Q2 2022 Euronet Worldwide Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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Okay.
Okay.
[laughter].
Greetings and welcome to the your net worldwide second quarter 2022 earnings call. It is now my pleasure to introduce your host MS Hope, Greg Associate General counsel for urine at the worldwide. It's Greg you may begin.
Thank you good morning, everyone and welcome to your own next quarterly results conference call for the second quarter 2022 on this call we have Mike Brown, our chairman and CEO and Rick Weller our CFO.
Presentation will be made.
Statements made on this call that concern your own EFT for its management for pension expectations or predictions of future performance are forward looking statements.
Europe and that 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 side of our presentation.
That may be required by law, you're one that does not intend to update.
Forward looking statements and undertakes no duty to any person to provide 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'll turn the call over to our CFO Rick Weller.
Thank you hope and thank you to everyone joining us this morning.
I will begin my comments on slide five.
For the second quarter, we produced revenue of 843 million operating income of $101 million and adjusted EBITDA of $147 million.
We delivered adjusted EPS of $1 73, a 226% increase from the 53.
In the second quarter of 2021.
These strong improvements include all metrics.
In all metrics were driven by revenue growth in all three segments, which includes a strong rebound in domestic and international cash withdrawal transactions in the ESP segment from the continued lifting COVID-19 restrictions across the globe as travel is recovered next slide please slide.
Six.
It's been the case for the last two plus years the strength of our balance sheet has allowed us to make investments and operate the business in a way that will continue to deliver long term shareholder value.
As you can see we ended the second quarter with more than $1 billion in unrestricted cash and debt of $2 1 billion. The increase in cash is largely from cash generated from operations of about $75 million in the second quarter of 'twenty, two as well as short term borrowings to fund Atms.
Cash and certain capital working capital need which is also reflected in the increase in debt.
This increase in cash is partially offset by cash paid into the Atms in response to seasonal increases in travel trends share repurchases of $104 million and working capital requirements.
Slide seven please.
Before I discuss each segment briefly.
I'd like to draw your attention to the significance of currency change year over year.
As you May have noted in the press release and on the first slide reported GAAP revenue grew 18% year over year, but on a constant currency basis that is if the currency rate. This second quarter were exactly the same as that of the second quarter last year.
Our revenue would have grown 28%, 10% more if no currency translation impacts.
That's a big impact.
And the majority of that change developed as the second quarter unfolded. Moreover had it not been for currency devaluations against the U S. Dollar we would have delivered adjusted EBITDA within the range, we provided at the beginning of the quarter.
So bear in mind, the significance of FX changes and I'll comment on each quarters constant currency results for the quarter on the next slide.
Slide eight now please.
The strong improvements in ft revenue operating income and adjusted EBITDA were the result of increased domestic and international cash withdrawal transactions driven by improving travel trends from lifting as COVID-19 restrictions across the globe, we added more Atms and rehab.
Activated nearly all of our Atms in anticipation of a strong travel recovery.
On a year over year basis revenue and gross profit per transaction.
Also expanded as a result of improving international transactions, which generate more revenue and profit per transaction than domestic transactions.
EMEA revenue grew 2%, while operating income and adjusted EBITDA declined, 1% and 2% respectively.
Revenue growth was driven by continued expansion in mobile and digital branded product payments together with continued growth of the digital distribution channel similar.
Similar to the first quarter the year over year revenue comparison was impacted by three items. The previously announced loss of a key German <unk> customer in the fourth quarter last year, the India government's halting of certain digital games and the shifting of promotional activity from the Earth.
Early part of 2021 year to the later part of the 2022 year.
For perspective had these three items been consistent to the prior year on a pro forma basis.
<unk> gross profit and operating income would have grown 6% and 10% respectively.
As we enter the third quarter, we have already started to see an increase in promotional campaigns confirming our view that this promotional activity was just shifted to the back half of this year.
Moreover, while not significant in the second quarter, we did begin to see certain trends in our more discretionary really used products that suggest inflation may have contributed a certain amount of pressure on this segment's results.
Money transfer revenue grew 9% operating income grew 3% and adjusted EBITDA grew 2%. This growth was the result of 10% growth in U S outbound transactions, 11% growth in international originated money transfers.
Which included 11% growth in both Asia.
And middle East and predominantly European initiated transfers and 37% growth in direct to consumer digital transactions offset by declines in the domestic business operating income and adjusted EBITDA growth was largely was lower.
And then revenue growth from continued investments.
In physical and digital network expansion higher costs to support technology, and certain new product development and advertising costs in the current period.
Similar to ebay, while not significant in this third quarter. The money transfer segment began to see certain decreases in the average amount of transfers that suggest inflation may have contributed a certain amount of pressure on the segment's results.
We are pleased with the strong consolidated growth rates.
Particularly in light of the macroeconomic headwinds we are facing across the globe.
We have proven again that our fundamental business prospects proposition is intact, and we expect to be able to continue strong growth rates.
Now that I've covered the highlights for the quarter and pointed out the significance of FX translation on the quarter, Let me turn my focus to the future.
To start that discussion, let's go to slide nine to see what happen to FX rates over the last 18 months.
As I previously mentioned FX rates changed a lot in fact, the single largest item in our list of changes.
To that end, we prepared this chart to illustrate what happened to these three.
The three of our top currencies.
The euro the pound and the Aussie dollar you can see the drift in these currencies over the illustrated 18 months.
Make note of the acceleration of the drift over the last three months.
A lot has unfolded over the last three months and Im not sure Theres not more ahead.
But in early April we all thought the Russian invasion of Ukraine would be short term as we have seen Ukraine has been resilient and Russia has not pulled out.
As a result, we.
We've seen adverse impacts on energy supply and Aegean grain supply, which has had a knock on effect on currency values.
Moreover, the protracted invasion has led to direct impacts on our business with in Ukraine.
And Ukrainian border countries.
And Russian sanctions.
I'm not going to attempt to analyze all of the factors that go with FX rates, but as this graph points out when the currencies weakened to the U S. Dollar it shows up in translating foreign currency results into U S dollars for our reported financials.
Now that I've discussed FX rates, let's go to slide number 10, and I'll take you through several items influencing our expectations for the rest of 2022.
As we have I'm on slide 10, now as we have looked at our expectations for the rest of 2022, we see several items that have had a significant impact on our expectations, especially against the expectation to produce earnings in 2022 similar.
For 2019, which produced adjusted earnings per share of $7 <unk>.
That's code for $7 a share.
With that in mind I'd like to take you through several factors, which influenced our estimates in arriving at our updated earnings expectation range of $6 30 to $6 40.
For adjusted earnings per share.
On this chart, we've illustrated the discrete impacts on adjusted earnings per share for several items, starting with $7 per share and working our way across to $6 35.
I won't cover each in great detail, but hit on the more significant 0.1st benefit of share repurchases since we announced our outlook for the full year earnings in October of 'twenty, one, we repurchased approximately 3 million shares for approximately 400 million.
Which benefit 2020 to EPS by approximately 35 a share.
We've updated our tax estimate based on the mix of our business across many jurisdictions. The many jurisdictions we operate.
About a 2% to 3% rate decrease will benefit us by approximately 32 a share.
Third we've reflected a 1% tempering of revenue growth in the second half of the year for both <unk> and money transfer to account for possible inflationary impacts on consumer transactions.
This is a hard one to peg, but reflects the consideration of an impact on our business.
Fourth the invasion of Ukraine has had an approximate 10 cent impact ranging from closing Atms in the Ukraine to curtailment of additional tourism focused Atms in the Ukraine to lighter travel patterns to Ukrainian border countries too.
Sanctions imposed on Russia and flights to Europe to card schemes exiting card business in Russia.
Fifth travel industry inefficiency impacts.
As you know, we previously estimated that our high value transactions, primarily the DCC transactions would come in in the low 70% range.
In fact through May we were pleased to see transactions posted nice recoveries similar to 2019 nice recoveries in relationship to 2019 levels supporting our confidence of a robust recovery.
Then in June we started to see it flatten out and towards the end of June reversed trend.
Now that we're seeing witnessing tourism disruption in airports hotels restaurants et cetera that has led to capacity capping we have adjusted our expectations to be in the mid to high sixties.
Which ultimately amounts to approximately 20.
Per share.
Six interest rates have gone up dramatically since October 21.
<unk> 2021.
And as you all know the fed has quickened its pace and raised the rate.
To help manage inflation.
These higher rates account for about <unk> 14, a share.
Seven.
More revolver borrowings.
We've increased the use of our revolver to pay for the <unk> card business.
As well as the repurchase of shares we expect the borrowings to relax as we generate additional free cash flows, but this accounts for approximately eight a share.
Cost of inflation on operations. This one too is hard to peg when my question, what really constitutes greater competition for our workforce versus inflation, they likely run together, but we made an estimate it could be a bit light at 23 a share.
Finally, ninth FX I've already covered it but you can see here. It is adversely impacted full year EPS by approximately 51 a share.
In summary.
When affirming our expectations last quarter.
We knew of some share repurchase benefit some increased interest cost some tax benefit some FX pressure, which for the most part canceled each other out.
But now this quarter, we've seen FX accelerated slide the fed get much more aggressive on interest rates.
To fight inflation and the impacts of the disruption in the travel industry compounded by the lingering impacts of the invasion in Ukraine, we felt it appropriate to give you our refreshed outlook and a better understanding of how we get there.
If you boil down all of these items you can see that the real business impacting items, such as travel disruption interest taxes.
Essentially offset each other leaving FX or said differently, if FX didn't change our outlook for the year would not have changed.
I know there are a lot of moving parts, but I hope this helps reconcile our expectations. Please bear in mind that if currencies move lower inter.
Interest rates move higher or faster or travel disruption becomes more of an issue. These estimates will necessarily change.
Thank you and with that I'll turn it over to Mike. Thank you Rick and thank you everybody for joining US today I will start my comments on slide number 12.
Although you have been following us for a while probably have figured out there Rick tends to be a little bit more conservative while I tend to be a bit more optimistic.
So while his observations on the business and how changes in the economy are affecting our results are all valid I'm here to tell you that well over the last three months everything has changed I'll also tell you really nothing Thats changed let me repeat that so I really think that nothing really has changed with respect to the future.
Of our business.
We can all open our favorite news site and see the travel and hospitality industries have largely become chaotic there are canceled flights airport capacity restraints, and who hasnt seen the picture of the baggage room at London Heathrow Heathrow is one of the largest global travel hubs in the world and their CEO announced.
Last week that they were capping their capacity at 100000 passengers a day for the remainder of the summer due to unacceptable service condition.
For perspective that is less than 50% of the 220000 passengers per day that we're through Heathrow in 2019.
It's important to pause there to help you understand what this particular example means to our business, let's not forget travelers from the U K are by far the largest producer of high value International transactions on our Atms because every card has a cross currency component.
So the limiting of passengers to and from the British airports has had a more significant impact on our forecast.
Further to the travel demand, we also heard Delta as CEO say during their earnings call last week that theyre not going to.
Increased flight capacity for the remainder of the year due to staffing and operational issues and similar stories have been used to describe major airports across Europe , including Amsterdam, Frankfurt and Paris amongst others.
So while we would have never predicted this outcome only three months ago. When every sign pointed to a robust travel recovery for this year, we have learned a lot from the travel recovery that we have seen.
And it is good maybe even great news.
You have seen that when applied to land, our ATM machine lineup and the travel chaos in the future will be fixed.
We have seen strong recovery in transactions as well as increased average withdrawal amounts. So we have validated that the underlying fundamentals of our business are still intact.
Even better as you may remember, our ATM network is stronger than ever with called underperforming sites during COVID-19 and we replace them with better locations. We have added new high quality sites and we have expanded into new market with our eyes set to grow further into Asia, North Africa, and Latin America.
And finally, we have further diversified the ESP product line with the actual acquisition of the Piraeus merchant acquiring business.
Outside of travel the other economic factors like the extended conflict in the Ukraine, rising inflation and interest rates and changes in currency all drove a pull back to our expected results for the year. However, EPA continues to see high demand for branded digital payment content and continues to expand distribution in the digital.
It'll channel and money transfer continues to expand and improve its network driving strong transaction growth rates in both physical and digital channel. So while there may be a bit of pressure from inflation and currency changes the underlying business is doing very very well and getting stronger and let us know.
Forget about the advancements we have made with our industry, leading <unk> technology platform and our new dandelion money transfer Hopper.
Hopefully you can see here that while all of our assumptions for 2022 changed driven by external factors that we were not able to control nothing has really changed in the underlying fundamentals of our business for 2023 and beyond.
It is frustrating that 2022 will come in a bit short of our original expectations, but our excitement for 2023 is strong and validated we are confident that we have made the right investments that are in the right places to continue to deliver long term shareholder growth.
Now, let's move on to slide number 13, and we will discuss the segment specific highlights.
Here you can see that we continued to expand the ERP business. This quarter, we launched new independent a new independent ATM network in Iceland, making access to cast their more convenient for travelers and locals.
In India, we launched a multi currency prepaid platform for Ebix cash EBIT ex cash has emerge as India's largest end to end financial exchange, which includes our last mile network of over 650000, physical distribution outlets and in Omnichannel online digital platform Ebix cash.
Cash plans to issue about $1 million multi currency cards over the next four to five years with an annual load of 600 million USD. The issuance of these cars will give EBIT cash and end to end customer experience across domestic and international money remittances Foreign exchange digital payment solutions prepaid travel card.
Insurance and more.
The addition of Ebix cash coupled with the Thomas Cook agreement that we told you about a couple of years ago means that your that powers. The two largest multi currency prepaid card and the huge Indian travel market.
In Spain, we extended the program for Atms in the community through an agreement with the Spanish Post office.
At least 1500 subsidized Atms in rural areas across pain over the next three years. These.
These Atms will provide more convenient cash access to cash in the cities across Spain, where bank branches have clothes and customers currently have a difficult time getting access to their cash and because I know you are curious we have been very pleased with the first full quarter of operations from the acquisition of <unk>.
<unk> bank's merchant acquiring business.
This quarter, we signed agreements with approximately 5000 more merchants and grid, including some of the largest like Ikea adequate department stores TGI Fridays amongst others.
These new merchant additions were in line or ahead of our expectations transactions are in line with our expectations and the transition.
Our platform has gone smoothly with no surprises.
This is just provided greater confidence in the quality of the asset that we have acquired and we look forward to giving you updates in the future.
We continue to add more Atms to our portfolio during the quarter. We added 930, <unk> owned Atms, bringing our total to more than 1300 Atms. So far this year. We also added 338, new outsource machines, we reactivated 40 to 184 machines that have been previously closed due to <unk>.
<unk> or they were in the off season.
Another to what we have mentioned in the first quarter, we have been challenged with supply chain issues related to our ATM deployment.
These issues are range from manufacturers not delivering the machines on time to third party resource issues installing them. Accordingly, accordingly, we have relaxed our ATM deployment forecast based on supply and install issues together with the slower than expected travel.
Recovery given the issues, we mentioned facing the travel industry. We now expect that we will deploy approximately 2500 to 3000 Atms. During this year with more next year as the supply chain issues are sorted out and travel hopefully return to the pre COVID-19 level.
We are pleased with the rebound of the ATM business is travel around the globe continues to become less restricted we are confident in our business model and believe that our growth will continue to improve as the travel industry reestablished as their staffing and operational levels to those of pre COVID-19, our Atms and our teams are ready to serve.
These customers now, let's move on to slide 14, and we will talk about ebay.
The <unk> team continues to expand the distribution of its leading content portfolio in both physical and digital distribution channels while.
While the bottom line <unk> results did not show this expansion I'd like to remind you that these results include the comparative year loss of a key customer in our <unk> business as well as lower promotional activity in the second quarter than in the second quarter of 2021.
We continue to believe that based on discussions with our promotional partners that we will see strong growth in our promotional campaigns as the second half of the year unfolds and while we have started to see some signs of inflation creeping into the ebay business and discretionary spending on certain categories of our products, particularly in the game.
<unk> category, we continue to believe the ebay business will deliver a very nice year of earning.
During the quarter ebay continue to expand digital branded payment sales through digital distribution method.
We added branded payments through Aircastle Lady mobile wallet in Europe. We also added itunes on the two largest e-commerce platforms as well as through the two largest mobile operators in Turkey.
In India, we launched distribution of Microsoft 365, three Pompeii, a leading digital payment App in India. This is our first launch of Microsoft products and this huge and growing market. We also signed several new agreements that we expect to launch in the coming quarters, including the distribution of branded.
Payments through Opiate Abitibi promotion company in Europe .
We also expanded our relationship with Disney plus to new geographies and new channels, we will be able to offer Disney plugged in Germany, Austria, and Switzerland, as well as through digital channels and <unk> channel in India, We signed an agreement to add itunes to flip cart, a leading E Commerce company Theyre finally, we signed.
An agreement to distribute Microsoft Xbox all access with game X breath.
And Xbox console distributor for Amazon and Mexico, we continue to expand our content and our sales channels and our geographic reach and EP segment. In fact in July we launched apples new gift card across 15 markets.
Unlike the itunes card this new gift card is for everything Apple hardware products accessories apps and much more.
The broad offering makes it a great option for gifting. The Apple card was launched in North America earlier this year and is it as enjoyed tremendous success, we anticipate that it will complement sales and increased gifting in our southeast markets. Overall, we are optimistic that it will make a nice incremental contribution.
Through the year.
System, what ebay's history.
We've added more products across our markets, which will help us forge through the relatively small inflationary impact we mentioned.
We have some exciting products and promotions in the pipeline that give us confidence that EPA will still deliver strong results for the full year of 2022.
Now, let's move on to slide number 15.
We continue to expand our industry, leading payments and remittance network. Once again eclipsing the 500000 physical location Mark despite closing more than 20000 locations in Russia, Belarus, and Tajikistan, and the first quarter of this year.
These half a million locations are nicely complemented by our network of $3 6 billion bank accounts and $442 million of wallet accounts across 182 countries and territory.
<unk> increased 8% year over year.
During the quarter, we launched 20, new correspondents in 18 countries, including bank deposit service for corporate and individual clients to 30 countries through our partnership with crowd agents bank.
And we signed agreements with 22, new correspondents across 19 countries that will launch in the coming quarters.
And again, reflecting on the view that everything has changed but nothing has changed.
We've expanded our network to more countries more locations in more accounts, where customers can send money.
As ever growing network across more countries is what fuels our money transfer growth.
In Belgium, we launched money transfer and currency exchange and VAT refunds services and the Brussels Airport. This is a nice example of our ability to use our industry, leading product portfolio to allow our partners to provide their customers with a one stop shop for their payment needs.
And we further expanded our relationship with Walmart due to launch of Walmart two Walmart money transfer App powered by Ria now are digital customers can enjoy <unk> world class money transfer service at Walmart everyday low price.
On the digital front, our direct to consumer digital transactions increased 37% and our account deposit transactions grew 24% you may remember that Ria has the world's best Bank account deposit network in these transfers now represent 32% of risk.
Total international outbound volume.
Our money transfer business continues to gain ground and deliver results and I will reiterate my first quarter comments that despite seeing some of the early signs of inflation pressure on our transactions.
We expect that the growth rate and the operating margin for this segment will improve in the second half of this year as we lap some of the investments we made in our technology last year.
Now, let's move on to slide number 16, and I'll provide you with an update on our technology platforms, beginning what they end of life.
Data line continues to be the world's largest international real time payments network and is garnering more and more interest from banks Fintech money service businesses and payments company.
Our goal is to disrupt and replace the ancient Swift <unk> system with a real time modern alternative.
During the quarter, we signed an agreement with Atlantic community Bankers bank known as ACB to improve their product offering for their 400, plus U S financial institutions, representing 500 plus billion dollars in assets Daniela.
Dandelion will enable <unk> to expand their bank to bank cross border payment network and complete customer payouts in real time.
In turn ACB will make.
Capability available to more than 400 financial institutions that they power.
Our sales pipeline continues to build we have been in conversations with more than 50 global regional and local banks, including four of the top 10, and 12 of the top 50 global banks I can tell you that we're encouraged by their interest and these are meaningful and productive discussion the banks are recognized.
The power of data Alliance platform network and technology.
We will continue to work hard to add more countries bank accounts cash locations and mobile wallets to our network, while continuously improving our service.
I'm excited about the continued uptick in interest and dandelion and I look forward to sharing the pipeline success with you as we move into the second half of the year by the way at a little picture on this slide is our dandelion operating at money 2020, Europe now, let's move onto slide number 17, well talk.
About rent.
As we told you last quarter digital banks continued to see the value of our <unk> technology and its modern architecture. This quarter, we signed gx as an open loop issuer processing and switching agreement. The GSS is a joint venture between a subsidiary of <unk>.
Dec listed grab holdings and Singapore Telecommunications limited in November 2021, the monetary authority of Singapore issued GSS.
A digital banking license the entire payment stack there is red and <unk> will now be considered that preferred provider as the joint venture expands through southeast Asia. We also signed an issuer processing service agreement with Union Digital bank in the Philippines in a digital bank as it is.
As a digital bank that aims to empower the country's digital economy. It enables Filipino communities businesses and regulators to leverage Fintech blockchain and open finance technologies in order to make digital banking and virtual assets accessible to everyone under this agreement.
<unk> will again provide the entire payment stack for the bank.
In Indonesia, we signed a digital payment in nature, a processing agreement with bank Neo commerce or BMC <unk>.
<unk> is a digital bank.
That is a buy now pay later type company with more than 13 million users, making it one of the fastest growing digital banks in the country here, we will deploy our rent payment platform to provide end to end digital payment and issuer processing services.
<unk> has been providing payment processing services to the local market from a PCI DSS compliant Indonesian processing center for more than a decade, which has helped our customers launched programs in an accelerated manner.
As we expand the capabilities of our <unk> platform, which is designed to be cloud native with all the major cloud providers, such as AWS and Google.
We continue to gain more and more interest, particularly from these digital banks, we often get questions on the significant increase in our ft transaction. A large majority of this increase are these transactions through real time payments network that are convenient for users and are in very high demand.
These transactions may be lower priced judging by the growth in the number of transactions. We know we're in the right place. So now let's go on to slide number 18, and well wrap up for the quarter.
As I close my comments I hope you can see why I believe that really nothing thats changed despite all the changes in the macroeconomic environment. We have a strong balance sheet that gives us stability and flexibility to continue to make sure. We can expand in the right places to continue to deliver strong growth rates in the future.
We have seen a robust travel recovery and a corresponding increase in our transactions despite within the travel industry providing.
Transactions despite issues within the travel industry, providing confidence in our underlying business model.
And our ATM network is stronger than ever and ready to go as travel demand continues to return to pre COVID-19 levels.
<unk> continues to expand its mobile and digital branded payment products together with digital distribution channel and has exciting new products entering the market money transfer continues to produce double digit transaction growth on the U S and international initiated transfers as well as a whopping 37%.
Direct to consumer growth in digital transfer we have a strong pipeline of signed rent deals that we expect to deliver.
Approximately $110 million in revenue over the next six years and our dandelion prospect pipeline continues to fill with top tier financial institutions.
I would also like to reiterate Rick summary comments regarding the netting of all the items impacting our earnings expectations for 2022.
Really if not for the FX changes our outlook for the year really wouldn't have changed much and.
And let's not forget that even at the low end of our guidance range. We are still 70% better than last year clearly highlighting that we are on the better side of the pandemic with a result, improving as quickly as the travel recovery can happen with that I will be happy to take questions. Operator will you. Please assist.
Thank you as a reminder to ask a question you will need to press star one on your telephone please standby, while we compile the Q&A roster.
Your first question comes from the line of steep heckmann from D. A Davidson. Please go ahead.
Hey, good morning, Thanks for taking my question, Hey on the FX headwind.
Certainly larger than what I was calculating.
Maybe one of the issues as I'm kind of straight lining the country percentages across the quarters were seasonally clearly you have a much.
Our greater percentage of euro transactions in the in the second quarter, but did I hear you say that your guidance for the second half essentially is based on current spot rates are essentially little changed from the second quarter.
Yes kind of.
Current run rate going forward, we don't dried out and guess what's going to happen with it so.
And kind of that 101 102 range for the for the Euro is youre seeing that today.
Okay that makes sense and then in terms of the capacity.
Issues in the travel industry and you talked about airports I mean did you find that thats like discouraging.
Currently planned travel or just limiting.
A few days of travel I guess, what are the primary impacts and in which countries. Like you certainly cited the U K what other countries might be impacted there.
Virtually.
You can just Google it.
Virtually every country, where the big airport has got problems there.
They are limiting their limited fly they're canceling flights. They are doing all of those kinds of things we did bring out the problems in the UK because all three of the London airports Luton.
Gatwick and.
And Heathrow all have the same problems Theyre limited.
Customers that like less than half of what they had in 2019 and these are very lucrative customers for us.
And also let's not forget we were cooking.
March was great.
April was better than it was even better than that and then we watched things start to flatten out a little bit in June .
<unk> by about 1% because of these travel issues.
And if you'd look at heart.
Our revenue profile for the quarters, we do about 10% of these travelers transactions in the first quarter two five in the second 45 in the third and 20 in the fourth so you can tell that every year that we've ever done that prior to Covid. We see this big inflection in Q3 over Q2, where it's almost too.
Quite as many travelers and transaction so what them carefully in the slides, we don't expect that to occur. This year. So we do see that.
We're going to work through this but it's going to be next year before we get the full benefit of that.
Okay, Okay, I got it and just.
Timing couldnt have been if.
At a worse time people weren't they werent hiring these people for the for the airports until March and it takes six months declare them through security just crazy.
Pete I would I would repeat one of the comments that Mike made earlier and that is again, what we see is is very good correlation here with activity on our Atms and so you could almost kind of follow our transaction meter with the news reports of the disruption in the air.
Reports throughout Europe , there so.
So it again validates our our view and understanding of the business is that when the when the when the when the airplanes unload people will go to the Atms and take out cash. So it again, just restores our confidence that as these kinks get worked out of the system.
And the travelers there and you read about the pent up demand and things like that we're very encouraged by.
By it we certainly would rather not see it but.
But we see that it's very consistent with our with the behaviors that we've seen before and just a little added thing. We saw another article where the average plane fare is 30% higher than it was at 19 and part of that is supply and demand, there's just not enough supply.
And so that's also limiting the number of travelers because it just caused so much more to bring your family.
Vacation spot.
Fair enough I appreciate it.
Okay.
Thank you.
And your next question will come from the line of Joel Richard <unk> with <unk> Company. Your line is open.
Hi, guys. Thanks, so much for taking my question.
<unk> I.
I was just wondering if you could provide a little bit of insight into what the revenue contribution was for per ads for the quarter and what that might look like for the rest of the year and kind of whether or not that was a source of margin pressure.
And then my last question.
Just a little bit surprised to see the cost structure suffer.
Suffered given cross border trends and it looks like <unk>.
And revenue per ATM were strong, but like I said kind of margins disappointed a little bit.
Is this the cost of new ATM locations renewing leases on existing locations or something entirely different.
Is there anything you guys can do on an year end to address that thank you.
Yes.
The first piece is on the margin of the ERP there, yes thats just.
The cost of ramping back up those Atms as we said we restored nearly all.
There's a few that you hadn't been reactivated, but we're bringing those atms back online putting cash and things like that so that's a natural kind of.
And output of.
Of the business.
Let's see the first part of your question was.
What do you expect the margin the margin profile going forward as we continue to add more and more of our high value transactions the margin numbers will improve.
As I've shared with people before is we wont achieve the margin number this year that we did in 2019, because we still are going to be short, 30% or more of the transactions that are our highest value transactions and so as those transactions come in and they contribute at 80.
Plus kind of a percent gross profit margin so as those transactions come in they really they really enhanced the margin. So so as we go through this year at being less than what that 19 level was.
We won't produce that same level of FTE margin, but as we get back into next year and we start seeing the full recovery.
Then we will make nice move toward that.
<unk> also shared with folks that that we wouldnt anticipate that our full year.
Let's call it on a comparable 19 basis margin would be.
Quite as high as what we had in 19, because we've added more and more of our own Atms. We've replaced some of these outsourced Atms, but but our our new Atms. They may not give us as much margin. When you are just talking about a mathematical calculation, but they certainly give us more profits.
So that's why we've continued to add Atms, so youll see a little bit.
That show up in the margin, but you should also then start seeing it show up more contribute on the profit line.
Please standby for your question.
Your next question is from the line of Andrew Schmidt of Citi. Your line is open.
Hi, Good morning, Mike and Rick Thanks for all the details here. This is helpful.
I wanted to start off with a question on just international transaction mix.
Is there any reason to believe that high value Atms transactions as a percentage of the mix. The total transaction mix Shouldnt get back to where we were in 2019 or you think win.
All of these issues sorted out we should be pretty close to factory, where in 2019, just curious to get your thoughts on just the high value part of the ATM transaction mixing ft. Thanks, a lot.
Yes, so andrew thanks.
Thanks for the question.
Every single data point that we see says that if we fix the travel chaos. We will have the same mix that we had in 19 with the only.
Minor minor exception that right now.
And travelers their cards don't work anymore, and but thats, just a little tiny bit so.
And I would add is it won't it won't change it much but I think it will start moving it in the positive direction as Mike said, we continue to expand in the Asia, The Northern African and Latin American markets, and we should just bear in mind that those markets are all essential.
Essentially different currencies, so as as we see users of the Atms. There we would expect that there will be a greater mix of transactions taken out that are going to be cross currency than if you're for example at an ATM in France, because you've got a lot a euro to euro trash.
Actions there, whereas when we go into the Asian, and Northern African markets those are going to be separate currencies. So I think.
That kind of all lines it up to see an improving mix as we get back to to be in a full recovery and also our prior to 2000 and prior to Covid.
Data from these <unk>.
Developing economies, where we've put Atms in South Asia in Egypt. As an example, those are very profitable for us because a much higher percentage of the traveler spend will be with cash. So we found that these atms are sometimes as much as twice as profitable as our European one so as we expand into these new markets first.
As Rick says each of these markets are an island currency. So every single traveler comes from abroad has got cross currency potential for us and second is theyre, just going to have to spend more.
A higher percentage of their spend will be with cash. So that's why we're really excited about these expansion opportunities on how that will change our margins over time and I would just put PFS if youre doing the math of just dividing the revenue numbers by transactions bear in mind, we've had a lot of transactions come into the EFT segment because.
These real time payment transactions that we're processing.
Based on the success of our Ren platform sales. So so they kind of.
SKU, if you will the revenue or profit per transaction that is not because of lowering amounts that were getting on on our ATM withdrawals or just that we've got a lot of these lower priced transactions and we also have debated a bit.
From time to time of call them low value, whether they are really very high value because they come to us through and they all dropped to the bottom line. If you will but it reflects the acceptance of our <unk> platform as well.
Got it that's helpful. Because at some point to get an update on the mix of the overall <unk> segment, just because you have added a lot of new products, there, but we can connect offline on that.
I wanted to it's a little bit early to talk about next year, but I think it.
It might be helpful just to level set.
How you think about.
Earnings growth in accordingly, normalized environment whenever that means these days and then what factors.
Above and beyond what would be considered normalized earnings should we consider for next year, obviously, we still have.
The travel recovery to go next year, which should be incremental add up but just curious.
To your thoughts and potential framework and how to think about that going forward. Thank you.
But probably the biggest hit the biggest contribution to our earnings growth next year is going to be travel as we work through this chaos annually get more normalized travel trends I mean that just.
Like Rick said, we get 80 80 plus percent of that next transaction revenue fall straight to the pretax line across that same ATM estate. So that's that's our thing that will be our single largest.
Contributor next year, but let's not forget we're going to end up with.
A very good second half for.
Ebay money transfer continues to gain market share, we're getting closer and closer to closing.
Big Dandelion deals there ran continues to pick up we see.
<unk>.
The Piraeus bank merchant acquiring business growing very nicely. So I mean, we've got a whole lot of growth levers for next year.
In addition to which is kind of like low hanging fruit and thats, just getting the travel industry back on its feet.
Got it. Thank you might think your recognition to comments.
Thank you and our next question will come from the line of Vasco Basel from Keefe Bruyette <unk>. Your line is open.
Thank you very much for taking my question.
Apologies if I missed this but can you revisit your assumptions on the <unk> segment in terms of return of the high value transactions. It sounded like you saw a full recovery to 2019 levels.
May and June embedded rolled over in July and now youre expecting it to sort of be worse, considering continuing any worse. If you could just like me that that those assumptions that youre, making in the guide.
Yes no.
Sorry, if we missed data that we did not see a full recovery in April and May, but we saw that the recovery was moving in the direction that we had expected in those high value transactions.
As we've said in the past our assumption for the full year.
Recognizing that in the early part of the year would have been yet still in.
More of a recovery mode. Following the.
The OMA chron.
Variant, if you will that that led to some more.
Restrictions, but but but what we were seeing in the May and June period was a continuing improvement.
Against the 19 levels and then and then we saw that flattened out in the early part of June and then kind of reverse in the latter part of June So we have not yet.
Got back to a 19 level, but we were seeing progress.
Right well in line with our expectation of that low 70% number.
We had talked about and now.
We've said, we've kind of adjusted our thinking just simply by taking a look at what we're seeing in the current trends to say that that recovery rate of those high value transactions will be kind of more in the mid to the upper end of the 60% range. So.
Not a big difference, but you can even tell you.
You want to do some light grenade math and assume that low seventies would've been something like 70, 273 and mid to high sixties could be something like 67% to 68, you can put your own numbers in there, but that will give you a delta difference of about five or 6%.
And so you can see that and you can see that in our articulation of the changes in our EPS number that that the travel congestion impacted us by about 20 cents a share.
Even to Andrew's further other question about looking forward to 2023.
You then just said well if that <unk> might be roughly equal to five to six percentage points will take the 30 delta between that and 100 and divided <unk> got about five turns on that we will take five turns of 'twenty you are in the 80 to $100.
<unk> on <unk>, you take that five terms youre getting in the 80 to a one dollar improvement on our earnings per share if we get to that full recovery levels. So if we if we said that that we were at full level in May and June our April and May.
Misstated that but.
But it was certainly approaching the expectations that we had previously set out.
Understood. Thanks for all that color and I guess my follow up is just on your total how you've sort of approach to guide it seems like you're taking the conservative thought at least on some of the factors that you called out is that sort of a fair read.
How you've laid out the guidance and where do you think you've made so many drivers that has sort of headwind where do you think you might have some buffer if things don't get worse from here.
I think that the.
The potential upsides.
They fall in several areas. One is we've continued to have nice.
Ren and dandelion type of sales.
We may be.
Maybe we're a little bit.
<unk>.
Intimidated by all these travel lows that you see out there.
Our.
Mike made a comment about rolling out the new Apple card product.
I think that we've been we've.
We've appropriately considered that in our expectations, but we know that it had very good traction here in the United States. So it's got a possibility of helping us out there.
I don't see any kind of one silver bullet that we've been.
Too conservative on.
We try to we try to come up with that number right down the middle of the fairway.
There is probably.
<unk> inherently a little bias towards conservatism.
But I don't think that were under shooting at much.
There are some people believe that they because of these travel woes that the travel season, maybe a long dated a little bit this year, so that might provide us with some upside as well.
We will just have to see.
And we did see some of that last year as we want to from the third to the fourth quarter.
Operator, I think Thats. The last question for the day. So you can kind of close us down.
You everybody for joining us really appreciate it.
Thank you. This concludes today's conference call. Thank you all for participating you may now disconnect.
The conference will begin shortly to raise Johan during Q&A you can dial one one.
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