Q2 2023 Euronet Worldwide Inc Earnings Call
Okay.
Greetings and welcome to the Euro not worldwide second quarter 2023 earnings conference 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.
Telephone and you will then hear an automated message advising your hand is raised to withdraw your question. Please press star one one again, please be advised that today's conference is being recorded.
It is now my pleasure to introduce your host Mr. Scott Klassen General counsel for Euro net worldwide. Thank you. Mr. Colson you may begin.
Alright, thank you.
Morning, everyone and welcome to <unk> second quarter 2023 earnings Conference call.
On this call we have Mike Brown, our chairman and CEO and Rick Weller our CFO .
Before we begin I need to call your attention to the forward looking statements disclaimer on the second slide of the Powerpoint presentation, we'll be making today.
Statements made on this call that concern you run ads 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 these 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 you are now and does not intend to update these forward looking statements and undertakes no duty to any person to provide any update you.
You should avoid placing any undue reliance on any of these forward looking statements.
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 Scott good morning, and thank you to everyone who is joining us today.
I will begin my comments on slide five.
For the second quarter, we produced revenue of 939 million operating income of $122 million adjusted operating income of $120 million and adjusted EBITDA of $166 million.
Excluded from the adjusted operating income adjusted EBITDA and adjusted EPS is a non cash gain recorded in the EFT segment.
Adjusted EPS was $2 <unk> a.
A 17% increase from $1 73 in the second quarter of 2022.
These results produced a record second quarter and strong double digit growth rates driven by improvements in all three segments.
Slide six presents the summary of our balance sheet compared to the prior quarter.
As you can see we ended the second quarter with more than $1 $1 billion in unrestricted cash and debt of $1 8 billion. The increase in cash is largely due to cash generated from operations of $92 million in the second quarter of 2023 as well as short term borrowings to fund.
Seasonal ATM cash requirements.
Slide seven shows our as reported results for the second quarter.
When comparing FX rates on a year over year basis.
We saw virtually no currency translation impact over the same quarter.
Of last year.
I'll go into more detail on each segment's constant currency results for the quarter in the next slide.
Next slide please.
I'm now on slide eight.
As I just mentioned FX rates were virtually the same year over year.
Before I jump into each segment I think it's important to point out the business expanded margins across all three segments, reflecting our focus on expenses and leveraging our cost.
<unk> revenue grew 13%, while operating income and adjusted EBITDA grew 21% and 12% respectively. The strong improvements in FTE year over year were the result of increased cash withdrawal transactions driven driven by continued travel recovery trend.
And good performance of our Pos acquiring business.
The segment expanded operating margins by more than 100 basis points year over year.
As we have discussed in prior quarters over the last three years, our international transactions have generally recovered consistently with the recovery of international travel.
Beginning in the latter part of the quarter, we began to see a divergence from the recovery of international travel leading to a flattening of our international transaction growth year over year.
We will discuss this trend in more detail later in the presentation.
<unk> revenue grew 15%, while operating income and adjusted EBITDA grew 11% and 10% respectively.
Revenue growth was driven by continued expansion in mobile and digital branded payments combined with.
Sustained growth of our digital distribution channel and a strong quarter for premium promotional activity.
Transactions decreased compared to prior year due to declines in low margin transactions in India. These India transactions are low value and as such have a large impact on transaction count, but a relatively insignificant impact on gross profit.
Margins in EMEA remained relatively constant year over year money.
Money transfer revenue grew 7% with operating income and adjusted EBITDA growing 15% and 12% respectively.
This growth was the result of 11% growth.
In the U S outbound transactions, the 11% growth in transfers initiated largely in Europe , and 12% growth in transfers initiated in the middle East and Asia, and 30% growth in Z transactions, partially offset by a 17% decline in U S.
Domestic business day.
These transaction growth rates include 28% growth in direct to consumer digital transactions transaction growth outpaced revenue growth largely due to mix shifts principally in the <unk> business, which has benefited from strong growth in.
<unk>, but at a lower amount sent per transaction.
The money transfer segment margins improved quite nicely through effective expense management cost leverage and an improvement in gross profit per transaction. Despite seeing average send amount per transaction come in by approximately 3%.
Before I wrap up my comments I'd like to give you more insight into our third quarter guidance and our outlook for the full year.
First we continue to expect money transfer to deliver double digit growth in the third quarter and the full year.
With improving margins.
In Ft, where Mike will elaborate in more detail.
We are seeing the impacts of inflation and rising travel costs, leaving consumers with fewer funds for discretionary tourism spending.
Moreover, we anticipate this trend to continue into the third quarter and as a result, we expect third quarter revenue for ft to be similar to somewhat better than prior year, but operating income will be constrained due to operating.
More Atms together with higher inflation, driven ATM operating costs.
Finally in EMEA as we discussed in prior quarters, our promotional activities can create uneven quarterly results in the third quarter last year, we had strong promotional activity, creating a tough comparison as we head into this year's third quarter.
When we last provided an update for ipe.
We had anticipated that the Indian government would remove its ban on to on the two most popular games in the Google play store.
In may the Indian authorities granted permission to resume operations of one of the games.
Sales doubled in the first few days of the relaunch.
But failed to achieve pre ban levels.
And as of today free fire remains banned in India.
Additionally.
We have learned that the game content providers have plans to release fewer new game titles in the second half of the year and consumers are buying older games in order to spend less money, which is driving lower sales expectations.
When taking into consideration what we see in the current trends, mostly the economic impact of inflation on our ESP segment, which is impacting customer cash withdrawals.
We expect third quarter adjusted EPS to be approximately $2 70 per share.
And while we are now expecting a lighter third quarter than we would have expected three months ago, we continue to expect to deliver year over year adjusted EPS growth.
But now at the lower level of low to mid teens.
In closing we are proud of the double digit revenue growth in the second quarter, which made possible a 17% growth in earnings and we will be highly focused on finding opportunities to overcome the inflationary pressures we're seeing in the ft segment.
With that I'll turn it over to Mike.
Thank you Rick and thank you everybody for joining us today I will start on slide number 10.
If you've been around for any period of time I won't pass up an opportunity to talk about a record.
And we delivered a record second quarter on revenue adjusted operating income adjusted EBITDA and adjusted EPS. These results include double digit growth from all three segments, including the best quarter for money transfer in the company's history.
These strong growth rates highlight how we are realizing the benefits of the investments that we've made over the last three years. Since 2020, we have spent a lot of time, comparing our ft transactions for 2019.
Given the outsized impact Covid had on our terrace transactions now that the effects of Covid are dissipating I'd like to spend a few minutes highlighting the investments we made despite the uncertainty of the pandemic.
<unk>, we have added about 5400 Atms, we've deployed Atms in nine new countries and we purchased the merchant acquiring business from Piraeus Bank.
In APAC, we continue to add more and more content to enter and introduced that content to new markets and more channels in money transfer we successfully accelerated our digital growth strategy and expanded our physical location presence, while increasing our overall profit margin.
At the same time.
We continue to invest in our <unk> platform and our sales pipeline continues to grow. Moreover, we developed and a line which is still in its infancy, but it is generating very strong growth rates.
You can see the success of this strategy.
And the strong constant currency revenue and adjusted EBITDA growth rates for the second quarter 2023 versus the same quarter in 2019.
Said more simply we are not a one trick pony.
We have launched new products, new markets and entirely new solutions, which are diversified our revenues and cash flow streams. So that we now can expect which we'll expect which we expect to allow us to continue to grow well into the future.
I couldnt be prouder of the second quarter results, but I would also like to give you some insight into the lighter than expected third quarter guidance.
First we expected we expect our money transfer business to continue to grow at very solid double digit growth rate with further operating margin expansion in the third quarter.
<unk> as Rick mentioned, we expect third quarter will be a tough comparison to the prior year due to the promotional campaign revenue included in the prior year result.
This expectation is playing out and is causing some of the difference between our outlook and the street's expectation.
However, the largest driver of the lower guidance is any FTE for the last three years, our international transaction data was nearly in lock step with the international flight data published by Euro control.
Then in the latter part of the second quarter, we saw Brian and sharp divergence in our transactions compared to the Euro control flight data.
You may remember that approximately 80% of our travel customers are Europeans with easy access to destinations outside of the EU.
When we analyze the data with that we found that our cardholders, who must fly to Europe , and probably plan in advance to do that.
Like Americans Canadians Australians and others transactions on our Atms have increased on a year over year basis.
However transactions for European card holders are down across almost every European country.
We have tried to understand the abrupt change in the European card holder behavior.
And we found a range of evidence that suggests that the economic impacts caused by the war in Ukraine together with a sharp rise in the major cost components of a vacation, which of course are airfare and hotel.
<unk> less discretionary income to spend on ancillary activities for which people use cash.
There are a variety of sources from which to gather data, but according to USA today. The cost of airfare is up 34% since last year and several travel site indicate that the cost of hotels in key cities in Europe are up 25% to 30% range over last year.
These sharp increases in the last year leap fewer funds for discretionary purchases on a trip the types of purchases by which people use cash withdrawn from our ATM.
Our survey from the European Travel Commission, which was co funded by the EU indicates that to offset these rising costs responders to this survey.
Said that 17% of those people would make fewer purchases, 15% with dine at less expensive restaurants, 10%, which is fewer activities with admission fees or go to fewer nightclubs.
All of these changes would be consistent with fewer ATM transaction, despite modestly improving travel trends.
The ATC survey also says that 14% of the respondents would up.
For a more affordable destination as an example, according to the study since March of the increase in responders, who indicated that they would travel 12% planned to visit places outside of Europe to stretch their budget. This pattern is also consistent with our internal data where for example.
Ample we see Europeans opting to travel to places like Turkey, instead of other destinations like Croatia, Greece in order to take advantage of the favorable currency rates. In this example, the Turkish lira has devalued by approximately 36% versus the euro just during the second quarter.
<unk> 2023, creating travel discounts in real terms and as you know we have no Atms in Turkey.
Next 17% of the responded to the EPC survey.
That they would opt to travel in the off peak season in order to lower the cost of their trip a good indicator that these travelers are impacting transaction trends to some extent.
Finally, southern Europe has experienced a record heat wave this summer in fact, Greece, and Italy have evacuated tens of thousands of turret just in the last few days due to massive wildfires related to the dry conditions and record heat to avoid the heat many travelers have shifted the dates of their travel or are choosing cooler.
Due to hot weather patterns in the Mediterranean.
So as we pointed out the travel data available is consistent with the lighter volumes, we are seeing in international transactions in Europe . The silver lining in this cloud is that our internal data does not show any kind of a substantial change in consumer ATM behavior, and therefore does not show.
A significant structural change to our business.
Accordingly, we believe the primary driver for the decrease in international Transacted is that <unk>.
They have less money available to withdraw due to the increases in their day to day cost of living together, what the increases in cost of airfare and accommodations and I'd like to go back to my earlier comments, we are not a one trick pony, but rather a well diversified business that affords us the opportunity to grow through <unk>.
Good times and bad.
Over the last three years, we have made significant investments across the business and are a stronger more diverse business, which we believe will allow us to absorb these economic pressures and still deliver record adjusted earnings per share for the full year with the expected year over year growth in the low to mid teens range.
Let's go to slide number 11 and talk about the segment specific highlights starting with EMC.
Slide 11, and these highlights you can see we continued to expand our global network in the second quarter, We launched two new independent ATM networks, one in Morocco, and one in Latvia, and we re launched our <unk> network in Malaysia, making cash more convenient for travelers and locals in those market.
In Poland, We signed an ATM outsourcing agreement with Santander Bank to provide full outsourcing services on 1100 Atms.
Further we signed a network participation agreement with nine new merchants in Poland, who can now use our ATM deposit network as a more convenient way to deposit their cash these agreements expand our leading market position in Poland.
And for an update on our Pos acquiring business, we have been extremely pleased with the performance of the merchant acquiring business, we purchased from Piraeus Bank on a year over year basis, our transactions grew 12% and we added approximately 4300, new merchants to our network.
Included in this transaction growth is increased volume from <unk> Airlines, the national carrier and largest airline angry.
In the Philippines, we signed a cartilage cash withdrawal agreement with bank of the Philippine Islands. This provides more convenient and secure access to cash for our customers and the Philippines.
Finally, we were able to renew several agreements during the quarter, including ATM outsourcing agreements in the U S. Albania, Serbia, Montenegro, and our real time payment service agreement for Au small finance bank in India.
Now, let's discuss the state of our ATM network on the next slide.
Slide number 12, we continued to add more Atms to our portfolio in the second quarter. We added 568, <unk> owned Atms and we added 228, new outsourcing machine further we.
We reactivated 3100 55 machines that had previously been closed for the off season.
As of June 32023, we had 51402 active Atms, which is a record number of active Atms for <unk>. The 1100 outsourced Atms from Santander that we mentioned earlier are not included in this quarter, but we expect to add about half of these machines in the second.
Half of 2023, and the remainder remainder in early 2024 to that end. We continue to believe that we will deploy approximately 3500 machines for the full year in new and existing markets by the end of 2023.
Our EFT segment delivered a good second quarter were transaction trends improved and we had great performance from our <unk> business.
Despite the inflationary pressures faced in European travelers.
We are seeing develop in the third quarter, we will continue to expand our ATM and Pos network presence and we look forward to sharing some new market launches with you later this year.
Now, let's talk about ebay slide number 13.
Our EMEA team delivered strong year over year second quarter results with double digit growth across all financial metrics, which included nice promotional revenues in India, We expanded our digital channel distribution through the launch of Xbox E codes on Amazon marketplace in the U S. We continued to expand our.
<unk> renewal strategy through Microsoft 365 at Micro Center, a large computer retailer here further.
Further in the U S. We expanded our growing prepaid mobile phone activation business to include E Sim for AT&T.
T mobile and Verizon the launch of this E. Sim product category is another example of continued product diversification.
In Germany, we signed an agreement with all of the two issue closed loop cards for the <unk> channel.
<unk> delivered a strong first half of the year highlighted by continued diversity in our product and distribution channels now, let's move on to slide number 13, and we'll talk about money transfer.
Money transfer delivered a record quarter across all financial metrics with double digit growth compared to Q2 2022 with very nice margin expansion. Our money transfer network has now expanded to an impressive 533000 locations serving approximately 4 billion.
<unk> Bank accounts and $1 9 billion of wallet accounts across 191 countries and territories.
In South Africa, we signed a partnership with flash through this collaboration Ria has the opportunity to leverage flashes extensive kiosks network of 200000 locations in South Africa to expand our remittance services to even more customers. This agreement will allow us to onboard new Ria.
Customers, who will be able to send and receive payment at flash locations, while the entire flash network will be available for customers to send funds. It is difficult to estimate how many of these locations will actually transact for that reason we will not include these in our official location count.
Not to overstate the breadth of our network.
In Indonesia, we signed an agreement with Dana mobile wallet, which has a user base of 135 million people. Dana is one of the largest wallets in the country, which we expect will enable us to increase our market share.
The strong growth in our bank account and mobile wallet network.
Has.
Yes.
Has driven 32% transaction growth and principal transferred to bank and wallet accounts now represent 35% of total cross border principal transfer.
Additionally, during the second quarter, we launched 24 correspondence in 23 countries. These launches include the international Bank of Somalia, making <unk> first entry into this country. This expansion represents a major step in extending our service.
To the Somali population.
Moreover, we have further strengthened our global network by signing agreements with 33, new correspondents across 26 countries with those launches scheduled in the upcoming quarters.
One of the more significant of these agreements is with a large correspondent in Brazil, a significant development that now enables us to offer cash payment options across that country.
These strategic expansions demonstrate our commitment to providing enhanced financial services and accessibility to an ever growing customer base worldwide.
We continued to see strong transaction growth across most areas of our money transfer business driven by a 28% growth in our digital channel and strong execution across nearly all of our physical send channel.
With this strong performance across most areas of the business and expanding margins, we expect to continue to deliver double digit bottom line growth for the remainder of this year.
So now let's move on to slide 15, and we will give a quick little update on down the line.
During the quarter, our data line partners continued to leverage our money transfer network by expanding payments to 14, new countries and 45% year over year transaction growth from our existing partners. This growth is made possible in part by the enhancement of our network, particularly our mobile wallet.
Average.
Which now reaches $1 9 billion wallet account.
We are excited to announce two agreements that significantly bolster our global presence and real time digital payment capability.
We signed an agreement with the payments arm of entering company, a leading super App in Brazil, which provides financial and digital commerce services to more than 26 million customers.
And is among.
Among the most the growing Brazilian deal.
<unk> in the U S. Additionally.
We have another money transfer service business, which joined the <unk> family in Q2 and that was transferred Galaxy, which is a leading digital money transfer company based in Sweden, serving customers across Europe , and the Nordics with.
With these strategic partnerships, we are poised to provide seamless and innovative financial solutions, leveraging real time digital payment technology to an even broader customer base.
We believe this solidifies our position as a trail blazer and the global money transfer industry.
Let's go on now to the next slide please and I'll give you a brief update on our Rand developments.
We are seeing increasing interest in our ran technology during the quarter, we signed a QR based payment agreement with Tianjin solutions, one of the largest non bank Pos terminal networks in the Philippines, Our technology will allow tangent solutions to offer person the merchant base payments across their entire Pos.
Network. Additionally.
Additionally, we have signed agreements with Banco Guayaquil and bank opened ginger, the two largest banks and Ecuador to provide issuer processing and switching services.
And as an update to several deals we have told you about in previous quarters, We launched an open loop issuer processing agreement with GE ex <unk> Bank, a leading digital bank in Singapore on the heels of this launch we have agreed with <unk> to expand this agreement to include <unk>.
Digital bank in Malaysia, We also expanded our relationship with the bank of the Philippine Islands to implement mobile top up on the <unk> network wallet using the instant pay RTP rails in that country.
We are pleased that more and more customers are realizing the benefits of our <unk> technology, which is further evidenced by our pipeline, which we now expect to contribute $149 million in revenue over the next six years.
With these ran comments.
Let's now draw this discussion to a close with some summary comments on slide number 17.
As I said when I began my comments, we did deliver record second quarter with double digit growth across all financial metrics. We like many companies are facing some inflationary pressures, but we believe our diverse product and solution portfolio will allow us to deliver strong growth results. Despite.
Those pressures as discussed our quarter highlights were number one we maintained a strong balance sheet, providing stability and flexibility to make strategic decisions, we generated more than $90 million in cash from operations, we delivered double digit consolidated revenue growth that resulted in.
17% earnings expansion FTE grew the ATM network by signing a strategic agreements and entering new markets.
<unk> added more products and markets, including some exciting new products, we are preparing to launch.
Money transfer continues to expand its digital physical bag and wallet networks with double digit transaction growth in nearly every aspect of the business, while improving profit margins and leveraging costs.
Our Pos acquiring business grew transactions by 12% compared to the prior year in the second quarter.
We signed new agreements and launched several new projects with our ran and Dan Alliance solutions during the quarter bottom line. There is a lot to brag about here, we have a long history of growing despite various economic cycles. We have made significant investments across the businesses and we are a stronger more diverse business, which.
We believe we will continue to allow us to absorb the economic pressures and still deliver record revenue adjusted EBITDA and adjusted EPS for the full year 2023, and beyond with that I'll be happy to take questions. Operator would you. Please assist.
Thank you at this time, we will conduct a question and answer session. As a reminder to ask a question you will need to press star one one on your telephone and wait for your name to be announced.
Jay Your question. Please press star one again, one moment will be compile the Q&A roster.
Yes.
Our first question comes from the line of Reena Kumar with UBS. Your line is open.
Good morning, Mike and Rod Thanks for taking my question.
You, obviously talked about inflation being a headwind here, yes, keep ethanol can you tell us a little bit about how it's impacting your money transfer business is it a benefit there.
So are you able to quantify that benefit.
In general it's not a benefit when you have high inflation than the <unk> the people sending the money to their families basically have less money to spend.
And so it's not a benefit we have.
Sometimes you get a little bit of FX.
Dislocation and that can be kind of partially helpful. But the average amount sent that we have seen.
<unk> has gone down over the last couple of quarters, and we mentioned that to you.
And remember about a third of the gross profit we make on a transaction.
Is the FX spread on that.
So if people are sending unless you make a little bit less.
Got it Okay and then.
As a follow up.
Scott.
The travel recovery has been versus your expectations specifically.
Travel returning to APAC hasnt been below or in line with your expectations. So far.
When it comes to APAC.
Rana.
We're really not in the right season to be able to answer that well there their travel season for visitors for tourists starts in October and goes through March.
So we do know that things are getting more back to normal there.
Where we have a profitable network there, but we certainly arent getting the <unk>.
<unk>.
Bunches of tourist transactions like we will starting in October so thats kind of where we are we've got to kind of wait for that one the advantage of the whole APAC network and anything that we do down there.
It's counter cyclical are counter seasonal to our ATM network in Europe .
Arena I would just add for the couple of months earlier in the year, which was on the very early.
Our early part of our year, but the latter part of their tourism season.
We did start to see that the transactions were being responsive to.
Inbound travelers so consistent with what we see in Europe is is when consumers show up.
Take out cash from the ATM. So so that behavior was was witnessed earlier this year and we intend we intent.
And we anticipate that it will.
Pick up as we go into the start of the tour the travel season, when we get through this month's soon I mean literally there it's in that monsoon season over there now.
Understood. Thank you Bob.
Thank you one moment for our next question.
Our.
Question comes from the line of Andrew Jeffrey with True Securities. Your line is open.
Hey, guys. Good morning appreciate you taking the question.
This is Seth.
Second summer in a row, now where where theres been something in and.
In European travel that's been disappointing so kind of I guess two questions for you Mike one is.
Is there any way or is there a desire to think about the cost structure of the ATM business such that maybe it needs to be adjusted for what could be.
Structurally lower tourist revenue in tourist transactions and two as you expand outside of Europe East and South should we also think about that as potentially being a segment margin drag I'm just trying to get a sense of how to level set your business for what.
Could be yes.
Less vibrant kind of <unk>.
European in particular travel environment. So we don't know how long this is going to last.
No no we don't.
One of the bright spots is expansion outside of Europe .
Because the reality is.
Even.
Our data from 2019 and pass that as those Atms.
And those more developing markets where people go and that would include now of course, our Asian ones, but let's not forget we're also live in Morocco and in Egypt, there Theyre very very profitable for us more profitable than the average ATM in Europe anyway. So.
Atms on expansion in those areas actually will probably pull our margins up rather than the other way around.
And with respect to our European numbers, we're still making very nice profit were.
But I mean, maybe we made really nice profits when there is that many more transactions. So you are right. We don't know win win that things will get a little bit better inflationary within Europe , but it happened. So fast I think thats one of the reasons that caught people off guard, including myself clear up into the through the <unk>.
<unk> of June .
Everything was fine we are tracking.
The trap, where our transactions are tracking with the travel data and then it just fell off a cliff.
In June and Thats, when we started to see it and I think thats because by that time, then the Europeans were making their summer holiday plans.
And they were just basically spending less because they had left.
So the nice thing is that we don't have it we still have a very it's still a very profitable segment for us and so you don't want to give that up.
Just need to try to expand into more areas outside of Europe .
I would add to that Andrew <unk> question about our interest or thoughts about cost structure and short answer to that is yes, and I know that.
Even a few weeks ago, Nicos, who manages that piece of our business for US has already initiated some thoughts on on what we can do to try to manage that potentially in a different way so.
We are.
We would anticipate that the consumer behaviors will be back to when their wallets are refreshed. If you will and you kind of rightsize, the economics et cetera.
People are still going to want to go to the attractions and go to nightclubs and things like that they're just making short term decisions to accommodate their wallet, but nonetheless, we're taking a look at what we can do to <unk>.
Find some other ways to run the cost of that business more effectively.
And just as a quick follow up what levers.
If I understood your comments correctly.
You are anticipating double digit money transfer revenue growth this year what.
Youre cutting out Andrew.
What what levers drive second half money transfer revenue growth acceleration.
Yes.
Yes.
Andrew you were breaking up a fair bit, but I think you asked what drivers are factor.
<unk> factors are driving the second half money transfer revenue.
Yes, the acceleration that you're anticipating.
Well I think it's all of the things we mentioned.
I mean, the reality is we kind of about the we've got the best payout network in the world.
We've got a great payout, we might be barely number two when it comes to physical payout locations, but when it comes to digital payout locations.
Our locations we are by far number one and you saw that our growth rate there was 32% over prior year being paid into either bank accounts. Our wallets. We've taken a we've spent a lot of time working on digital pay up because we know that the future is more and more of these countries.
And their citizens become bank.
And then that now accounts for 35% of all the payouts, we do are into those digital channels.
So that's one of the things that gives us an edge and.
I think I think it's just kind of blocking and tackling and it's what we do every day, we've been growing that business.
Three to four times faster than World Bank numbers now for 15 years.
And we're going to continue to do that.
Alright, Thank you and the best part I guess is that we've also.
We spent a lot of money getting to where we are and now our margins are coming back in now where basically our growth in transactions and are serious.
Cost cutting our costs.
Cost constraining.
Initiatives have given us a very nice expansion in margins.
Thank you one moment for our next question.
Our next question comes from the line of Andrew Schmidt with Citi. Your line is open.
Hey, Mike Hey, Rick Thanks for taking my questions. This morning.
All the commentary on the high value transaction recovery understanding there's a lot of moving parts there, but I appreciate the work that went into that.
So two parts to it.
Go into that right.
First part these probable recovery.
We've obviously seen some lighter recovery in terms of UK travel volume store Geos and then second part is customer behavior in terms of what you are alluding to.
So maybe you can just talk a little bit about your confidence that what youre seeing is not structural.
And that we will see these come back meaning.
The transaction fee or I should say traffic to Atms DCC opt in rates those things and not fundamental fundamentally changed we would love to give a little more perspective, there. Thanks a lot.
There are two variables that have happened just over the last month or month or two one is.
As inflation hit Europe , we noticed that the average amount taken half per ATM withdraw went down slightly for three months in a row.
We noticed that our opt in rates are exactly the same so customer behavior is exactly the same.
It seems clear to us that people are being more frugal, what theyre spending they just and if you think about going on vacation, maybe 60% of your total spend is your airfare and hotel and then that leaves 4% to 30, 40% left there for your discretionary spend all the things you do for fun.
While it has that portion is is where cash comes in where you might need cash for a little bit of that.
And so when you if you have X amount in your travel budget and you watch your cost of Airfare and hotel has gone up 25% to 35% that just leaves less there for that discretionary spend so everything seems to be following that logic.
Really well so I think as.
As People's salaries kind of catch up with that with the cost that they that they have in their everyday life and their budgets kind of expand a little bit to make up for high cost of flights and hotels and I think we're going to see.
<unk> two are the discretionary portion of People's vacations and of course that would accrue to us.
Got it. Thank you very much and then maybe a question on the Ria business.
Quickly re has been very.
Very competitive on price continues to be.
But.
Has the pricing strategy there changes to all meeting as you get more scale more opinion and payout endpoints there is opportunity to increase price there or.
We continue to kind of be that kind of lowest cost.
Option out there just curious on how the pricing strategy is evolving there. Thanks, a lot. So so we're probably not the lowest lowest those are usually little local guys, let's not forget the big names that you've heard about both digital and physical names, maybe all of US together account for 30% of all the money transfers.
That happened in the world.
So that other 70% you got little guys, who might just go to one country and they are always going to be the lowest price.
But we've decided we've.
<unk> continued to be priced.
Aggressive, but thats kind of how we've been through our whole life.
Right as we add new market.
That there is little competition and that tends to allow you to price a little bit higher.
Because you don't have as much competition and that could help that can help here.
Average.
Revenue per transaction.
So really nothing has changed there I mean look we've got we've got our work in business. There I mean people got really take a look at this money transfer business for 15 years, we have outperformed world Bank numbers by three to four fold every single year year after year, which is why we went from a little Guy 15 years.
And number two in the world and our goal is to be number one and we're on the way to do that because we're growing in others aren't and so I think we've got a pretty good game here and we're going to just continue.
Makes sense, thanks, a lot Mike.
One moment for our next question.
Our next question comes from the line of Darrin Peller with Wolfe Research. Your line is open.
Hey, guys. Thanks.
Maybe just quickly as a reminder, on the segment level detail, maybe if you can help us with understanding expectations for FTE versus money transfer in EMEA for the rest of this year.
I don't know if there's any more color you can give us on growth for each of them.
Okay.
Okay.
No I think as we said in there on when we take a look at especially more more focused on the third quarter here, we expect those revenue numbers to be more flattish to last year kind of more similar.
There's still growth coming out of there, but it won't be because.
Because we just we pulled back on what we expect in terms of transactions at the ATM.
So as we project through the rest of the year I think.
What we're seeing in the consumer data is that consumers are pushing out some of their vacations into the third and into the fourth quarter that will probably give us a little bit of benefit, but I think that that will largely be there to absorb again more of the contraction in the total amount of spin.
That people have so.
We have dramatically changed our what we think is in the third quarter and you see that in our third quarter guidance. So.
I think thats kind of the way it'll it'll play out.
Yes, we're hoping that that's a conservative number but we have to take a look at june's numbers and extrapolate them forward. So we're just being as honest as we can with the data that we have.
Yes, it makes sense.
Hey, guys can we just help understand a little bit more around the mix between Piraeus ESP within the <unk> segment, Piraeus and ATM and brand.
The transaction mix between the three different categories at this point I know, they're different they're different margin businesses. So we're just trying to make sure we understand because each of these grow and some of them are growing better than others, whether it means maybe medium term for the profitability.
Was that the segment I don't know if Rick smarter than me on these numbers, but I think if you mix all those numbers together.
Im not sure youre going to get anywhere.
But we do know is that three components do are making very good contributions to the bottom line in that in that particular segment I mean, we've got.
Last year as an example, with.
The Piraeus bank stuff.
That we now call year net merchant services, we did about $26 million in EBITDA over the 10 months that we had it.
<unk>.
Ran did about $15 million.
Over that over those 12 months and then the rest was in the ATM business. So that's kind of.
Those were the years last year, but the bulk of the rent rent is growing quite nicely in France is growing quite nicely. It's just that we have.
Getting we're being conservative on our ft.
Yes.
Darren.
<unk> business and if you go back and look at some of the disclosures we had about the time of the acquisition is it's kind of in the ballpark of double digit number of our <unk> on the revenue side okay.
So call that 10, 11, 12 kind of in that ballpark there.
I would tell you that the margins in that business are.
Less than on our traditional ATM business, but the average value per transaction. If you take a look at at the average gross profit per transaction.
Is pretty similar to what the net is of our EFT segment. So.
And again, that's the mix of all of this stuff in the <unk> segment, so as that business would grow let's say if it grows faster than the rest of the business.
It might impact the margin a little bit in terms of just the mathematical expression of the margin, but it wouldnt impact the profit. It would just continue to add to the profit of it right.
Dan the Lion business is.
Similar in gross profit margins to our other money transfer business.
And the <unk> business.
On a gross profit basis on a margin basis it can be very good.
It can be.
I won't say nearly 100%, but it's.
It's transaction processing through our existing infrastructure.
So it can be a very a very high margin kind of a business that would tend to be.
A lot lower price per transaction, though but margin and mathematical margin would be pretty good again once it goes to the bottom line is very very enhancing to the bottom line.
Understood. That's helpful. Thanks, guys.
Thank you.
One moment for our next question.
Our next question comes from the line of Mike Grondahl with Northland Securities. Your line is open.
Hey, guys. Thanks, two quick questions one.
If you had to bifurcate the softness in DCC revenue.
Tween the volume of transactions.
And the size of transactions.
You think about that like 70% volume, 30% smaller size can you take a rough stab at that.
95 volume and five size.
$95 five okay.
Yes, as Mike said earlier, we didn't we saw a little bit of decrease in the average size of the transaction no change an opt in it's just simply number of transactions and it's not just DCC. It's also.
Regular trend all transactions because DCC is just the cross currency cross currency guidance.
Theres a lot of as an example, a lot of Germans go into Italy that foster.
Everybody all the numbers are down and and as Mike said.
The downward draft is on European customers, whereas customers coming from outside of Europe have been continuing to grow.
So.
Again, we see it as being the Europeans.
Influence here.
Got it yeah that I call it.
And then secondly.
<unk> had a good promotional quarter.
We've seen that randomly in the past.
Could you size that a little bit for us just so it helps us with a little bit of modeling.
Should we chalk up $10 million of promotional activity $20 million of promotional activity.
If you could help with that would be great.
I would say the incremental promotional activity was in the in the ZIP code of $15 million.
And if you if you were to pro forma that you would still see that the <unk> business on a revenue basis grew grew double digit in the quarter. Even if you even if you pro forma it out that that extra promotional stock.
Got it thank you.
And also we just mentioned the extra promotional stuff is largely accounted for on a on a gross transaction basis.
Rather than on like a commission basis as you know we earn our revenue in <unk> largely as a percentage of the transaction.
As in the promotion business.
We're recording as revenue the full ticket value of the transaction. So that's why it has a more outsized impact on revenue, but not the same kind of impact on profit.
Okay.
Got it helpful. Thank you guys.
One moment for our next question.
Our next question comes from the line of Ken Schakowsky with Autonomous Research. Your line is open.
Hey, good morning, Mike and Eric Thanks for taking the question I just wanted to ask about the opportunities to take out expenses in ft, I mean, which which areas would that come from what it would you just removed Atms from the market a shift those atms to other locations I guess, how quickly can you take out those costs to try to maintain.
Your decent EBIT margins.
Okay. So.
First of all there's not a lot you can do either have the network on or you don't.
We can and we always call.
We're performing locations to put them in better places and based upon the new realities of the number of transactions that we're getting we might have some of those that were maybe on the on the edge that we've now moved better places that's probably the.
The largest thing, but when you look at the components that that we have ran pretty much is under control it's staying the same.
<unk>.
Cash delivery to Atms is under a lot of pressure to go up because thats, a very labor intensive business from the people like brink's and secured thoughts and all those guys.
So, but we've got some other ideas maybe to take out but.
The reality is we can't take out a lot to make up for the margin difference. The nice thing is in Q3, we used to have so many <unk>.
Transactions in Q3 that it popped our margins way high.
We're just looking at flattish kinds of numbers of transactions. So.
Compared to Q2, maybe a little bit better.
And there's not a lot we can do with expenses.
Yes.
Okay, and then maybe just a high level strategic question I guess that you're facing.
Youre, just not seeing that recovery in the traditional kind of ATM DTC business.
Is there a greater sense of urgency to pivot that business more towards rent or.
Maybe Asia Pacific and some of those new markets and I guess.
What's your strategic thinking on that front and I guess how quickly.
Can you move there.
We have been I mean that was the point that we're making we've been pivoting for three years.
And but these new endeavors like dandelion in Rand and even acquiring.
There.
They are kind of hot out of the box. So we're we're actually very impressed by their growth rates.
<unk>.
But.
And we're throwing everything we can add them to grow but we've got it we had a really big very fast growing cash cow with just the Atms, we've got to get those guys to catch up with it and it isn't like the ft businesses is.
As <unk> gone out the window.
Just this last quarter, we had $66 million in op income.
So.
Out of that and then you've got a tax effect that but out of the $90 million.
Of cash that we threw off it was a big it was a big chunk of that but we are doing everything we can to go as fast as we can into these new markets because those babies are like manna from Heaven. There. These are cash based market no matter what people bring on vacation, they're going to spend a lot higher percentage of it.
There, where you can buy your lunch in Italy, where the card you can't buy your lunch and in Egypt, with a card or not very easily.
Alright.
No that makes sense alright, thanks, Mike appreciate it.
One moment for our next question.
Our next question comes from the line of Chris Kennedy with William Blair. Your line is open hi.
Chris Hey, good.
Thanks for taking the questions can you give a little bit more details on the trends that you saw in June and July .
I mean, we've kind of said.
A few different ways, what we've seen is that the number of transactions did not meet our forecast.
So.
And that the only other trends that opt in was exactly it basically exactly the same.
The amount taken out was very slightly different as Rick said that might be a 5% ratings, but the biggest thing that was surprising to us as people just there are less people taken out money.
And I think the other thing that was.
More significant that we saw when we kind of look back in the.
Back in the quarter.
First the first kind of drop that we saw.
<unk> was also coincident with very cool weather in Europe .
You kind of look at it and you go whats happening in the.
The inclination was okay well. This this will be short lived its weather inspired and.
We've seen those kinds of things happened before and we go another week in another week can we go the weather thing is now ran its course and we're still seeing this.
Lower volume because literally when we compare our international withdrawals to the flight data.
There was great correlation right up until we get to the month of June Okay.
And.
And so that's when we really started looking into.
What could be driving that the consumer out there what's happening and you start looking into it and the press and you can do some of your research or whatever but you see the press.
Filled with things that you are even even this last week Ryan Air made a comment about pulling back in and so youre seeing youre seeing things there that are are really impacting that customer.
In that recent survey, which they do every three months. Okay. So this is.
Fresh data coming from from recent customer comments as well.
When they talk about how they manage their budget well then.
They're looking at alternative hotel places to stay and all because.
Last year. They may have stayed at a four star three star this year it might be a two star three.
Different different choices there so.
It came quite quickly.
And what we would also say is it's it's remained fairly consistent then through then we have not seen any kind of acceleration.
So.
Again, we take it back to how much money does that customer have in their pocket to go places like nightclubs.
Features and things like that.
Understood. Thank you and then just Mike from a longer term perspective, I mean, <unk> always grown low double digits is kind of your target that's what you've done I mean anything.
Can you just give your updated thoughts on the sustainability of that type of growth over the long term. Thank you.
You must be talking about revenue.
Correct.
Alright, Yes Ira.
I really don't focus there our focus on profit and our cash EPS has been kind of a mid teens to 20%.
The low twenty's and that's our focus to get in.
That's still our focus I think we can get there.
And.
In fact, we are there right now so we will continue to do that.
Yes.
I would just add to mikes comments look if we look back at our history we.
Had a whole range of events that have set us back temporarily for some reason or another whether it's the India cash de monetization is when we saw a.
Year, when we saw significant drop in visa and Mastercard rates in Poland next year, we had a change in the pricing structure of the German transactions.
We had the financial crisis of one 910.
And.
And I have been fortunate to be here over the years is that the questions that were receiving today, where the same kind of questions that we received then Ken we continue to grow this business and what we find is that we.
We've got some really great assets in that one we are a growth oriented business. It's our growth. It's our culture to grow second is we've got a very nice diversified product portfolio.
We're not just as Mike said in his comments, we're not just a one trick pony.
We've got operations around the world, we're not dependent upon just one kind of economic cycle.
And we're in a very growing business I mean all.
All aspects of our business have fundamental growth characteristics to it so.
Exactly where that next dollar is going to come from sometimes that might be hard to pencil out, but if you look at our history, we have proven year in and year out that we find ways to grow through our diversified business.
Manage our expense our revenue growth and our expense. So so we remain confident as a leadership team that we will continue our double digit growth. We've obviously got a little bit more work ahead of us today than what we might have had a few months ago, but.
I am confident that we will find the way to keep that growth momentum going I think when you look at the culture of the company. Its two things Thats, what Rick said where growth oriented but the second is we're very resilient in this this management group and the 8000 9000 people that we have working here they are resilient and they always figure.
So we will do it again.
Thank you for your comments.
Thank you that concludes the question and answer session. At this time I would like to turn it back to Mike Brown CEO for closing remarks.
I think I've said in my closing remarks, I want to thank everybody for being on the call today and look forward to seeing you in three months. Thank you.
Thank you for your participation in today's conference. This does conclude the program and you may now disconnect.
Okay.
Yes.
Okay.
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Sure.
Okay.
Yes.
Okay.
Yeah.