unk> is planning to target more such partnerships with travel site e-commerce platforms, and so forth through which it will offer financial products and services to the customers of these platforms.
For every such accounts that gets opened euro net through it to Rev payments cloud will provide processing services for both domestic and international transactions from these cards.
To see this in context, Indonesia is 1 of the most underbanked markets in Asia with 50% of its 2.
270 million population without a bank accounts, you have more than 70% of the population as a smartphone and are rapidly being accustomed to using digital payments through wallets, representing a huge opportunity for digital banks like Zhengzhou to partner with these platform and convert these wallet customers.
Summers to bank account holders and provide financial services for them.
For our part we are given the bank an entire next generation fintech structure.
Established accounts processed transactions and more.
It is a modern banking platform established using our financial technology solutions.
This launch on the back of a few recent wins like <unk> digital bank in the Philippines go pay which is <unk> wallet in Asia positions <unk> as a trusted and reliable payments processor for Fintech and digital banks.
Finally, we signed an agreement to implement ran self service on 14.
At Atms for JSC, <unk> bank and the Ukraine.
<unk> self service provides customers with the most modern ATM driving system available.
We are excited about these technical technology development and we're excited to enabled these large financial institutions.
<unk> had only compete with the emerging fintech players popping up around the world, but to give them. The most advanced secure feature rich fintech platform available in the industry. We believe our pipeline for ran is strong and we're expected to bring you more updates in the coming months with.
With 2 segments delivering exceptional doubled.
So not a growth ERP transactions trending better and a robust technology pipeline that.
<unk> for continued growth remains strong.
With that I will hand, it over to Rick.
Thanks, Mike and good morning, everyone I'll begin my comments on slide 12.
I think Mike's comments are worth repeating.
Any quarter, where you have 2 segments that achieved record quarterly earnings is an outstanding quarter, particularly with the uncertainty that COVID-19 has created.
As has been the case for the past 5 or 6 quarters, the strength of our balance sheet continues.
To provide us with the comfort and flexibility to take advantage of opportunities that are driving the business forward.
As you can see here, we ended the quarter with nearly $1 billion in cash unrestricted cash.
The sequential reduction in unrestricted cash represents the shifting.
Of cash.
Into more than 6000, Atms, we reopened during the quarter.
More so adding to our cash balance was approximately $23 million of cash generated from operations during the quarter.
Next slide please.
For the second quarter, we reported.
Revenue of $714.7 million operating income and adjusted operating income of $30.1 million and adjusted EBITDA of $74.7 million.
The better than expected revenue growth rate was the result of continued strength in our money transfer segment.
Where growth outpaced our expectations. The EBITDA results were in line with the lower end of our range of expectations and would have been better if not for the slower than expected border reopening and vaccine rollouts in Europe.
In the second.
Quarter of 2020, we recorded a $104 million noncash goodwill impairment charge.
82 million of which was recorded in the money transfer segment and $21.9 million recorded in ft, all stemming from the economic impacts of.
<unk> COVID-19 pandemic. These impairment charges have been excluded from the prior year adjusted operating income adjusted EBITDA and adjusted EPS to provide more comparable year over year results.
We delivered adjusted EPS of <unk> 53 per share.
Share compared to <unk> <unk> per share for the prior year.
Slide 14.
On Slide 14, we show you the 3 year transaction trends for each segment.
EFT transactions grew 46% driven by improvements in ATM transactions as Bob.
Of the co began to reopen as well as the significant volume increase in low value point of sale transactions in Europe, and low value payment processing transaction.
In Asia Pacific.
<unk> transactions grew 35% primarily driven by digital.
Orders media transaction growth across our markets.
With particularly strong growth from customers in South America and Asia.
Have a high volume of low value transactions sold through digital channels.
And while we say these are low value transactions.
The reality is that while the absolute value of these transactions is low.
They are accretive to our gross margin percentage the significant growth in these transactions was made possible by our <unk> technology, which has enabled the rapid addition of significant transaction.
<unk> actions and has allowed us to take advantage of these emerging trends in the payment space.
And in the money transfer segment, we were quite pleased that our most profitable money transfer transactions U S outbound and international outbound transactions grew 36.
And 44% respectively.
<unk> also includes 74% growth in direct to consumer digital transactions.
These are partially offset by declines in the U S domestic transactions.
Each then netted to 30.
Percent total transactions year over year growth for the segment.
Next slide please.
On slide 15, we present, our results on an as reported basis.
Year over year, the currencies in most of the major markets we operate increased.
<unk> at upper single and double digit rates with a few outliers, including the Indian rupee, and Brazilian real which increased at low single digit rate too.
To normalize the impact of currency fluctuations, we have presented our results.
On a constant currency basis on the next slide.
I'm on slide 16 now.
<unk> revenue grew 36% adjusted operating loss improved 35% and adjusted EBITDA improved 86% driven by increased transactions.
From partial lifting of travel restrictions across Europe as compared to the second quarter last year, when Europe was largely locked down.
<unk> revenue grew 21% adjusted operating income grew 42% and adjusted EBITDA grew.
40% driven by continued strength in digital media content and mobile sales through digital channels together with certain customer promotion activity.
Money transfer revenue adjusted operating income and adjusted EBITDA grew 30% 49.
So net and 37% respectively.
These exceptional growth rates were the result of growth in U S outbound and U S and international outbound transactions of 36% and 44% respectively.
Partially offset by declines in the U S.
<unk> <unk> business.
Adjusted operating income grew faster than transactions as a result of a shift in the mix of lower value domestic to higher value cross border transactions.
Overall, I think it bears repeating that these are exceptional.
Domestic only strong constant currency results, particularly out of the EPA and money transfer segments.
And while the Ft result came in at the low end of our expectations as Mike mentioned, we are encouraged by the positive transaction trends we saw.
<unk> in the last couple of weeks of June and.
And have continued into July together with the increased average withdrawal amounts.
Nonetheless.
As you have been seeing in the press, we too have started to see more contagious variance of the virus.
Iris make headlines disc.
Discussions of the U S going back the masks.
Uncertainty stemming from changing travel policies in countries across Europe.
And continued vaccination efforts, we realized that the unevenness of ft transactions.
Is likely to continue through the remainder of 2021.
After taking all of these things into consideration, we will refrain from giving official guidance.
But think it is important to provide a couple of data points to help frame your expectations.
We would expect third.
2021 consolidated revenue to have recovered to third quarter 2019 levels.
And nearly 20% over last year's third quarter.
Recognizing the impact of Covid constrained travel in the EFT segment.
<unk> and the double digit compounded annualized growth rates posted in the ipe and money transfer segments.
From these revenue levels and with careful expense management actions, we expect third quarter EBITDA to be in the 135 to 140.
<unk> $5 million range.
This EBITDA range also recognizes that we will have about 1300 more Atms this year in the third quarter than the prior year and we will have about 3700 more active or life Euro net owned.
40, <unk> this year as we see travel ramp up in the third quarter.
With that I'll turn it back over to Mike.
Thank you Rick.
As you know COVID-19 creates a level of uncertainty that we just can't do anything about.
However, we have been proactive in using our.
<unk> 8 to our advantage to further expand our EPA and money transfer segments and the double digit CAGR growth rates for those 2 segments are just exceptional.
Can't overcome the travel restrictions that are eliminating our FTE transaction.
We continue to grow by leveraging our technology to create.
The opportunities to expand our business.
I believe you are a net is the most unrecognized Fintech company that's trading in the market as the technology, we developed really blows away that of any other company.
Because our strong balance sheet has allowed us to continue to strengthen our value proposition across.
Across the company once travel is allowed to resume we will continue to grow at consolidated double digit growth rates well into the future.
As I close I again reflect on the Olympics.
The euro net Olympians our fighters, we always have that we've armed ourselves with the best technology.
And the industry, we've got the best athletes and our game plan has produced consistently improving results over the 26 years of competition.
In the midst of this pandemic our team has been blocked from the podium, but the ipe and money transfer teams have stepped in and have been taking the.
We are confident that as the travel restrictions are removed our ft team will to be picking up the goal. So to that end, we can see in all gold sweep in the near future with that I'll be happy to answer any questions. Operator will you. Please assist.
Yeah.
At.
Goal you would like to ask a question. Please press star 1 on your telephone keypad.
Your first question comes from the line of Andrew Schmidt with Citi.
Yes.
Good morning, Andrew.
Good morning, Mike.
Rick and Kevin Hope you guys are doing well thanks for taking the questions here.
Yes.
This time e-commerce and the technology.
Momentum in the use case expansion money transfer it's good stuff.
I wanted to ask a question yes.
Can you talk a little bit about just a little bit more about what you've seen quarter to date.
In the third quarter, and then as it relates to what's.
What's embedded in the third quarter outlook.
It sounds like you're baking in a little bit more conservatism for unevenness in trouble recovery Covid variance and things like that.
Want to make sure. That's the case just to understand a little bit of the context of the embedded ft segment EBITDA guide.
Appreciative to what you're seeing quarter to date that would be helpful. Thanks.
Well as you saw we really.
Hit the very low end of the range that we gave you in Q2.
<unk> from just the 3 weeks into Q2, where we gave the guidance we saw kind of everything going to hell in a handbasket in Europe and.
Everything kind of slowed down so we were well on the low end of that range.
So we are a little bit conservative with the ft moving into the third quarter, that's correct, but let me just tell you none of US know nobody knows what's going to be announced tomorrow just to add for walking.
Relative to the room to make this call we find out that the UK has opened up its borders so thats a positive.
For anybody who is double vaccinated from.
From the U S.
The EU so.
I guess, you just say, yes, we're a little bit conservative, but we'll just have to see what.
You know kind of what occurred in <unk>.
And watching and reading the same things we are the travel indicators from the airline the booking guys everybody else. We're all it looks like bookings are going to be quite strong and a number of the countries in Europe.
For the third quarter. So we just hope that turns into real life people, because what we have seen.
Is that if I've got the people there will make the money.
Got it that makes a lot of sense and then.
Just as a follow up the Latin American JV in terms of independent ATM deployment and outsourcing could you talk about that a little bit for among like addressable market perspective.
Let's see I don't think you guys operate in Latin America, just yet so it seems like there's a lot of opportunities here, but what's the right way to think about it from a flexible ATM market perspective, there is as you enter Latin America.
The interesting thing about Latin Americas, almost every single country has its own currency.
Currency, it's an island currency so unlike the EU, where theres lots of euros going around with a lot of other countries, where we don't have an.
And ability to make a cross currency transaction thats not the case in South America, that's what's exciting and certainly they don't have near the number of tourists that come to.
Say South America.
Europe does but like I said with all different currencies that that means we've got a big potential.
With respect to that JV I'll tell you why we got into that JV.
We've got a very good partner <unk> with this the biggest money transfer I'm sorry, the money delivery company in.
America, they've got relationships with all the banks were going to need.
Cash delivered to our Atms as we build this out we've been building what we've done in Asia Pac, which we're really excited about which is hundreds of millions of dollars, we believe and EBITDA potential, but it's taken us 5.6 years.
And <unk>.
What we've done is we've adopted a different policy with respect to South America and said, let's have a partner who can get us in and help us get these visa and Mastercard sponsor banks Central bank approvals, let's accelerate that and do it a different way. So that's why we did it and we're excited.
<unk> did a possibility and hopefully we'll see some Atms live down south.
The year end.
And beyond the ATM opportunity.
See it as being a market rich for our technology.
Each of these countries are also dealing with things like real time payment applications et cetera.
So similar.
Similar to what we see in Asia Pac.
This is a market that is prime for the quality of product that we have so so not only is it 1 that we can go after the ATM front, but we can go after really taken advantage of our <unk> technology platform there too.
About that got it very helpful. Thanks, a lot guys alright, Thank you Andrew.
The next question comes from the line of Peter Heckmann with D. A Davidson.
Good morning, gentlemen, I wanted to follow up a couple of things, Mike where do you think in terms of your your.
Best guess in terms of growth net ATM installations.
For this year any real change there or have you been able to get out and scout for new locations and signed new leases.
When you think about that number.
Do you think it divides between Europe.
Asia Pacific U S.
In India.
I think we're still looking at.
<unk>.
We were looking at 4 to 5000 at the beginning of this year thinking that we would get a recovery faster than we're getting.
I would have to say that for probably closer to 3500 to 4500 kind of would be the focus.
And.
We're still putting ATM.
Under the 1 country that we're in and in South Asia, that's basically locked down and not making a dime.
Because we know when tourists.
Returned to that market.
It's almost ATM less.
In the tourist areas.
No.
I don't have the breakdown of.
Of east versus West, but we'll say that should be the number probably between 3500.4000.
Roughly.
Bye for get 20% to 25% would be Asia, something like that okay.
Okay.
1 of the challenges we have in some of these Asian countries I mean, they are really in bad.
Bad shape with respect to the virus and so we can't get out there and hunt sites as easily because of all the lockdowns and so forth. So there's still a lot of variables, particularly in Asia.
But a lot of opportunity.
Sure sure definitely Okay, and then just any change as you.
You've done your due.
Diligence and working on your closing of the deal any.
New.
Revelations about the business and any changes in terms of thinking about the close somewhere right around yearend.
No not really nothing has changed that our goal is to get it in by.
At the end of the year and Theres a lot of hard work, that's actually be done as we speak or trying to get.
You know all the procedures and the path and a hand handovers organized for this so no new news on that so far.
Okay. Thank you very much.
Okay.
Your next question comes from the line of Andrew Jeffrey with true Securities.
Hey, good morning.
Mike appreciate the Olympic metaphors.
I agree I agree and that's probably the least depreciated fintech publicly traded fintech out there.
My question.
For you as you you've built this really impressive global money transfer business with <unk>.
$3.6 billion.
Connected accounts for 220 million wallet Tonight moving into <unk>.
<unk> transactions.
Can you talk a little bit about how you intend to monetize.
The growth has been great yields been terrific Youre clearly taking share from the legacy <unk>.
<unk> it seems like there's a real.
Sort of Optionality aspect to this business and I'm just wondering how we should think about that over the next couple of years I think Gary I think you're on to kind of our top secret which isn't so.
Top secret plan and that is that as we have added these bank accounts, you've seen the volumes of our of the money transfers that we're starting to payout in the banks and these all of these emerging markets, they're adding more and more bank accounts. The idea of the population being banked Inc.
Inclusion financial inclusion is a big deal for all of these politicians in these developing markets.
And so by US having access to $3.6 billion bank accounts and all of those 220 million wallet. This really gives us an advantage over everybody on the planet. So we're able to drop more money into more.
Our accounts.
Than anybody else out there and Thats really where the future is.
Yes, we've got 490000 physical locations and Thats, great because there will always be that but this idea that we are connected to these accounts and many many of them are real time kind of payment opportunities where the money actually.
<unk>.
You walk into 1 place and you do your transaction or you do it on your mobile phone and it arrives at the recipients accounts in seconds.
I think what we're doing is building the best.
Set of rails in the industry and we intend to monetize them both for ourselves and for third parties like we've announced.
In the past.
Andrew you've seen in the past and hurt us talk about.
Relationships with people like zoom, where we help.
Terminate transactions for them.
And others that we've mentioned along the way here. So the next frontier is beyond.
Now to what you might call traditional money transfer players, Okay, and maybe you can appreciate the fact that we have those relationships through our <unk> business, where we do smaller volumes of what I might call mass payments that get to.
Business customers.
So these are small businesses sending out too.
2 other business accounts and and as Mike said in his comments. This is not just going to.
Consumer or residential accounts this is going to business accounts as well so with the with.
Beyond the site that we have from our <unk> business.
Knowledge, we have of complex foreign FX based transactions and then the beauty of the network that we have around the world. We think that we've got 1 of the best positioned networks of any play.
With the <unk> in the market not just money transfer guys, but any player in the market. So with that I think you can start than anticipating what the potential opportunities would be and as Mike said, we look forward to telling you a lot more about that in the near future.
The.
Play a bull's eye is on the trillions.
That's what we're going to chase the business payments, we've got we've got.
Consumer payments down we're going after the trillions now remember.
When we acquired Ria It had 42000 network locations.
We've chased it up to half a million.
The balance.
We've got another chased in pursuit.
Yes, I think.
Yes.
If you are a net doesn't monetize it.
Depending on timing somebody else is going to use it.
It's a pretty exciting opportunity for you guys I appreciate it thank you.
Volume in your next question comes from the line.
Grondahl with Northland Securities.
Yeah, Hey, guys congratulations on the progress.
Just following up on the last question.
The international payment opportunity.
Are we going to see that progress.
Customer wins.
Are you guys hiring maybe resellers.
How do we see that play out and maybe what do you guys think are 1 of the 2 kind of primary use cases.
Well, it's just business bill payment.
It's there.
There is.
Rick talked about mass payments, that's the gig economy, where you've got a company that's got lots of employees around the world and they need to be paid in different currencies, but there's also just.
The gig economy of payments, where you have lots of suppliers around the world. So I.
I think youre going to see.
I don't think youre going to see us.
Hiring a bunch of <unk>.
People too.
To sell this but there are strategic partners you can you can do where they do payments for companies right now and we can do it faster and more efficiently to the banks.
Yes, I mean I think the.
The real advantage that we see in the processes that we will enable entities to simplify.
A very complex payment.
If any of you have tried to make an international payment you'll realize.
With this even for many of the.
Banking per.
Professionals that I work with they try to make a payment within their own bank across.
Ross border and it's painful.
What we're looking at is bringing.
I've heard all these pieces together, which is the technology part of it the simplicity part of it the compliance part of it all of this is part of the complexity of getting 1 of these cross border.
Multi currency kind of payments made.
And as Mike said there is.
Other people that we can work with could be direct relationships with with companies.
It could.
Could be.
Partnership relationships.
Could even be doing like we've already got today private label agreements.
A lot with financial institutions to allow them to be able to make 1 of these payments more efficient because of these financial institutions are stuck with flipped right now.
Lord knows when that payment arrives.
And so financial institutions are going to have to get competitive with what else is out there with all of these.
Sex and Theyre going to have to give their customers what the <unk> want to give them, which is instant payments as guaranteed rate and with full compliance.
You just think about how you try to go about making a payment here in the U S. Well I'll use a simple example, and old 1 here you write a check you just simply write a check.
<unk> won the banking infrastructure is designed to handle it and it's not a big deal put it in the mail the Guy gets the check he cash is that everything's fine and Dandy. It takes about a week before you can ever get availability of the money for the process works and you know how to do it.
How do you even.
To sum about making an international payment you can't write a check.
You can't just go to your PC and do an AC H transaction.
Zain is transactions aren't available outside the United States right.
Either way they close in 2 days.
Yes.
That and then they can be rejected up to 6 months.
Yes.
Even go not good funds so.
Again, it's bringing together, making simple or very very complex product that we've got all of the infrastructure all the technology. The accounts the knowhow to bring so I think we will have.
If all parties that we work with to really monetize this.
Great guys. That's real time, it's also a real times good funds.
Got it Okay, hey, it sounds pretty interesting. Thank you.
Okay.
Our next question comes from the line of Darrin.
Server with Wolfe research.
Thanks, guys nice job on the money transfer and ebay segments, and just because I wanted to touch on EMC, a little more when we think about bridging the profitability levels for what you've had at a normal run rates for where you are now with revenue coming back Mike maybe just remind us the mix of Atms by the.
Sort of a level of profitability per type of ATM.
When you think about the very highly high margin transactions, which how many of your Atms are now decommission that are in that camp.
Maybe just provide a mix breakdown for Dominic.
Yes, we've got 46000 Atms right now we have about.
Yeah.
About 25000 are the high value Atms in Europe, we have about 600.700 of <unk>.
And the 1 country in Asia, that's locked down.
We have about 10000 that are our outsourcing agreements and the rest are the brown label.
Atms in India Okay.
And obviously the most profitable.
The ones in.
In Europe, Okay, and that's for 25000, they're non interesting thing and 1 of the challenges we have with the third quarter is we can't just.
If we really want to maximize third quarter, we've got to basically turn on most all our ATM.
What that does is all the savings that we got last year by having our Atms turned off not paying cash delivery costs not paying.
Service and so forth on it.
That's all gone now.
We've got this higher fixed costs that we're dealing with and we'll just have to see how many transactions all across that fixed cost and thats why it kind of is that we're kind of careful on Q3, because once you've turned demand that next transaction is almost all margin we've got to pay about 10% of.
So 1% or whatever the spread is.
The visa or mastercard, but other than that to fall through.
Okay.
And when we think about cost saves that are maybe still running through the P&L.
That would come back is there any way to give us a sense of the figures how much incremental cost are out of the P&L right now.
To come back in let's call. It in 'twenty, 2 when things are more normalized.
Probably the biggest single thing or some of the rent relationships that we renegotiated like with a number of the some of our biggest.
Payouts are to airports as an example, I mean, we're in over 100 airports in Europe.
Now that we can so we went back and re negotiated with them. So that we pay a rent for <unk>.
Portion also the passengers that go through the airport.
Youll see more of that come back as more travelers come back and then we've got other smaller deals like that.
Okay and just for us.
Yeah.
Right.
If you try to get some numbers around and we've showed told you how many more Atms, we're going to have that are going to be going active and things like that.
As you can appreciate is the first day you take the ATM active you've got all of the what I'll call semi fixed costs that go.
You got your rent you got your cash Phil you got maintenance, you've got communications, you've got all of that kind of cost that's worth. It. So then it really depends upon how many transactions work up to that ATM as Mike said, each time, a new transaction walks up to it is very high profit.
With that I'll profit margin for us. So I think if you tried to take some of the ATM numbers that we told you about how many more Atms we have how many more are going to be active this quarter. We've told you in the past that it cost us.
Nearly $1000 a month to run an ATM you can pencil out some kind of grenade.
Increment math to kind of see what the change in that cost is going to be kind of second quarter over third quarter.
Got it well I just wanted to thank you for the last 1 just quickly on ebay when we looked at the with the growth rate has obviously been materially stronger through the pandemic given all the digital transaction digital to digital both sides.
Fairly unique business model that you guys offer for a lot of other media companies and digital Giants. When we think about structurally yes, Kevin do you see that as sustainable so beyond the pandemic are we in a world where ebay can actually keep growing at a double digit range long term.
Yes, very good question so.
<unk> digital growth experience.
Obviously accelerated through the pandemic.
But we believe that it will that trend will continue when we look at our sales pipeline of new opportunities.
They are overwhelmingly digital versus physical.
And that digital presence there and also gives us.
Great way to enter new geographies.
Particularly.
As we discussed previously the technology with the underlying technology within EMEA is what's enabling this whole digital adoption and and.
Distributions chip so in summary.
We're operating under the assumption.
<unk> continued to deliver double digit growth in EP.
For the future.
Great. Thanks.
Thanks, guys.
Operator, it's.
After 9 o'clock I think we should take 1 more question in.
Capex call it quits.
Okay. Your final question comes from David <unk> with Evercore ISI.
Thanks for squeezing me in 2 quick questions. Mike first what are your updated thoughts on pricing strategy in the money transfer business both in the traditional retail cash to cash in.
And then well online business and then.
Any updated thoughts on capital allocation priorities would be appreciated.
We have had with respect to money transfer we've had stable pricing for.
For several years now really.
Don't expect that to change anytime soon.
And so we will just stay stable where we are.
And then with respect to capital allocation, we can hear.
Even last year, which was the most horrible year ever it felt like we still cleared $100 million in cash. So we will clear some cash this year as well so.
Soon as looking for opportunities.
The best opportunities are the.
The 1 plus 1 equals 3 kind of.
Acquisitions, So we're looking for those.
And sometimes when we say big market dislocations will buy back stock, although that isn't our preference.
We'll do it like we did last year, when we bought back 3.9% of the company.
<unk>.
No change there and I would say on capital allocation.
1 other things Thats really helped us over this pandemic is that we have had a very strong.
<unk> balance sheet and I think a.
A conservative management of that balance sheet has enabled our money transfer and <unk> businesses to flourish. In this time when are when the travel has been restricted and we haven't seen that same kind of contribution.
Houston coming through for me ft. So, while we could always find quick and easy ways to go spend the money.
Been very helpful to have a very strong balance sheet and it's also helpful. Not just in terms of supporting our business. It gives our customers confidence that we're going to be here.
We deal with some of the marquee named customers in the world and they knowing that that and we are handling their money. We're not just do we're just not processing transactions for them.
In possession.
Possession of their money and they trust us and so.
It's been very helpful to have a good strong balance sheet, but as we see opportunities come up like with the Piraeus transaction in Greece that as Mike says, our 1 and 1 equals 3 will certainly go after those but we're quite fortunate to have the strength of our balance sheet to allow our business to flourish.
Understood. Thanks, so much.
Okay, and thank you everyone, who has joined us today.
Hopefully we'll have some good news in about 90 days from now.
Alright.
Thank you for participating this concludes today's conference call you may now disconnect.
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