Q3 2022 Euronet Worldwide Inc Earnings Call
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Yes.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
[music].
Good day, ladies and gentlemen, and thank you for standing by and welcome to the Euronext worldwide third quarter 2022 earnings call. At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star.
One one on your telephone keypad.
At this time I would like to turn the conference over to Mr. Scott classroom General Counsel, Sir please begin.
Thank you good morning, everyone and welcome to <unk> quarterly results conference call for our third quarter 2022.
On this call we have Mike Brown, our chairman.
So our chairman and CEO and Rick Weller, our CFO .
Before we begin I need to call your attention to the forward looking statement 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 performance are forward looking statements.
<unk> actual results may vary materially from those anticipated in such forward looking statements as a result of a number of factors that are listed on the second slide of our presentation.
Except as may be required by law <unk> does not intend to update these forward looking statements and undertakes no duty to any person to provide any 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 CFO Rick Weller.
Thank you Scott and thank you to everyone who is joining us this morning.
I will begin my comments on slide five.
On a consolidated basis, we produced revenue of 931 million operating income of $168 million and adjusted EBITDA of $212 million.
We delivered adjusted EPS of $2 74.
A 55% increase from $1 77 in the third quarter of last year.
These strong double digit improvements in all metrics were driven by double digit constant currency growth from all three segments, including a strong rebound in domestic and international cash withdrawal transactions in the EFT segment.
The strong demand for travel continued following the lifting of COVID-19 restrictions across the globe.
Next slide please slide six presents our balance sheet compared to the prior quarter.
As you can see we ended the quarter with $967 million in unrestricted cash and $1 7 billion in debt the.
The decrease in cash is largely from the repayment of debt and the impact of foreign currency fluctuations on cash partially replenished by cash generated from operations of $157 million.
Next slide please on slide seven now.
Here, we present, our results on an as reported basis for the quarter.
I'd like to point out that since we last spoke to you in July we continue to see a strengthening of the U S. Dollar against most of the significant currencies, where we do business.
Similar to last quarter, many of the currencies in our most significant market declined in the 10% to 20% range versus the U S dollar compared to the prior year.
To normalize the impact of these currency fluctuations we have presented our results on a constant currency basis on the next slide.
Slide eight.
The strong improvements in ft revenue operating income and adjusted EBITDA were the result of increased domestic and international withdrawal transactions driven by improving trends from the easing of COVID-19 restrictions across the globe together with the addition of good.
Performance from the acquisition of the Piraeus Bank merchant acquiring business in March of this year.
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 per transaction than domestic transactions.
<unk> revenue grew 18% operating income grew 29% and adjusted EBITDA grew 24% driven by continued expansion in mobile and digital branded payments together with continued growth of the digital distribution channel.
Also included in these third quarter results is a significant benefit from the loyalty reward programs offered by certain large retailers, which were recognized in the third quarter of this year.
Similar programs were largely recognized in the earlier quarters of 2021.
Revenue and gross profit per transaction were consistent on a year over year basis.
Money transfer revenue operating income and adjusted EBITDA grew 11%.
3% and 29% respectively.
This growth was the result of 14% growth in U S outbound transactions, 12% growth in international oriented originated money transfers.
Of which transfers initiated largely in Europe grew 10% and transfers initiated in the middle East and Asia grew 23%.
In addition to these impressive gross growth rate ex fee transactions grew 21%, partially offset by a 13% decline in the U S domestic business.
These growth rates include 40% growth in the direct to consumer digital transactions.
Revenue and gross profit per transaction as well as our average send amounts were largely consistent with on a year over year basis.
And as you can see across all segments. This third quarter posted margin expansion, both year over year and sequentially.
Moreover, I would like to note that we have not yet seen any significant pressure.
Some inflation in revenue our gross profit in any of our segments.
We have only seen moderate impacts on higher SG&A expenses, primarily salaries.
We continue to be watchful about how inflation may impact our business going forward. However to date the business has shown great resilience in light of the current inflationary conditions.
Regarding FX pressure I mentioned earlier that we have seen currency declines in the 10% to 20% range on a year over year basis.
For that matter. These similar declines relate to the 2019 FX rates as well.
The pressure continued.
Certainly intensified during this quarter with currencies weakening against the U S dollar anywhere from 5% to 13% with some of the more significant declines coming at the end of the quarter.
Despite the impact of these FX rate changes since we provided guidance in late July we.
We continue to expect our full year 2022, adjusted EPS to be in the $6 30 to $6 40 range given current FX rates.
As I conclude my comments I'd like to reiterate that we are extremely pleased that each of our segments produced double digit constant currency growth across revenue operating income and adjusted EBITDA in the third quarter.
This is a true testament to the resilience of our business driven by our geographic and product diversity as well as our best in class technology platforms.
Taking into account the full FX impact on next year's results, including the accelerated FX declines we've seen in the latter part of the third quarter.
We believe that this momentum will still allow us to produce mid to upper teens earnings growth rates for the full year 2023.
For perspective, if we were to apply current FX rates to our 2019 earnings.
We would see that they would have been.
Approximately 11% lower.
Accordingly next year's earnings growth would reflect a nearly 20% earnings growth over 2019 earnings with comparable FX rates.
Moreover increases in interest rates, we will have another 5% to 6% impact next year compared to 2019 earnings.
Accordingly.
You adjust for FX and interest rates you can see that our underlying business is robust and continues to grow very nicely.
This gives us confidence in our expectation that we can continue our long history of compounded double digit earnings growth well into next year and beyond.
With that I'll turn it over to Mike.
Thank you Rick and thank you everyone, who is joining us today I'd like to take a minute to focus on what Rick just said, we delivered double digit constant currency growth across revenue operating income and adjusted EBITDA in all three of our segments.
With killer constant currency growth, where it counts in operating income and EBITDA.
This is further evidence that our business is resilient and that our model works.
Similarly across the globe, not only want to travel, but can't wait the dragon and they still want to use cash when they finally arrive at their destination.
In <unk>, there is growing demand for mobile.
Excuse me mobile in branded digital payments contests, and consumers and businesses want and need to send cross border payment.
In fact, I would like to remind you that our <unk> and money transfer businesses continued to grow during COVID-19. So these strong double digit.
<unk> results are not on top of a down period, but rather in addition to all the growth that has happened over the last two and a half years.
Moreover, when we finished this year, we will expect to see EPA in money transfer both growth constant currency revenues more than 35% over 2019 now thats impressive. We achieved these results because we have a strong balance sheet and a geographic and product diverse.
Business that helps us navigate economic pressures.
So while we cannot control the variance of Covid inflation interest rates or labor shortages in the travel and hospitality industry. We are really good at executing on the things that we can control.
And over the last 25 years, our business has continued to deliver growth through various economic cycles.
As we think about how the third quarter unfolded I will tell you that it played out in line with what we anticipated when we spoke in July we saw very strong demand for travel, which was capped though by passenger restrictions and staffing issues at airports and hotels across the world.
And our review of the summer travel season, the European Tourism Association found that on average European international arrivals or about 26% behind the pre pandemic levels.
Thanks.
With what we had seen in the Americas, and Africa and Africa, while arrivals in Asia Pac in the Asia Pacific area still lagged 2019 by approximately 72%.
They also validated our data doesn't travel recovery across Europe was not homogeneous.
For example, the travel in Greece was 2% higher than 2019 level, but in Portugal, the travel lagged 2019 by 10% in Spain and.
France travel lagged by 25% and in the Nordics and Eastern Europe International.
Rivals lagged 2019 by closer to 40%.
These are largely consistent with the recovery that we saw in the international cash withdrawals across our ATM business validating that post COVID-19 people still want and need cash when they travel.
When looking forward, we have certainly seen mixed travel projections for 2023 Euro control recently published a report stating that they now expect 2023 travel recovery rate.
Around 92% of 2019 levels.
European Tourism Association was more bullish stating that they still see pent up demand for travel spilling over into 2023 due to unused travel credits from 2020, especially from the North American market and they believe that the stars are aligning for Europe to have a very strong travel.
Season in 2023.
We could all debate what next year might look like and will likely be.
Wrong.
What I will tell you is that even if we only get 92% of 2019 travel levels.
That is still nearly at 25% improvement from last year.
I remain bullish on the growth potential for Ethernet because number one we believe that we continue to see improvement in the global travel trends, we have plans to expand our ATM estate to a half a dozen new markets. We will continue to introduce new products in APAC, we continue to expand our <unk>.
First in class money transfer network, and we have significant opportunities in the pipeline for both Iran and dandelion products.
Now let me give you some more detail. So you can really see why starting with our <unk> segment on the next slot.
You don't mind, please move to slide number 11.
Here you can see that we continue to expand our DSD business. This quarter, we launched a new independent ATM network in Estonia.
<unk> access to cash mark convenient for travelers and locals we continue to our expansion outside of Europe with the acquisition of 500 non branch Atms from the bank of the Philippine Islands.
These 500 Atms position us as a catalyst of ATM consolidation with our superior technology operational services and extended presence globally. This is another important step in our growth strategy and further diversifies, our ATM network outside of Europe .
In Spain, we signed a network participation agreement with <unk> Bank in Spain. This is the 15th network participation agreement in that country, covering 73 banks across the country are U S. Based dolphin team signed outsourcing agreements with 15 credit unions in the U S.
And on U S military bases in Germany.
And our merchant services business in Greece continues to grow this quarter, we signed a reseller agreement with Epsilon net a leading software company in Greece, covering more than 100000 small to medium sized businesses.
We also added approximately 3000, new merchants, including a large supermarket chain that you've heard of car for together with Mcdonalds Odeon cinemas and here on energy and grief outside of Greece, We were able to add 770, new marches through our Nols tax free at a pure commerce relationships.
Finally, we continue to add more Atms to our portfolio.
During the quarter, we added 529, <unk> owned Atms, bringing our total to more than 800 Atms installed so far this year.
We also added 164, new outsourcing machines, and we seasonally deactivated 936 machines as the travel season begin began to wind down as we mentioned to you last quarter. We are facing some challenges in the ATM supply chain, which has slowed down.
Some of our ATM expansion, but we are working with new ATM manufacturers and expect that we can continue to add more Atms next year as the travel is travel continues to recover.
To sum it up in ft I here for questions.
Frequently.
The first one when travelers go to new places do they still need and have use of cash and the answer is yes.
Two do you expect 2023 to bring 2019 volume well I guess from everything we see not quite but probably close to maybe 92% to 95% of 19.
Remember, even hitting that number could result in a 25% growth in ftes travel related transactions for 2023.
How much is the Ukraine war hurting our business, while we have seen some pockets where the impacts are significant in certain markets the impact to our overall business has not been significant.
We believe that the number of central European travelers will still be muted in 2023, but we saw a late recovery of other key markets, such as Germany, making us more optimistic for next year.
Number four has inflation inspected your ft volumes, we have seen no evidence so far but we are keeping a watchful eye on.
We continue to be pleased with the rebound in our <unk> business as you can see we continue to diversify our product portfolio with new products and new market, which we expect to continue to pay off as more normal travel patterns resume now let's go on to slide number 12, and we will talk about apex.
Okay.
I am, particularly excited about this quarter's ipe results during the first half of the year, we saw lighter than expected result, as certain of our large customers deferred their loyalty reward promotions to the third quarter you can see that in these results that those campaigns came home and support our confidence.
That ebay can produce strong growth rates for the full year further boosting our confidence in our <unk> business or the new agreement you can see on this slide they continued to expand our mobile and branded digital payment offering.
During the quarter, we launched T mobile activation program here in the U S and in it.
The independent dealer channel you May remember during the last call. We mentioned that we had launched Apple's new gift card across 15 market <unk>.
As a reminder, this is an everything apple gift card, which can be used for hardware products apps accessories games and much much more.
<unk> has been well received across Europe , and we believe this supports ebay's continued growth outlook.
<unk> launched Disney plus physical and digital gift cards across Germany, and Austria and.
In addition to the physical distribution, we continued to expand our digital distribution portfolio during the quarter. We further expanded our relationship with Apple by launching Apple content on flip cart a law.
Large mobile wallet in India, and we launched mobile top up on <unk>.
Neo bank App for teenagers in India. Finally, we continued to sign new agreements that we expect will deliver results in the coming year.
So now let's go on to slide number 20% pardon me slide number 13 and talk about money transfer.
Our network now reaches 509000 locations, surpassing the size of our physical network before we shut down more than 20000 locations earlier this year and in.
In Russia, Belarus and <unk>.
In addition to the 5 million physical location, we now have 454 million wallet accounts.
And can reach more than three 6 billion bank accounts across 188 countries and territories importantly, our account deposit network continues to gain the trust and adoption of our customer.
We saw accelerated trains and the account deposit with transaction growth of 28% during the quarter and the principal transferred amounted to accounts, reaching 34% of our total international outbound volume.
These figures demonstrate the importance of building the right network with the right products for today's customer preference.
During the quarter, we launched 14, new correspondents in 12 countries, including cash pick up service added at Islamic Bank of Afghanistan, Our first partner in that country.
We also launched cash pickup.
At <unk> Bank in Bangladesh, and Wi Fi Bank in Tunisia that will provide full coverage of our bank deposit services for consumer payments and remittances and corporate payment.
We also signed an agreement with Travelex in the UK to add Ria money transfer and over 200 locations across the country.
Okay.
Just as we have grown our physical network to the second largest in the world. We also continued to rapidly expand our digital network.
During the quarter, our direct to consumer digital transactions grew by 40% accelerating from 37% growth in the second quarter of this year.
And we continued to add new offerings that we believe will allow us to maintain this growth. This quarter, we launched our digital money transfer offering the Ria money transfer App and two new countries, Portugal in Switzerland.
We expanded our wallet network by adding service to five new digital wallets and banana in the Ivory Coast, Liberia, Cambodia and Pakistan.
And we added wallet functionality to our digital product and Malaysia, allowing customers to send funds directly to their mobile wallet.
Finally, we signed a bulk payment service agreement.
<unk> reserve.
Dominican Republic, and we added corporate payments in 12 new countries.
We are pleased that our money transfer business produced strong double digit constant currency growth rates in the quarter and with all of the activity on this page. We expect these growth rates to continue into 2023.
Now, let's move on to slide number 14 and talk about our technology.
<unk> products, starting with band alone.
Slide 14, our dandelion in network continues to grow our real time payments network connect to bank accounts, and 103 countries and territories and we can now land corporate payments and 118 countries and territories. This expansion has not only resulted in a 44%.
Year over year revenue growth, but it is getting the attention of potential partners. Our pipeline of bank prospects is now up to 70 banks about half of these are global or regional banks, including 15 of the top 50 banks in the world.
Another 20 represent national banks, and a remainder remainder are still evenly split between local banks of neo banks.
We believe our dandelion value proposition is attractive to banks compared with the legacy Swift in correspondent banking rails due to its speed transparency and predictability of the payment together with the access to alternative payment channels, including mobile wallets and cash.
In addition to traditional banks. The team has continued to explore partnerships with national and regional switches.
These switches are beginning to seek bilateral agreements with other national switches that struggle with the lack of interoperability governance and various technologies. Among other things dandelion can be a one stop shop to service cross border payments for all of their bank members.
Our pipeline also includes the non bank prospects right now we are working with 55 non bank prospects.
Across various MSB is fintech payments and payroll companies. This.
This is a very significant sales pipeline and while these agreements take a little longer to negotiate an aside we are confident that these customers understand the value of band Alliance.
What that what it can bring to their businesses and we anticipate that we will have some exciting announcements.
In the coming quarters.
Let's not forget where we are in the lifecycle of this new endeavor.
In 2019 through 22, we repurposed our CDC family remittance product to be able to handle BTB payments, which require much more sophisticated compliance regulation and licensee.
This by the way is a never ending task, while we were already producing revenues and healthy growth in October 2021, we announced this product to the market to enhance our sales leads.
Sharing that we would be ready for prime time in Q2 of this year and March of 2022, we are ready with 81 countries in real time.
So to have so many leads in process at this early stage confirms our belief that we are quickly being known as the modern generation of BTB real time cross border payment.
Now, let's go on to slide number 15, and I'll give you an update on our rent.
Slide 15.
This slide.
Highlights our continued momentum in selling our Ren platform across the globe on the heels of our successful implementation of ran in Mozambique, I am very pleased to announce that we have signed an agreement with the African electronic trade group called AE trade to develop a new Pan African payment.
Cross border switch using our Rand payments platform. The switch will serve as the financial Foundation for an initial 44 of the 54 possible countries in the African Continental free trade area that connects a population of about one 4 billion people Utah.
Rising Euro nets ran payments technology, the switch will enable central banks regional processors financial institutions, and small and medium sized enterprises to easily make transactions with each other in real time, and bring new banking benefits and capabilities to African citizens.
So yes, you heard that right <unk> ran platform is going to be the real time cross border payment switch across Africa. This is a tremendous win for our <unk> team and we look forward to updating you on our progress in the coming quarters and.
In the Philippines, We signed an agreement with advanced intelligent group to provide issuer processing services for another new digital bank <unk> will be deploying its Ren foundation to support card lifecycle management transaction switching card scheme connections among other services.
This is our second digital banking deal in the Philippines. Following our successful launch with Union Digital Bank earlier. This year. These digital banks just love our tech stack.
In India, we signed an agreement with Axis bank, the largest private sector bank to provide them with prepaid processing, including lifecycle management and interchange processing for domestic and foreign cards for <unk> private cloud this.
This bank has among the leading prepaid issuers.
In the country.
They have a large card base and transacting and transacting customers, which will be migrated to our prepaid platform as part of the program.
This win signifies our graduation into the large bank category, beating competition for major global players in this space and validates our platform's capabilities to handle large volumes many complexities in multiple levels of regulation.
As you can see our pipeline for rent continues to strengthen.
S entities around the world are beginning to see the benefits of our scalable and flexible technology.
We have now signed agreements, which we expect to contribute $125 million in revenues over the next six years and we look forward to even more good news in the fourth quarter.
Now, let's go to slide number 16, and we'll wrap up the quarter.
Ladies and gentlemen, as I reflect on this quarter and more broadly on the diversity of our business.
Say that by any measure when you have all three segments producing constant currency double digit growth rate.
It's an outstanding quarter and consistent with what I've been telling you the business has the capabilities to do.
And while I am extremely proud of these results I'd be remiss not to remind you of our history.
Our businesses have all consistently produced strong growth rates through all sorts of economic cycles and weird economic event.
Over the last couple of years two of the three segments produced growth during Covid and we have endured recessions and even unusual events like countries the monetizing their currency.
And as they say history oftentimes is a good predictor for the future and while we don't discount the real impacts of inflation and potential recession in the economy. We are confident that our products are in demand, we believe that the diversity of our products and our geographies together with our mark.
Expansion plans for ft, our new product and channel deployment plans in Ipe and our network expansion and money transfer will enable us to continue to grow as we always have.
We delivered a great third quarter and I'm really excited about our prospects for next year.
With that.
We would be happy to take questions. Operator will you. Please assist.
Yes, Sir ladies and gentlemen, if you have a question or comment at this time. Please press star one one on your telephone keypad again, if you have a question or comment at this time. Please press star one one on your telephone keypad. Please.
Please standby, while we compile the Q&A roster.
Okay.
Our first question or comment comes from the line of Andrew Schmidt from Citi. Your line is open.
Hey, Mike and Rick Good morning, Thanks for taking my questions here.
Sure I wanted to start off just a quick confirmation.
Terms of the 2023 outlook early outlook just wanted to confirm that you said mid to upper teens adjusted EPS growth.
And then if that is correct and maybe you could talk about some of the key variables that are assumed in that particularly.
Assumption as it relates to high value <unk>.
<unk> transaction recovery.
You said, 92% plus but I wasn't sure if that was travel or high value transaction recovery.
I'll leave it there guys. Thanks a lot.
Okay, I think there's probably three of the big ones in there.
On the travel recovery as Mike said.
Some some new information has come out so our expectation is that that will be kind of in that low <unk> range that 90% to 92% kind of range. There. So if we see a more robust travel next year, it'll just be that much more beneficial to us, but but in that kind of low <unk> number okay.
The second and that's that's on the international travel there because those are the real rich value transactions.
The second important part in the math is the FX rates and we have not tried to out think what will happen in the future. We just use what they are today. So as you can see unfortunately, the euro is trading sub value to par on Dol on the dollar.
The pound is at about 110, 111, and again, if you take a look at those numbers back to 2019. Those are are fairly compressed, but we've assumed that the current FX rate numbers. The other piece that that moves the math as interest rates and.
We've kind of read the signals from the fed we've got.
We've got another 125 basis points in our numbers.
Even following this most recent lift so we'll we'll kind of see how that shakes out.
<unk>.
Maybe we won't see as much in the next two bumps, but but we've assumed a <unk> 75 bps bump in December and November I get in November and then another and another 50.
<unk> bump in January .
Got it. Thank you for that and then just quickly maybe you could talk about just the so.
So high value transaction trended in the third quarter progressed and.
I know I think you were targeting the revised sorry with mid to upper sixties, just curious if there's any update to that.
Just kind of think we pretty much were trending relative to that yes, Andrew we pretty much hit that honor.
The nail on the head.
<unk>, 68% to 70%, which is about I think it was 68% I think that was the number we might even have used on our last call.
Where it was trending we saw.
Significant.
No I don't know compression and the number of travelers coming from ink.
England, which is our single largest source of international cross border transactions.
Those numbers were down quite a bit so.
And you can read that in all the travel stuff I mean, we compared.
<unk>.
The exits out of the out of the London airports compared to prior year and they were down I think it was 28% is that right. Yes. They are done down 28% from prior year.
If the British start traveling again next year that will be very lucrative for us.
What I would just follow with us.
As Mike said look the predictability of this is probably anyone's guess as to what the exact number is but.
But as we've taken a look at our ATM transactions and we've looked at the flight data and we've looked at this across multiple countries, where there is varying degrees of flights, leaving and different.
Landing rates in different countries, we have seen a nice correlation between those so so it gives us the.
Confidence and continues to see we've seen this really kind of almost since the pandemic.
As has started to recover if you will is that there is good correlation between our ATM international cash withdrawals and those flight. So we believe strongly that if the if the flights are moving if the people are moving or transactions will follow.
Thank you very much guys. Thank you Ed.
Yes. Thank you Andrew next question operator.
Thank you standby.
Our next question or comment comes from the line of Andrew Jeffrey from Truth, Mr. Jeffrey Your line is open.
Hey, guys. Good morning, I think.
Because my name anyway.
I appreciate the color Mike in terms of.
And what Youre seeing in international travel and demand for cash at Atms, one of the questions were starting to get more and more with the emergence of tap and pay and generally the use of cards in Europe is kind of how you sustain growth and whether you worry about an accelerated shift to electronic payments from cash I know you are expanding into new market.
Which is going to be really helpful. But could you just sort of help us with an overview of how you think about the relevance of the ATM business broadly over time.
Yes.
Well listen there will continue to be more and more kind of noncash or tap and pay kind of alternatives.
As time goes on in the more advanced countries. So places like Europe Okay.
And we recognize that but we also recognize that most people are using cards for most everything they travel with right now whether they tap it are they swipe out are they inserted so we do expect some pressure on.
Due to that however, there is countervailing pressures as well one is for the little bit of cash that you may need on vacation tips available area to buy a beer or something like that.
The places you can get this cash from our dwindling because European banks are closing branches like Crazy right now.
And somewhere between eight and 10% of the branches per year every single year. So if youre, an international tourists and youre in a new country youre going to get here a little bit of cash did you use.
From the first ATM, you've kind of trip over when you're on vacation, okay, and with more and more branches closing, there's a higher likelihood they will trip over my ATM versus a bank's APM.
So those are the countervailing.
They kind of are fighting each other.
In Europe , but now let's look at the rest of the world. The rest of the world. It's still cash based in the new markets that we're going into Egypt, the Philippines will be.
<unk>, probably another one or maybe two new markets next quarter. These are all.
Very cash based market.
<unk>.
My experience there is that these atms are twice as profitable as our European ones anyway, because they're just in these markets. There's just a much higher.
There are very few Pos terminals much higher percentage of your vacation spend will be with cash. So we are still <unk> is going to be robust for quite a while I think we've got a very long runway.
Our runway.
With this as we expand around the world.
Yes.
Okay that helps a lot I appreciate that color I think for investors too.
I don't disagree with these people who think that.
Im not im not like to put my head in the sand there will be noncash alternatives, but we see time and time again, all our data points to a little bit of cash is used for.
Is used on somebody's vacation in the new markets, we're going into are extremely lucrative.
Yes.
I always use cash.
Vacation voids.
Uncomfortable interaction with taxi drivers language I don't speak or whatever the case may be.
Money transfer.
Doing great obviously globally.
And again I appreciate the quantification of the drag.
The U S business anything you can do about that any reason you think that abates.
Or is this just is this a structural drag on your money transfer growth.
No I think well if you if you look at our U S business over the last.
Many years, we've been growing.
Kind of double digit and transactions out of the U S. For a long time, we do have that still have a little bit of that drag from Wal Mart on the domestic money transfer business.
The cash to cash Walmart to Walmart product, but now Walmart starting to really take off nicely with both their international outbound and specifically there's there are single product that they call Walmart to Walmart, Mexico product, which is done by assets another kind of white label product.
Powered by Ria and so that continues to garner a lot more transactions. These are transactions that would go from a Walmart here in the U S and be paid out in a Walmart in Mexico. So.
Every quarter. It this is a little bit less of a drag because.
The numbers go down on the domestic.
What we lose domestically is starting to reduce and then what we're gaining on the international outbound continues to grow.
Okay.
Terrific I appreciate it. Thanks. Thank you look at the overall numbers for money transfer or they are pretty darn impressive particular later and that's been the bricks and mortar I mean look what all our competitors are doing.
We're not they're not even in our ballpark you know and then on top of that we've got the 40% growth in our digital transaction.
Just also mentioned is that while we would prefer to have not lost over.
Some of the domestic it is down to a low single digit kind of a number here so.
It's a piece of our mix, but it is not an important piece of our mix.
Perfect. Thanks, Rick.
Thank you our next question or comment comes from the line of.
David <unk> from Evercore.
Standby.
Thank you.
Line is open.
Thanks, So much Rick you called out an incremental 5% to 13%.
Revenue headwind from the strengthening dollar since you gave guidance on the Q2 call in late July and yet you've kept the $6 30 to 640 in EPS guide. So what parts of your business are performing ahead of your expectation versus the guide you gave in late July .
I wouldn't call out any particular, one I think like we saw in third quarter here, we saw a nice good even consistent.
Growth across our business, so I wouldn't say that it's coming from any particular one just.
Good fundamental growth that we're seeing out there.
Okay.
Got it and then what's embedded in the mid to high teens EPS growth guide for 2023 in terms of the.
Revenue and earnings.
Outlook for each of your three businesses.
Well, we havent.
We wanted to try to give the market a bit of a view on what next year was especially and I think.
It is very significant here on what has happened on FX rates and to another degree the interest rates and so we just wanted to try to really maybe help people understand that.
We've not published through what we think each of these numbers are going to be on a on a segment basis.
But but.
Think that our thesis continues to be the same in that we see all three of our businesses as being double digit earnings growers. Okay.
Think that on the revenue side <unk>, we would be may be a little bit lighter on the revenue growth, but still get us into double digit earnings growth money transfer I kind of feel that moving up into the into the lower teens kind of number so call that 12, teen 13, or something like that kind of feels.
Pretty right.
And and as Mike said, even getting to the lower end of the 90 days on the travel recovery.
That's a 25% improvement over those those high value travel numbers of <unk>.
And so <unk> naturally will produce very strong double digit numbers next year. So.
Gives you maybe a little bit of perspective on on what we expect in the growth rates of those businesses and I would say that thats consistent with what we've been saying for some time and we've consistently seen that come home and our results here.
Yeah.
Got it just a final question any specific callouts on.
Key key R&D investments in 2023.
More broadly how youre, how youre managing expenses in this environment.
So with respect to the R&D I mean, we are.
We are a high tech shop, I mean, we spend a lot of money on R&D and that's why we've got the tech stacks that continue to win more and more business, but we don't whine about it.
We're spending less much more on R&D this year.
Make your future better and use that as an excuse for bad results. Today, we will continue to do so and <unk>.
As we move forward in the.
With random dandelions, yes, but we don't have any kind of what I would call outsized expectations of let's call. It ramped up our incremental investment spend for next year.
That's always.
<unk> subject to change if we win a really important significant opportunity or something like app, but but I think as Mike characterized it's kind of business as usual.
Got it thank you very much.
Thank you standby.
Our next question or comment comes from the line of Darrin Peller from Wolfe Research Mr. <unk>. Your line is open.
Hey, Thanks, guys. Thanks for all the details the amount is through all these macro headwinds.
When we think about 2023, 92% travel recovery I just wanted to first of all be clear that.
You believe you can track that now because the headwinds you see in certain markets being in whether it's eastern Europe or the U K craziness or any other sort of idiosyncratic factors to euro debt is that going to allow you to go back and track to the market, 92% were there any changes we should keep in mind on that front and then just on that.
Same segment permitted.
Maybe just revisit the investments needed to build out this business and whether or not.
Nationalization into Asia is going to cause more of the margin structure really what I'm getting at is the margin structure able to get back to what it used to be.
Okay. So let's.
Look at the margin structure of that sounds like yes.
We do have some increases in some of our cost, but our margin is a direct result of less transactions. I mean, we have a very lucrative transactions. When we do that next big International Cross border transaction.
We're going to bring 90% of that.
80% to 90% of that revenue straight to the bottom line. So you can see with us only hit and call. It 68 or 70% of those transactions. This year versus 19, that's going to affect our margins considerably. So as we get closer to 100% Youre going to see the margins go up and that just is going to happen with that with that flow.
Oh through.
And with respect to the cost of going into these new markets.
Darn good.
I lose track, we might be in 25, 30 markets with our Atms right now and as we go into new markets or even in Asia doesn't cost us any more than what we do today.
And so.
You won't see any like big ramp up what you do well see because those markets are very heavily cash base theyre just much more.
Profitable on a per ATM basis.
Darrin I'd add.
Add to mikes comments on the margins here I mean, we take a look at now compared to 2019.
I think there's really only two things that would soften our margins a bit okay 19 was a great year.
In our <unk> segment, we were in about the 33% operating margin range.
Since then.
One of the things we had as we we moved or shifted a little bit more to our own Atms we had.
Couple of instances, where some large groups of Atms from banks.
Were taken back in house upon acquisition of those banks and in those cases.
While we will ultimately what we essentially did is increase the number of deployed Atms, we will ultimately make more money from those but mathematically the margin will be a little bit lighter so.
I would expect that to have a little bit of a pull in on that margin in the second thing is as you know in the inflation here.
Inflation is coming into the business, we mentioned that we've got some higher expenses there.
Unfortunately in the payments World rarely do you have the opportunity to take prices up.
We would love to be able to do that but I don't see that there's many opportunities to increase the prices and so we will have to use volume to kind of grow through that.
But it will make a difference on the mathematical calculation of the margin. So I would expect that that margin will be a little inside of what that 33 was in 2019.
Alright, that's very helpful. Just one follow up.
So I'm trying to figure out the best question Theres, a bunch, but first technically speaking Piraeus what was that in terms of the impact on transactions or on our revenues you can help us.
And then Mike if you could just quickly give us a thought on the Africa wind for rent. It does sound really interesting I don't know the timing of it or the magnitude of what it could be if you have any sense on that.
Well.
On all of these <unk> deals you really never know until you get there. We do have very nice revenues that are guaranteed based upon the minimum number of transactions actually Kevin here do you know.
Kevin Kevin actually is with me and he oversees that do you have anything.
A little bit more color Kevin.
Good news Darrin is that from a technical perspective, it's very similar to the project that we did for Simo already in Africa. So the risk in terms of the technical deployment.
Is going to be easier than the previous projects. So we can leverage what we've already delivered.
Timing for it is we are starting the development.
Their development as we speak it'll be some time the first.
First country will go live sometime towards the end of next year. So from a revenue and operating profit standpoint is kind of a 2024 play but it has the potential to be quite meaningful because there is as Mike said there is a there is a minimum guaranteed component and then there is a.
Should a per transaction component and so if the transactions.
We're.
Close to the forecast of a trade.
Trade is it.
It'll be a really nice project for us.
Thanks, guys just one other quick numbers, yes.
<unk>.
We added in the ballpark of $30 million of revenue in the third quarter here because of Piraeus.
<unk>.
You recall, when we announced it we said that they have about $80 million to $90 million in annual revenue and I would also just point out that.
<unk> has a bit of a seasonal effect, where where there are third quarter, just like our ATM business because a lot of tourists go to Greece, obviously.
<unk> is better than what the other three quarters of the year is so so.
So that gives you a perspective, but I would say.
In the ballpark of about a third of their revenue comes in the third quarter.
And then.
Maybe in the around the 20% kind of range in the in the first quarter and then balance between the third and the fourth but because that gives you an idea of what was in the third quarter for operators.
And Darren good morning, Thanks, Hey, Bob Thanks, guys Alright.
Thank you. Okay. Unfortunately, operator, I think we're pretty close to the top of the hour. So I think I'll, let Darren question would be the last question.
Unless do we have time for one more.
I'm being told we have time for one more question.
Okay. Our final question will come from the line of Tien Schakowsky from Autonomous research.
This is Joshua your line is open.
Hey, Hey, good morning, Mike and Rick Thanks for taking the question I wanted to ask about the outlook. It looks like EBITDA was was largely in line with our expectations, but the <unk> <unk>.
EPS.
Outlook. If you just do the implied math on it was maybe a little bit light. So I was just wondering if you could talk about.
What's driving that it seems like there might be some kind of below the line items.
Thanks.
Yes.
That's a kind of a hard question for me to answer since I'm not the guy who drives the models that come up with what the consensus numbers are out there.
I would what I would have to say is there is theirs.
A little bit more interest expense in there.
And and then typically we will have a little bit better tax rate in the fourth quarter.
But it's really hard for me to give you a good answer on that because I think I would have to be familiar with the math.
<unk> at the consensus numbers.
But.
At the end of the day, I don't see anything being really unusual or different out there.
It might just be some math that the margin here.
And one thing we have noticed is that the some.
The people who follow us the analysts that follow us.
Don't quite follow the FX as tightly as they should and so what you'll find is.
The dollar continues to strengthen everybody leaves their models the way they work, but when you translate our 75% of our of our profit it's all coming from overseas. So when you translate that back to dollars.
It's certainly negatively affected when the dollar strengthened so that's one of the things that you might keep in mind and I would say that as a just a general guide to all the analysts on the call.
Alright, we'll have to fine tune the FX model.
I think if I heard you correctly.
I think you guys talked about.
Next year growing earnings in this like mid to upper teens range is.
Is that a reported EPS figure so if I run the math I think I'm shaking out at like call. It $725 760.
In EPS next year, so is that how youre thinking about it and does that earnings growth figures include any share repurchases.
We assume no share repurchases in that and I would tell you that your calculator works in a similar fashion as mind does so.
It sounds like you're pretty close.
Okay, alright, thanks, a lot appreciate it.
Alright, okay.
With that I think will end today. Thank you everyone for joining do appreciate your time.
Ladies and gentlemen, thank you for participating in today's conference. This concludes the program you may now disconnect everyone have a wonderful day speakers standby.
The conference will begin shortly to raise your hand during Q&A you can dial one one.
Okay.
Okay.