n n n ‘. concat(e. i18n. t(“search. voice. recognition_retry”),’n
Michael J. Brown; Chief Executive Officer and President; Euronet Worldwide, Inc.
Rick L. Weller; Executive Vice President, CAO and Chief Financial Officer; Euronet Worldwide, Inc.
Scott D. Claassen; General Counsel and Secretary; Euronet Worldwide, Inc.
Andrew Garth Schmidt; Vice President and Analyst; Citigroup Inc. , Research Division
Andrew William Jeffrey; Director; Truist Securities, Inc. , Research Division
Carlos José Nabhan; Managing Director and Analyst; Stephens Inc. , Research Division
Christopher David Kennedy; Research Analyst; William Blair
Darrin David Peller; MD & Senior Analyst; Wolfe Research, LLC
Kenneth Christopher Suchoski; U. S. FinTech & Payments AnalystU. S. Citizenship and Drug Independent search for U. S. LP
Michael John Grondahl; Senior Research Analyst and Head of Equity Research; Northland Capital Markets, Research Division
Peter James Heckmann; MD and Senior Research Analyst; DADavidson
Operator
Greetings and welcome to Euronet Worldwide’s Third Quarter 2023 Earnings Conference Call. (Operator Instructions) Please note that today’s conference is being recorded. Now I am excited to introduce you to your host, Mr. Scott Claassen, General Counsel of Euronet Worldwide. Thank you. Sir. Claassen, I could go on.
Scott Claassen
Alright. THANK YOU. Hello everyone and welcome to Euronet’s third quarter 2023 earnings conference call. On this call we have Mike Brown, our president and CEO; and Rick Weller, our CFO. Before we begin, I draw your attention to the disclaimer regarding forward-looking statements on the second slide of the PowerPoint presentation we are providing today. Statements made in this call that relate to Euronet or its management’s intentions, expectations or long-term functional forecasts are forward-looking statements. Euronet’s actual effects would likely differ from those expected in those forward-looking statements due to a number of points indexed on the second slide of our presentation. Auditors avoid placing undue reliance on such forward-looking statements. Except as required by law, Euronet does not intend to update any forward-looking statement and assumes no legal liability to anyone for providing an update. Additionally, the PowerPoint presentation includes a reconciliation of the non-GAAP monetary measures we will use in the call to their comparable maximum GAAP measures. I’ll now turn it over to our CFO, Rick Weller.
Rick L. Weller
Yes. Thank you, Scott, hello and thank you to everyone who is joining us today. I will begin my comments on slide 5. For the third quarter, we achieved $1 billion coins, the first $1 billion quarter in Euronet’s history. We had a steady coin supply of $167 million and adjusted EBITDA of $212 million. Adjusted EPS was $2. 72, compared to $2. 74 for the third quarter of 2022. Excluding the effects of percentage-consistent buybacks and foreign replacement headwinds during the quarter, the business performed according to our expectations. Slide 6 presents the summary of our effects compared to last year. As you can see, we ended the quarter with over $1 billion in unrestricted currencies and $1. 7 billion in debt. The coin reduction is primarily due to constant percentage buybacks and adjustments to running capital, partially offset by coins generated from additional transactions and ATM-backed coins. Slide 7 presents our effects as reported. Let’s move on to slide 8 and talk about our effects in consistent monetary terms. Let’s move on to slide 8 now. As we discussed in Q2 2023, we saw a divergence in our overseas transactions as overseas travel resumed. Mike will provide additional comments on this topic a little later. But we are pleased to have regained our footing at the end of the quarter. To this end, EFT coins rise up to 2%. Constant coin supply and adjusted EBITDA were minimized by 15% and 12%, respectively. The cuts to adjusted EBITDA and earnings consistent with earnings are the result of a cut in our most profitable foreign cross-border transactions, primarily due to the decline in Croatia due to the replacement of the kuna with the euro later this year, as well as the This has affected inflation, which has reduced travel budgets in Europe, leading to fewer ATM transactions. Transaction expansion has outpaced currencies due to the continued expansion of high-volume, low-value transactions in India. For epay, coins increased up to 1%, while constant profit and adjusted EBITDA minimized to 6% and 5%, respectively. These effects were driven by continued expansion in virtual and mobile media, offset by a decrease in promotional campaigns conducted on behalf of our retail partners compared to the same period last year. Just like you, as we discussed in previous quarters, the electronic payment segment experiences constant fluctuations due to those promotional campaigns. We will continue to welcome the opportunity to expand our B2B promotional activities, but we will need to be aware that such promotional campaigns will occasionally create unequal comparisons. Excluding our promotional business for comparison purposes, our core electronic payments business revenue increased 11%, constant profit and adjusted EBITDA increased 17% compared to 2022, highlighting the strength of our core electronic payments business. electronic payments. Finally, the inflow of electronic tickets and the gross profit consistent with the transaction remained constant year after year. Money movement. Adjusted EBITDA and constant profit expansion in the third quarter was driven by a 7% expansion in U. S. outbound transactions, a 10% expansion in worldwide originated currency movements, which come with a 12% expansion from outside the United States. and an 8% expansion in initiated movements. largely in Europe and a 7% expansion in initiated moves in the Middle East and Asia and an 18% expansion in XE transactions. These transaction expansion rates are accompanied by a 20% expansion in direct-to-consumer virtual transactions. These rates of expansion have been somewhat temporary, through a dislocation of replacement rates in the informal market, specifically in Bangladesh and Pakistan. Coin movement based on transactions remained relatively constant, while gross profit based on transactions increased year over year. Furthermore, the average amount sent through consumers remained at maximum the same this quarter compared to the previous quarter – the third quarter of last year. And finally, in the end, as was the case in the second quarter, the Money Transfer team recorded another quarter of consistent advance margins, not only a advance but also the second quarter of consistent maximum productive advance margins in the subsequent quarter to the third quarter. 2020. So, for everyone who has asked if Money Transfer can regain its steady margins, I know that we consistently express our confidence that our Money Transfer team is committed to improving its margins. So, net-net, commitment assumed, commitment fulfilled. As I conclude my analysis of monetary effects, I still cannot help but reflect on the strength of our three segments. Firstly, a record number of counterfeit coins in the quarter, exceeding one billion dollars in coins in the first quarter; At the moment, a double-digit expansion in the core electronic payments business in all metrics; Third, margin expansion and double-digit expansion above 20% in adjusted EBITDA and consistent profit in the currency movement segment. Finally, we have noted that EFT is back on solid footing when it comes to foreign transactions, largely in correlation with the [test] insight monitored by the Euro as of September 23. With that, I turn the field over to Mike.
Michael J. Brown
Operator
(Operator Instructions) The first will come from Peter Heckmann’s lineage with prosecutor Davidson.
Peter James Heckman
There’s a lot of data today, and I think you’ve made a smart case. In terms of how we think, I missed it, I’ll get the transcript, but in terms of repositioning the existing ATM footprint, how do you think?Europe in relation to Asia-Pacific and North Africa. And I guess you expect wage inflation to lead to some normalization of withdrawal business activity in the third quarter of next year?
Michael J. Brown
I think the inflationary pressures this year and so on have surprised people a little bit. In fact, we have data showing that a third of mortgages have been adjusted for inflation this year because they don’t do long-term mortgages. So we think a lot of what’s happened this year has been somewhat of a surprise and a continuation of last year’s inflationary pressures. There are some resources we have, one of our largest stores expects greater purchasing power next summer. So this could be a smart thing, because almost each and every country has increased the wages of all its citizens, all the unions have had to push this issue, as seen here in the United States. Therefore, we are cautiously positive about the accumulation of available funds. — cash in people’s wallets next year. But despite this, we will make sure to eliminate all vending machines that do not work for us in Europe. But those other places, the expanding markets outside of Europe, are already successful and increasingly successful as we move into their season. These guys, at least our broader knowledge shows that they are more than twice as successful as our ATMs in Europe. So we’re going to continue to expand in those four countries, which, as a reminder, are Malaysia, the Philippines, Morocco and Egypt, and we have several other countries that we think we’ll be able to open next year that would be of the same type. . of personality, one could simply say. Therefore, we will continue on this path and continue to develop. And by the way, to each and every one, maybe we’re going to be about five minutes longer on this call because I spoke [a little long].
Operator
And the next one will come from the lineage of Andrew Schmidt of Citi Global Markets.
Andrew Garth Schmidt
I appreciate all the work that has been done to achieve this. There’s a lot going on here. I wanted to move on to slide 10, where you talked about segment-adjusted EBITDA. I fully understand the simplicity it seeks to present. I think it’s vital to communicate here about relative expansion rates, as you think about the long run. And it’s great to see the other EFT group, which I think understands their virtual initiatives. But how do we deserve to see the expansion of EFT?, other more virtual elements, as opposed to the expansion of EFT ATMs over the long term, from an adjusted EBITDA perspective. I think that can be helpful for people.
Michael J. Brown
Well, as we said, first of all, we’re not going to thoroughly analyze or give a number for each one. But as we’ve said in the past, those other virtual projects are developing very fast. So they’re going to. . . Those 12 and 35, if you fast forward to it, will be another two numbers. Because, as we discussed on this call, we’ve noticed that our point-of-sale acquisition business doubled its profits in the last 18 to 24 months. However, that’s only a small segment. We’re just going to fool other people into thinking that, as a combined entity, that’s the key. We get cash from all directions. As a combined entity, we expect a compound expansion rate of 10-15% year-over-year.
Rick L. Weller
Oui. Et would go up that this little corner in the EFT segment, remember, five years ago, wasn’t there.
Michael J. Brown
Oh, no. In 2019, it is (inaudible).
Rick L. Weller
And so I think that speaks to the fact that this component that we’re expecting will probably see a more accelerated expansion there. But I think it also reflects how we’ve continued to diversify our business and integrate a lot more virtual processing into the framework. Again, just acknowledge that five years ago, this article was not part of the page.
Michael J. Brown
And in 2019, the EFT business necessarily included all vending machines in Europe and contributed 58% of our EBITDA in 2019. So, a big [check].
Operator
And the next one will come from the lineage of Chris Kennedy and William Blair.
Christopher David Kennedy
Just a continuation of the latter. If you take a look at the EFT business and how it has evolved over time, can you tell us about the margin profile of EFT in the future?
Rick L. Weller
Well, as we said, we refrain from releasing 8 other questions of knowledge to measure. But certainly, in terms of comparisons to the current numbers, we expect them to increase because, as Mike said, we’re looking at the profitability of each of our ATMs with new transactional insights. We already know a giant amount of prices that we’ll remove from the table. And those other virtual products will have very high margins. So this will continue to amplify that. Certainly, compared to the numbers we’re seeing today, I would expect them to be overlooked. But I don’t need to start thinking of some other number that we would compare to. Because all the details of the metrics overshadow the basic contribution, and I think if you take a look at this graph, you’ll understand why the S
Operator
Next up will be Darrin Peller of Wolfe Research.
Darrin David Peller
It’s surprisingly smart to see the knowledge he’s shown about using the card; The use of cards abroad is evolving in the right way. I guess I was a little surprised that we weren’t seeing deal expansion rates increase to the same degree. The expansion of ATM transactions is still ongoing. Maybe it’s just early. So I’d love to hear a little bit more about what you think the disconnect might be. But the second part of this question, in Piraeus, compared to the main ATM transactions, what can we expect?And finally, when we think about orientation, it’s essentially the same question. So it doesn’t deserve much time. When you think about the guide, again, the transaction with an ATM, I mean you can get your 10 to 15% based on how much cash you generate, no, by buying back stock, etc. But when I think about the opportunity inherent in the expansion of transactions. Do you expect it to be faked and incorporated or is it not incorporated?
Michael J. Brown
Well, first of all, we just noticed, if we look, that when transactions are made in a certain quarter, like the third quarter, most of them are done in July and August and less in September and then less in September. . And we saw that accentuated in September. So it’s too early to see this extended to the quarter. That’s why we’re not seeing as many this quarter. It’s just a matter of time. And I think that was your first query. I’m looking so I don’t forget what your second consultation was. Rick, don’t you forget?
Darrin David Peller
I’m just thinking about next year, they’ll give us a 10-15% consultant on BPA. I think there’s going to be a lot of levers to get there without even transactions (inaudible).
Michael J. Brown
And we even think we’re factoring in the headwinds of negative exchange rates, inventory buybacks, and what everyone has lately on their page. It looks like we’re at the higher end of that range. But I must tell you that this is our range. And that’s all we’re going to say. But our purpose will be to do more than that. I mean, everyone in our company is focused. We like the fact that between 2010 and 2019, for 10 consecutive years, we never had an expansion of less than 20% compared to last year. Those were the smart times. We’d love to get them back, but now we’re giving them all a 10-15% range. And when we defeat him, we will all be happy.
Operator
The next one will come from the lineage of Andrew Jeffrey of Truist Securities.
Andrew William Jeffrey
Enjoy trying to simplify everything. I think it makes a lot of sense. Mike, I need to replace the topic a bit and ask you about cash transfers. You’ve done a smart job when developing the agent network and discussed the expansion of deposits on Hooked. Can you tell us a little bit about the slowdown we’ve noticed over the last 12 months in the expansion of your virtual transactions and whether it’s just some sort of giant numbers law or normalization?And how does it position itself, unlike some of the exclusively virtual festivals on the market that have maintained a much faster virtual expansion and, I suppose, what do you think of the competitive positioning of the company as a whole?
Michael J. Brown
I think we’ve done a really smart job, but it’s slowed down a little bit and we’re looking for tactics that we can speed up. But we’ve also heard about this, and we’ll probably see this start to manifest over the next quarter or the second quarter, there’s some slowdown everywhere. I mean, the truth is this: Of the $800 billion family remittance market, only about 35% is done digitally. So that’s it. Most people come to a new country and, in a sense, are citizens or financial workers, just as they were in their old country. So this is one of our strengths, because we are physical and digital. So if 35% of the market is digital, at some point, after that entire percentage of the market has been acquired, it will start to hit the ceiling. And I think they’ll see us, and probably others will. But we have some new tricks up our sleeves that we hope will re-accelerate this phenomenon as we move forward.
Operator
Next up will be Mike Grondahl of Northland Securities.
Michael John Grondahl
Thank you for all the knowledge about the ATM industry. You talked about redeploying some of that ATM fleet and saving $20 million next year. Basically, you’re talking about 1,500 vending machines that will be moved, 3,000?I’m just looking to get an idea of how many other people they know or what you think you want to move.
Michael J. Brown
Well, there are more than 1,000, but we’ll have to see what the final numbers are. And we need to keep in mind that other adjustments are being made, Mike. For example, some countries are considering expanding their internal trade. Rates. Other countries are contemplating imposing surcharges. So you don’t need, you don’t need to open an ATM that generates a little bit of cash, which can make a lot of cash with those adjustments. So we’re going to be careful, but we’ve already known a few ATMs. I think at the end of the day, we just need the benefits of EFT to increase. And I think that’s more vital to you than the number of finishing machines that we have.
Operator
The next one will come from the lineage of Ken Suchoski of Autonomous Research.
Kenneth Christopher Suchoski
High-value transactions clearly saw a big uptick in September, and it turns out this is partly because European travelers pushed back their summer vacations from June and July to a less expensive September. So, I guess you’re expected to have that kind of jump and from there, have a slower recovery because I don’t know if other people go on summer trips in the fourth quarter. And then, more broadly, what gives you confidence that this is rarely just another whim and that you’re going to more strictly follow your own control tendencies in the future?
Michael J. Brown
Well, I think the most obvious thing is when you look at people other than Europeans, and we’ve surpassed that number every month this year. Therefore, anyone traveling to Europe from abroad will encounter ATMs more than ever. You’re right. Our challenge at the moment has to do with the European economy. And then the question is: how to beat it? I think you managed to triumph over that by proceeding to expand into virgin territory. Certainly, those new markets outside of Europe are just killer markets. I mean, they make a lot of money and we will continue to do so. And that gives us, and then we’re going to locate all those ATMs that we think are not successful enough, we’re going to take them out and use them instead of buying new CapEx machines and we’re going to put them in the positions that we have available. . We have several markets in Europe, for example, that we are opening or beginning to expand. For example, France, Belgium and Albania. That is to say, France is not a new market for us. The other 2 are still very poorly cared for. We talked about how they gave us this contract in France for 150 ATMs. More tourists come to France than to any other country in the world. So there are still places where we think we can make money, and that’s where we’re going to redeploy the ATMs that we’re eliminating.
Operator
And the last one will come from the lineage of Charles Nabhan with Stephens.
Charles Joseph Nabhan
Most of my questions have already been asked, but I wanted to hear your perspectives on capital allocation. They have about a billion dollars in money and have been quite active in percentage buybacks, but mergers and acquisitions have also been a small component of the strategy, and I think they closed the deal in the Philippines last year. So I’m curious to know how you see that balance going forward if the redistribution of the ATM strategy changes anything in terms of ATM exit and acquisition, as it has in the past. ?
Michael J. Brown
In reality, nothing will have changed. My preference is to purchase. You saw what we did with the merchant procurement business of Piraeus Bank, which is now EMF, the euronet merchant procurement business that would have possibly almost doubled its profits in less than two years. These are the gifts we keep giving. So we really like that stuff. We will consider buying back shares because the market is treating us badly like we did last quarter. But actually, whether you take them out, let’s say those ATMs charge $11,000 each, we were buying, let’s call it, 3,000 to 3,500. That’s about $40 million in CapEx. We will do it if possible, we only want to spend some of it next year, and that gives us more money, but it’s not really enough to make things happen. Therefore, we will continue on the same path as in the future and lately we are very actively comparing some companies that may also just be acquisition candidates. But we’re pretty tough when we look at those things. We do our due diligence and occasionally locate skeletons in the closet, so we have to move on. But we look. . . I mean, we’re business people. We love offers. So if I can do it, I will. But we’ll have to see what shows up. And thank you all for taking your time with us today. I actually appreciate it. I look forward to speaking with you once the fourth quarter is over. Thank you so much.
Operator
This concludes the convening of today’s convention. Thank you for participating. You can now log out.