Euronet Worldwide Inc (EEFT) 2021 Q2 法說會逐字稿

Greetings, and welcome to the Euronet Worldwide Second Quarter 2021 Earnings Conference Call.

(Operator Instructions) Please be advised that today's conference is being recorded.

(Operator Instructions) It is now my pleasure to introduce your host, Mr. Scott Claassen, General Counsel for Euronet Worldwide.

Thank you.

Mr. Claassen, you may begin.

Thank you.

Good morning, and welcome, everyone, to Euronet's quarterly results conference call.

Today, we'll present our results for the second quarter 2021.

On this call, we have Mike Brown, our Chairman and CEO; Rick Weller, our CFO; and Kevin Caponecchi, the CEO of our epay division.

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 Euronet's or its management's intentions, expectations or predictions of future performance are forward-looking statements.

Euronet's 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.

Euronet does not intend to update these forward-looking statements and undertakes no duty to any person to provide any such update.

In addition, the PowerPoint presentation includes a reconciliation of the non-GAAP financial measures we'll be using during the call to their most comparable GAAP measures.

Now I'll turn the call over to our CEO, Mike Brown.

Mike?

Thank you, Scott, and good morning, and thank you to everyone who is joining us today.

I will begin my comments on Slide #5.

I as I kick off the quarter's review and knowing the Olympic Games just commenced, I can't help to borrow some words that might be used during the boxing matches to describe some of the outcomes.

So here we go.

In our case, it sure great to see the epay and Money Transfer segment punching above their industry weight class, record second quarter results and double-digit revenue and earnings growth rates and all that.

To say the least, those are some Olympian results.

Before I get to the operating results, for those of you who have been with us for a while, you know that one of our greatest strengths is the diversity of our business, diversity in products, distribution channels, geography and employees.

This diversity can create nuances in the business that make it more challenging to understand when you don't live and breathe it every day.

Today, I want to start with the punchline, and then I'll fill in the details.

Euronet is a strong financial technology company that is ever evolving to be able to continue to deliver the same strong growth trajectory that we have historically achieved.

As I said, epay and Money Transfer just delivered record second quarter results across all of our reported financial metrics.

The transactions in our EFT segment have proven resilient when borders open and movement restrictions are lifted.

And we have developed REN, a world-class technology platform that has allowed us to stay on the cutting edge of payments trends to take advantage of the ever-changing digital landscape, all of which is made possible because of our strong balance sheet.

I think the fact that we can talk about Money Transfer and epay earnings in the midst of ongoing COVID pandemic is remarkable.

It is a true testament to the dedication and abilities of our Olympic champion teams to stay committed to our long-term growth plans and to our conservative financial management, which has given us the balance sheet to retain our employees and continue to execute on our plan.

epay delivered its fourth quarter of double-digit growth from continued sales of mobile and digital media content through both physical retail and digital channels.

Money Transfer also delivered a fourth consecutive quarter of double-digit earnings growth as a result of continued network expansion which allowed for strong double-digit growth in U.S. outbound, international and digital transactions.

Technology is really at the core of who we are.

We have always led with technical innovation, and our development of REN has allowed all 3 of our segments to advance our payment footprint while also offering our customers cutting-edge payments technology.

The EFT results continue to be a bit uneven as travel was slower to resume due to uncertainty around the ever-changing policies on border openings in Europe and slower-than-expected vaccination rates around the world.

Despite the unevenness, the transaction levels improved as we moved through the second quarter with the strongest improvement in the last couple of weeks of June.

Now let's go on to Slide #6, where we have provided some data points to help you better understand the transaction trends we are seeing in EFT.

Slide #6.

This is really a great graph.

I'm sure you're asking the same question that we are.

When will travel return to like 2019 levels.

As you know, when we entered the second quarter, the news in Europe was very optimistic that most of the EU would reopen their borders to both EU and non-EU travelers and the EU Commission was confident that the majority of EU citizens would be vaccinated by the end of June.

As we moved through the quarter, it became apparent that the EU vaccination effort was lagging its targets.

In fact, at the end of June, only about 45% of the adult population in Europe was fully vaccinated.

The slower vaccination rates and uncertainties surrounding the emergence of the Delta variant of COVID-19 in Europe in the second quarter caused constantly changing requirements on quarantine restrictions.

This led to unpredictability for travelers and a fear of getting "stuck" you might say, in a country which in turn resulted in a slower return to travel than we expected early in the quarter or in some cases, as we have seen, a curtailment of a trip to return home before more stricter quarantine requirements take effect.

That's the bad news.

The good news is, is that people want to travel.

That's pretty clear.

They're going to travel, and they can't wait to travel again.

The Airbnb CEO and Co-Founder, Brian Chesky, recently went as far to say that he expects to see a travel rebound of the century.

Further, United Airlines' CEO, Scott Kirby, stated that he expects business and international travel demand to recover to 100%.

This confidence is supported by United's unveiling of a $30 billion aircraft order, along with hiring of 25,000 employees to support the new plan as the carrier navigates its post pandemic growth.

And it only makes sense.

We know that there is a pent-up demand for travel as people have delayed vacations for at least a year and that economies of the tourist countries depend on travel spend.

So as we see vaccination rates continue to improve, and more consistent behavior on border openings and quarantine requirements in countries around the world, people will travel.

With the return of travel, our EFT transactions also returned.

On this slide, you can see the Eurocontrol traffic data with our cash withdrawals imposed upon it.

What this shows you is that when you have airline bookings with borders open and no quarantine restrictions, our international ATM transactions have bounced back very strongly.

And in fact, as the chart illustrates, the trajectory of our ATM transaction responds quicker than the actual traffic control data.

While the international transactions aren't back to the 2019 levels, they are considerably better than 2020 last year, moreover, in July of this year, we're running about double the transaction rate compared with July of last year.

As you may recall, last year, we shared with you the fact that we saw an increase on the average size of a cash withdrawal.

Well, this year, we are seeing yet another increase in the average withdrawal amount confirming that travelers want cash, maybe even more in times like these with all these uncertainty.

It's also important to note that in both Europe and Asia as movement restrictions have been lifted within a country, domestic transactions have rebounded more quickly and significantly than the international transactions, another data point indicating that both domestic users and international travelers will still use cash at similar or better than pre-pandemic levels.

So while the recovery in EFT hasn't been as robust as we anticipated last year, or even early in the second quarter of this year, we remain confident in our belief that travel will resume and people will still need cash while they travel.

Transaction trends and EFT may continue to remain uneven for the rest of 2021 as the vaccination efforts continue around the world and countries continue to deal with the more contagious variants of the virus.

However, we are monitoring the situation in each market carefully.

And as you will see on the next slide, we are reopening our ATMs, and they are ready in order to ensure tourists have convenient access to cash when and where they need it.

Next slide, please, Slide #7.

Here, we'll give you a few more highlights from our EFT segment.

Over the past several years, we've updated you on how we have built the largest cash deposit network in Poland, making cash deposits safer and more convenient for retailers in the country.

This quarter, we further expanded that network, signing network participation agreements with 11 new merchants in the country.

We were able to extend and renew several agreements, including our network participation agreement with Libra Bank and OTP Bank in Romania as well as our ATM outsourcing agreement with First Service Credit Union in the United States.

As I mentioned before, we are confident in our belief that there is a pent-up demand for tourism and that tourists want cash when they travel.

We have continued to invest in our ATM network, having added more than 1,600 high-value ATMs so far this year.

During the quarter, we reactivated more than 6,000 of the ATMs that had previously been closed.

Our teams have ensured our ATMs are ready to capture that tourist traffic as it comes back.

We also lost about 600 outsourcing ATMs that were largely taken in-house.

At the end of the day, our network is stronger than ever, and we have in a state of more than 46,000 ATMs ready to go as borders open.

We expect that we will reactivate all but about 1,800 of our ATMs as we go through the third quarter, which will leave significantly fewer not activated than the roughly 4,300 that remain closed through the third quarter of last year.

While 2021 has been more uneven than we expected, we are pleased with the uptick in transactions we are beginning to see.

We anticipate that we will be able to exceed the 2019 earnings results in the near future because we have used this time to make our existing network stronger, and we have 13% more Euronet-deployed ATMs in more markets than we did in 2019.

It's just a matter of when people are able to travel.

And in the spirit of optimism, just this morning, we learned that the U.K. has announced its opening to all fully vaccinated U.S. and EU travelers.

Good news as I close on the EFT segment.

Now let's move on to Slide 8, and we'll talk about epay.

Okay.

So epay growth in the quarter is highlighted by our continued focus on expanding our product portfolio, our network and distribution channels where we sell this content.

epay's product mix remains stable with approximately 72% of the gross profit from digital media content.

This slide includes a list of some of the new agreements we signed and launched during the quarter.

I will just mention a few of these agreements.

Following our acquisition of the AT&T agreement in the third quarter of last year, we were able to launch prepaid mobile activations for the first time through AT&T's subsidiary brand, Cricket Wireless, here in the U.S. We furthered our partnership with Microsoft by adding Microsoft 365 subscription renewals through the mobile operator, Vivo in Brazil as well as 2 of the largest electronic retailers in the U.K., Dixons and Currys PC World.

We continue to expand the channels through which our digital media content can be sold.

This quarter, we partnered with Revolut, a fintech super app based in the U.K. to sell digital media content through their app.

In India, we continue to expand on the multi-category relationship we have created with Amazon Pay, enabling bill payments through the India Bill Payment System.

Finally, in Singapore, we launched QR code-based staging and delivering of Microsoft Xbox codes to customers on smartphones and EGI stores.

In addition to these launches, we signed several new agreements during the quarter.

These include an agreement to distribute gaming content through KaBuM!, an e-commerce electronics retailer in Brazil.

We also signed an agreement to distribute Netflix with selected partners in Malaysia.

Our epay team continues to focus on leveraging our technology, which gives us the ability to quickly add content, grow our geographic presence and expand new distribution channels.

Their success is highlighted by the record second quarter revenue and earnings that epay delivered.

Now let's go on to Slide #9, and I'll talk about Money Transfer.

Slide #9.

With 36% U.S. outbound transaction growth, 44% growth in overall international outbound transaction and 74% growth in direct to consumer digital transactions, our Money Transfer segment delivered a very strong quarter.

However, it's important to remember that this quarter compares to the COVID impacted Q2 of last year.

So to point out the consistency of the strong Money Transfer growth rate, when we calculated compounded annual growth rate since the second quarter of 2019, we see that the U.S. and international outbound volumes of money transfers grew at 23% and 18% CAGRs, respectively, when compared to 2019, driving double-digit CAGR expansion in revenue, operating income and adjusted EBITDA.

I'd say that's a pretty stunning expansion under the circumstance in an industry that only will barely recover 2019 levels this year.

These results are only achieved through continued hard work to grow our network, both digitally and physically, more agents, more markets, more products, more channels and all summed up together equals more success.

Our retail network now reaches 490,000 locations for cash pickup, across 160 countries, and we're connected to approximately 3.6 billion bank accounts for account deposits.

This expansion included the launch of 17 new correspondents in 14 countries during the quarter, including service to more than 1,000 branches of the bank for investment and development of Vietnam, 700 locations to the Vietnam post, 1,300 locations with United Bank Limited in Pakistan.

We also added service to Lebanon through our partnership with OTP s.a.l.

We continued to expand our mobile wallet network, which now includes 220 million mobile wallet accounts in 23 countries by launching service with 5 new wallets in Senegal, Ethiopia, Malawi, Gambia and Nepal.

We also signed agreements with 22 correspondents in 19 countries that will launch in the coming quarters.

One of the more notable agreements is with VTB in Russia.

This is Ria's first direct partnership in Russia and will help expand our network across the entire CIS and East European region.

We are also excited about our agreement with STP, a national payments processor, which will facilitate real-time corporate and individual payments to all banks in Mexico as well as instant payments in Brazil to the country's new P-I-X or PIX real-time payments network through our previously announced partnership with Banco Rendimento.

As we have mentioned over the last couple of quarters, the expansion of our digital network has been robust and one of the keys to our success through the pandemic.

We further expanded our network with the launch of Ria Money Transfer app in Chile.

This -- success of this expansion is evidenced in our 74% direct-to-consumer digital growth in the quarter as well as year-over-year growth in digital account deposit transactions and volume of 61% and 70%, respectively.

If you recall from our call just 2 quarters ago, our account deposit transactions and volume grew 31% and 36%, so we are seeing an acceleration of consumer adoption of account deposit services, which now make up about 28% of our total cross-border volume.

Aside from the stellar growth that you've been seeing in the Money Transfer segment, driven by our core business and our digital endeavors, we've also been very busy upgrading and enhancing our network and our payment network for multiple use cases beyond just family remittances.

You will notice that we announced that XE can now send business payments from consumers to businesses delivered by Ria's network.

What is very exciting inside that comment is that now Ria's network has enabled payments into business accounts, not just individuals.

We have mentioned to you that we believe Ria has the largest bank account deposit network in the industry, reaching more than 3.6 billion bank accounts across 125 countries with a big portion of it already with real-time payment capabilities.

So if you picture that network fully enabled to deliver payments into business accounts and with our REN technology acting as a front door to access it, you can quickly start to see that we intend to expand far beyond a single-purpose family remittance network.

In today's environment when technology has enabled instant communication, people now expect the same for their payments.

We have direct connections to the majority of these bank accounts, which guarantee payment in seconds.

And because these payments are on our network, on our payment rail and through our infrastructure, we are able to provide a more efficient means to send these instant payments with more effective cost structure, which opens the door to a much larger total addressable market, or TAM, as it's referred to, for the Money Transfer business, which we are morphing into an international payments business.

And that is really exciting.

In monetary terms, the family remittance TAM is about a $700 billion business, which compared to the international payments business, which is measured in trillions of dollars.

As I said, we have been very busy and working on this for quite a while, and I look forward to sharing more news about this in the near future.

Please move on to Slide #10, and I'll talk a little bit about REN.

We have continued to gain even more traction in selling our leading-edge technology to external customers.

As you will recall, last quarter, we announced an agreement with Standard Charter Bank, which operates in more than 25 countries, where the bank selected Euronet's REN technology as their payment stack to be offered as a part of their banking as a service model launch in the Indonesian market.

This quarter, we expanded our partnership with SCB in their largest market, Hong Kong.

Under this project, Euronet will be modernizing the bank's payment stack using its REN technology in a multiphase product -- project, excuse me, which will cover replacing the existing payment switch, card processing and ATM driving system.

The first phase of this project is enabling the bank to launch multicurrency debit cards in Hong Kong, which is scheduled to go live within the third quarter of this year.

In today's times where customers demand absolute convenience and real-time payment experiences, we are excited to work with banks like SCB to help them deliver superior digital experiences to their customers, with our modern and cloud-native technology.

Second, as we have told you on previously calls, we have developed REN Connect, a derivative of the REN ecosystem, a payment application that enables banks to participate in domestic real-time payment schemes and provides various overlay service to provide superior payment experiences to their retail and corporate customers.

Last quarter, we announced the deal with one of the largest banks in the Philippines, the Bank of the Philippine Islands to enable them to connect to the real-time payment scheme of the Philippines, which they call InstaPay.

This quarter, we received an order from another bank called Security Bank Corporation in the Philippines, where the Euronet's REN Connect will enable the acceptance of real-time payments for the bank's merchants and corporate customers using QR codes.

This solution will allow the bank's corporate customers and merchants to digitize cash in their day-to-day operations by collecting payments from their customers and/or suppliers using QR codes as the form factor instead of traditional POS devices and the underlying payment rail in which these transactions will be routed and settled will be InstaPay.

In this project, Euronet will connect the bank to InstaPay using REN Connect and provide solutions to the bank to enable them to onboard acquired merchants.

These solutions range from merchant mobile app to a portal for managing the life cycle of merchants, including the generation of compliant and secure QR codes, transaction and fee limits, reporting and more.

During the quarter, we also launched card issuer processing services for Bank Jago in Indonesia.

Jago is a publicly traded Indonesian lender who has a lineup of marquee investors like GIC, which is Singapore's sovereign wealth fund, the ride-hailing and digital payment services from Gojek and others.

Jago is a full digital bank embedded in Indonesia's digital ecosystem to fulfill the needs of the middle and mass market segment.

On the back of its strategic partner with -- its strategic partnership with Gojek, customers will be able to open bank accounts through the Gojek app providing Jago the opportunity to offer loans and other financial services to tens of millions of Gojek customers.

Going forward, when Jago is planning to target more such partnerships with travel sites, e-commerce platforms and so forth, through which it will offer financial products and services to the customers of these platforms.

For every such account that gets opened, Euronet through its REV Payments Cloud, will provide processing services for both domestic and international transactions from these cards.

To see this in context, Indonesia is 1 of the most underbanked markets in Asia with 50% of its 270 million population without a bank account.

Yet more than 70% of the population has a smartphone and are rapidly being accustomed to using digital payments through wallets, representing a huge opportunity for digital banks like Jago to partner with these platforms and convert these wallet customers to bank account holders and provide financial services to them.

For our part, we are giving the bank an entire next-generation fintech structure to establish accounts, process transactions and more.

It is a modern banking platform established using our financial technology solutions.

This launch on the back of a few recent wins like ING's digital bank in the Philippines, GoPay, which is Gojek's wallet in Asia, positions Euronet as a trusted and reliable payments processor for fintech and digital banks.

Finally, we signed an agreement to implement REN self-service on 1,400 ATMs for JSC FUIB Bank in the Ukraine.

REN self-service provides customers with the most modern ATM driving system available.

We are excited about these technology developments, and we're excited to enable these large financial institutions to not only compete with the emerging fintech players popping up around the world, but to give them the most advanced secure feature-rich fintech platform available in the industry.

We believe our pipeline for REN is strong, and we're expected to bring you more updates in the coming months with 2 segments delivering exceptional double-digit growth, EFT transaction is trending better and a robust technology pipeline, the prospects for continued growth remain strong.

With that, I will hand it over to Rick.

Thanks, Mike, and good morning, everyone.

I'll begin my comments on Slide 12.

I think Mike's comments are worth repeating.

Any quarter where you have 2 segments that achieved record quarterly earnings is an outstanding quarter, particularly with the uncertainty that COVID has created.

As has been the case for the past 5 or 6 quarters, the strength of our balance sheet continues to provide us with the comfort and flexibility to take advantage of opportunities that are driving the business forward.

As you can see here, we ended the quarter with nearly $1 billion in cash, unrestricted cash.

The sequential reduction in unrestricted cash represents the shifting of cash into more than 6,000 ATMs we have reopened during the quarter.

More so, adding to our cash balance was approximately $23 million of cash generated from operations during the quarter.

Next slide, please.

For the second quarter, we reported revenue of $714.7 million operating income and adjusted operating income of $30.1 million and adjusted EBITDA of $74.7 million.

The better-than-expected revenue growth rate was the result of continued strength in our Money Transfer segment where growth outpaced our expectations.

The EBITDA results were in line with the lower end of our range of expectations and would have been better, if not for the slower-than-expected border reopenings and vaccine rollouts in Europe.

In the second quarter of 2020, we recorded a $104 million noncash goodwill impairment charge, $82 million of which was recorded in the Money Transfer segment and $21.9 million recorded in EFT, all stemming from the economic impacts of the COVID-19 pandemic.

These impairment charges have been excluded from the prior year adjusted operating income, adjusted EBITDA and adjusted EPS to provide more comparable year-over-year results.

We delivered adjusted EPS of $0.53 per share compared to $0.04 per share for the prior year.

Slide 14.

On Slide 14, we show you the 3-year transaction trends for each segment.

EFT transactions grew 46%, driven by improvements in ATM transactions as borders began to reopen as well as a significant volume increase in low-value point-of-sale transactions in Europe and low value payment processing transactions in Asia Pacific.

epay transactions grew 35%, primarily driven by digital media transaction growth across our markets, with particularly strong growth from customers in South America and Asia, who have a high volume of low-value transactions sold through digital channels.

And while we say these are low-value transactions, the reality is that while the absolute value of these transactions is low, they are accretive to our gross margin percentage.

The significant growth in these transactions was made possible by our REN technology, which has enabled the rapid addition of significant transactions and has allowed us to take advantage of these emerging trends in the payment space.

And in the Money Transfer segment, we were quite pleased that our most profitable money transfer transactions, U.S. outbound and international outbound transactions grew 36% and 44%, respectively, which also includes 74% growth in direct-to-consumer digital transactions.

These are partially offset by declines in the U.S. domestic transactions, which then netted to 33% total transactions year-over-year growth for this segment.

Next slide, please.

On Slide 15, we present our results on an as-reported basis.

Year-over-year, the currencies in most of the major markets we operate increased at upper single and double-digit rates with a few outliers, including the Indian rupee and Brazilian real, which increased at low single-digit rates.

To normalize the impact of currency fluctuations, we have presented our results on a constant currency basis on the next slide.

I'm on Slide 16 now.

EFT revenue grew 36%.

Adjusted operating loss improved 35% and adjusted EBITDA improved 86%, driven by increased transactions from partial lifting of travel restrictions across Europe as compared to the second quarter last year when Europe was largely locked down.

epay revenue grew 21%.

Adjusted operating income grew 42% and adjusted EBITDA grew 40%, driven by continued strength in digital media content and mobile sales through digital channels together with certain customer promotion activity.

Money Transfer revenue, adjusted operating income and adjusted EBITDA grew 30%, 49% and 37%, respectively.

These exceptional growth rates were the result of growth in U.S. outbound and international outbound transactions of 36% and 44%, respectively, partially offset by declines in the U.S. domestic business.

Adjusted operating income grew faster than transactions as a result of a shift in the mix of lower value domestic to higher-value cross-border transactions.

Overall, I think it bears repeating that these are exceptionally strong constant currency results, particularly out of the epay and Money Transfer segments.

And while the EFT results came in at the low end of our expectations, as Mike mentioned, we are encouraged by the positive transaction trends we saw in the last couple of weeks of June and have continued into July, together with the increased average withdrawal amounts.

Nonetheless, as you have been seeing in the press, we too have started to see more contagious variants of the virus make headlines, discussions of the U.S. going back to masks, uncertainty stemming from changing travel policies in countries across Europe and continued vaccination efforts, we realized that the unevenness of EFT transactions is likely to continue through the remainder of 2021.

After taking all these things into consideration, we will refrain from giving official guidance but think it is important to provide a couple of data points to help frame your expectations.

We would expect third quarter 2021 consolidated revenue to have recovered to third quarter 2019 levels and nearly 20% over last year's third quarter, recognizing the impact of COVID constrained travel in the EFT segment and the double-digit compounded annualized growth rates posted in the epay and Money Transfer segments.

From these revenue levels and with careful expense management actions, we expect third quarter EBITDA to be in the $135 million to $145 million range.

This EBITDA range also recognizes that we will have about 1,300 more ATMs this year in the third quarter than the prior year, and we will have about 3,700 more active or live Euronet-owned ATMs this year as we see travel ramp-up in the third quarter.

With that, I'll turn it back over to Mike.

Thank you, Rick.

As you know, COVID creates a level of uncertainty that we just can't do anything about.

However, we have been proactive in using our technology to our advantage to further expand our epay and Money Transfer segment and the double-digit CAGR growth rates for those 2 segments are just exceptional.

We can't overcome the travel restrictions that are limiting our EFT transactions.

We continue to grow by leveraging our technology to create new opportunities to expand our business.

I believe Euronet is the most unrecognized fintech company that's trading in the market as the technology we develop really blows away that of any other company.

Because our strong balance sheet has allowed us to continue to strengthen our value proposition across the company, once travel is allowed to resume, we will continue to grow at consolidated double-digit growth rates well into the future.

As I close, I again reflect on the Olympics.

The Euronet Olympians are fighters.

We always have been.

We've armed ourselves with the best technology in the industry.

We've got the best athletes, and our game plan has produced consistently improving results over the 26 years of competition.

In the midst of this pandemic, our EFT team has been blocked from the podium, but the epay and Money Transfer teams have stepped in and have been taking the goal.

We are confident that as the travel restrictions are removed, our EFT team will too be picking up the gold.

So to that end, we can see an all-gold sweep in the near future.

With that, I'll be happy to answer any questions.

Operator, will you please assist?

(Operator Instructions) Your first question comes from the line of Andrew Schmidt with Citi.

Yes, I appreciate the comments on the technology, the REN momentum and the use case expansion money transfer.

It's good stuff.

I wanted to ask a question on EFT.

Can you talk a little bit about -- just a little bit more about what you've seen quarter-to-date in the third quarter.

And then as it relates to what's embedded in the third quarter outlook.

It sounds like you're baking in a little bit more conservatism for unevenness in travel recovery, COVID variants and things like that.

I just want to make sure that's the case, just to understand a little bit of the context of the embedded EFT segment EBITDA guide relative to what you're seeing quarter-to-date, that would be helpful.

Well, as you saw, we really hit the very low end of the range that we gave you in Q2 because from just the 3 weeks into Q2, where we gave the guidance, we saw kind of everything going to hell in a handbasket in Europe and everything kind of slowed down.

So we were well on the low end of that range.

So we are a little bit conservative with EFT moving into the third quarter.

That's correct.

But let me just tell you, none of us know.

Nobody knows what's going to be announced tomorrow.

Just as we were walking into the room to make this call, we find out that the U.K. has opened up its borders, so that's a positive for anybody who has double vaccinated from the U.S. or the EU.

So I guess you could say, yes, we're a little bit conservative, but we'll just have to see what -- kind of what occurs.

And you're watching and reading the same things we are, the travel indicators from the airlines, the booking guys, everybody else were all -- it looks like bookings are going to be quite strong in a number of the countries in Europe for the third quarter.

So we just hope that turns into real life people because what we have seen is that if I've got the people there, we'll make the money.

Got it.

That makes a lot of sense.

And then just as a follow-up, the Latin American JV in terms of independent ATM deployment and outsourcing, could you talk about that a little bit from like an addressable market perspective.

What's the -- I don't think you guys operate in Latin America just yet.

So it seems like there's a lot of opportunity here.

But what's the right way to think about it from an addressable ATM or market perspective there as you enter Latin America.

Well, there's -- the interesting thing about Latin America is almost every single country has its own currency, its own island currency.

So unlike the EU, where there's lots of euros going around with a lot of the countries where we don't have an ability to make a cross-currency transaction.

That's not the case in South America, that's what's exciting.

Now certainly, they don't have near the number of tourists that come to say, South America that Europe does.

But like I said, with all different currencies, that means we've got a big potential.

With respect to that JV, I'll tell you why we got into that JV.

We've got a very good partner, Prosegur with this, who's the biggest money transfer -- I'm sorry, the money delivery company in South America.

They've got relationships with all the banks.

We're going to need cash delivered to our ATMs as we build this out.

We've been building, what we've done in Asia Pac, which we're really excited about, which is hundreds of millions of dollars, we believe, in EBITDA potential, but it's taken us 5, 6 years to do so.

What we've done is we've adopted a different policy with respect to South America and said, "Let's have a partner who can get us in and help us get these Visa and MasterCard sponsored banks and central bank approvals, let's accelerate that and do it a different way." So that's why we did it, and we're excited about that possibility.

And hopefully, we'll see some ATMs live down south within a year.

And beyond the ATM opportunity, we see it as being a market rich for our technology.

Each of these countries are also dealing with things like real-time payment applications, et cetera.

So similar to what we see in Asia Pac, this is a market that's primed for the quality of product that we have.

So not only is it one that we can go after the ATM front, but we can go after really taking advantage of our REN technology platform there, too.

Next question comes from the line of Peter Heckmann with D.A. Davidson.

I wanted to follow up a couple of things.

Mike, what do you think in terms of your best guess in terms of net ATM installation for this year.

Any real change there?

Have you been able to get out and scout new locations and sign new leases?

And when you think about that number, how do you think it divides between Europe, Asia Pacific, U.S. and India?

I think we're still looking at -- we were looking at 4,000 to 5,000 at the beginning of this year, thinking that we would get a recovery faster than we're getting.

I would have to say that we're probably closer to the 3,500 to 4,500 kind of would be the focus.

And we're still putting ATMs into the 1 country that we're in, in South Asia that's basically locked down and not making a dime.

Because we know when tourists return to that market, it's almost ATM less in the tourist areas.

So I don't have the breakdown of East versus West, but we'll say that should be the number, probably between 3,500 and 4,000.

With roughly -- I don't know, if I had to get 20% to 25% would be Asia, something like that.

Again, one of the challenges we have in some of these Asian countries, I mean they are really in bad shape with respect to the virus.

And so we can't get out there and hunt sites as easily because of all the lockdowns and so forth.

So there's still a lot of variables, particularly in Asia, but a lot of opportunity.

Sure, sure.

Definitely.

Okay.

And then just any change as you've done your due diligence and working on your closing of the PBMA deal, any new revelations about the business?

And any change in terms of thinking about the close somewhere right around year-end?

No, not really, nothing's changed.

That's -- our goal is to get it in by the end of the year.

And there's a lot of hard work that's actually being done as we speak.

We're trying to get all the procedures and the handovers organized for this.

So no new news on that so far.

Your next question comes from the line of Andrew Jeffrey with Truist Securities.

Mike, appreciate the Olympic metaphors and I agree, Euronet is probably the least appreciated fintech, publicly traded fintech out there.

My question for you is you've built this really impressive global money transfer business with 3.6 billion connected accounts and 220 million wallets and now you're moving into C2B transactions.

Can you talk a little bit about how you intend to monetize.

The growth has been great.

Yield has been terrific.

You're clearly taking share from the legacy providers.

It seems like there's a real sort of optionality aspect to this business.

And I'm just wondering how we should think about that over the next couple of years from...

I think you're on to kind of our top secret, which isn't so top secret plan.

And that's that, as we have added these bank accounts, you've seen the volumes of our -- of the money transfers that we're starting to pay out into banks.

And these -- all these emerging markets, they're adding more and more bank accounts, the idea of the population being banked and "inclusion", financial inclusion is a big deal for all these politicians in these developing markets.

And so by us having access to 3.6 billion bank accounts and all those 220 million wallets just really give us an advantage over everybody on the planet.

So we're able to drop more money into more accounts than anybody else out there.

And that's really where the future is.

Yes, we've got 490,000 physical locations, and that's great because there will always be that.

But this idea that we are connected to these accounts and many, many of them are real-time kind of payment opportunities where the money actually -- you walk into 1 place and you do your transaction or you do it on your mobile phone and it arrives at the recipient's account in seconds, I think what we're doing is building the best set of rails in the industry, and we intend to monetize them both for ourselves and for third parties like we've announced in the past.

Well, Andrew, you've seen in the past and heard us talk about relationships with people like Xoom, where we help terminate transactions for them and others that we've mentioned along the way here.

So the next frontier is beyond what you might call traditional money transfer players, okay?

And maybe you can appreciate the fact that we have those relationships through our XE business where we do smaller volumes of what I might call mass payments that get to business customers.

So these are small businesses, sending out to to other business accounts.

And as Mike said in his comments, this is not just going to consumer or residential accounts.

This is going to business accounts as well.

So with the insight that we have from our XE business, the knowledge we have of complex foreign FX-based transactions and then the beauty of the network that we have around the world, we think that we've got one of the best positioned networks of any player in the market, not just money transfer guys, but any player in the market.

So with that, I think you can start then anticipating what the potential opportunities would be.

And as Mike said, we look forward to telling you a lot more about that in the near future.

Really be -- the bull's eye is on the trillions.

That's what we're going to chase, the business payments.

We've got the consumer payments down.

We're going after the trillions now.

Yes.

Remember, when we acquired Ria, it had 42,000 network locations.

We've chased it up to 0.5 million by now.

We've got another chase in pursuit.

Yes.

I think if Euronet doesn't monetize it or depending on timing, somebody else is going to, it's a pretty exciting opportunity for you guys.

Your next question comes from the line of Mike Grondahl with Northland Securities.

Congratulations on the progress.

And just following up on the last question, the international payment opportunity.

Are we going to see that progress via customer wins via you guys hiring maybe resellers.

How do we see that play out?

And maybe what do you guys think are 1 of the 2 kind of primary use cases?

No, it's business bill payment.

It's -- there's -- we -- Rick talked about mass payments, that's the gig economy, where you've got a company that has got lots of employees around the world and they need to be paid in different currencies, but there's also just the gig economy of payments where you have lots of suppliers around the world.

So I think you're going to see -- I don't think you're going to see us hiring a bunch of people to sell this, but there are strategic partners you can do where they do payments for companies right now and we can do it faster and more efficiently than the bank system.

Yes.

I mean I think the real advantage that we see in the process is that we will enable entities to simplify a very complex payment.

If any of you have tried to make an international payment, you'll realize, and I've heard this even from many of the banking professionals that I work with.

They try to make a payment within their own bank across border, and it's painful.

What we're looking at is bringing all these pieces together which is the technology part of it, the simplicity part of it, the compliance part of it.

All this is part of the complexity of getting one of these cross-border multicurrency kind of payments made.

And as Mike said, there's a lot of people that we can work with, could be direct relationships with companies, could be partnership relationships, could even be doing like we've already got today, private label agreements with financial institutions to allow them to be able to make one of these payments more efficiently.

So these financial institutions are stuck with swift right now.

Lord knows when that payment arrives.

And so financial institutions are going to have to get competitive with what else is out there with all these fintechs and they're going to have to give their customers what the fintechs want to give them, which is instant payments at a guaranteed rate and with full compliance.

Now if you just think about how you try to go about making a payment here in the U.S., well, I'll use a simple example, an old one here.

You write a check.

You just simply write a check to someone.

The banking infrastructure is designed to handle it, and it's not a big deal.

You put it in the mail, the guy gets the check, he cashes it, everything's fine and dandy.

It takes about a week before he can ever get availability of the money, but the process works, and you know how to do it.

How do you even go about making an international payment?

You can't write a check.

You can't just go to your PC and do an ACH transaction.

ACH transactions aren't available outside the United States, right?

And by the way, they close in 2 days.

It's that.

And then they can be rejected up to 6 months.

I mean it's not good funds.

So it is -- again, it's bringing together making simple a very, very complex product that we've got all of the infrastructure, all the technology, the accounts, the know-how to bring.

So I think we'll have several parties that we work with to really monetize this.

It's also real-time good funds.

Next question comes from the line of Darrin Peller with Wolfe Research.

Nice job on the Money Transfer and epay segments.

And just -- but I want to touch on EFT a little more.

When we think about bridging the profitability levels, from what you've had at a normal run rate to where you are now with revenue coming back.

Mike, maybe just remind us, the mix of ATMs by the sort of level of profitability per type of ATM.

When you think about the very highly -- high-margin transactions, which -- how many of your ATMs are now decommissioned that are in that camp, maybe just provide a mix, a breakdown of...

Yes, we've got 46,000 ATMs right now, we have about 25,000 or the high-value ATMs in Europe.

We have about 600, 700 of them in the 1 country in Asia that's locked down.

We have about 10,000 that are outsourcing agreements and the rest are the brown label ATMs in India, okay?

And obviously, the most profitable are the ones in Europe, okay?

And that's the 25,000 there.

Now an interesting thing, and one of the challenges we have with the third quarter is, we can't just -- if we really want to maximize third quarter, we got to basically turn on almost all of our ATMs.

Well, what that does is all the savings that we got last year by having our ATMs turned off, not paying cash delivery costs, not paying service and so forth on it.

That's all gone now.

So we've got this higher fixed costs that we're dealing with, and we'll just have to see how many transactions fall across that fixed cost.

And that's why I kind of -- we're kind of careful on Q3 because once you've turned them on, that next transaction is almost all margin.

We've got to pay about 10% of it to -- 1% or whatever the spread is to Visa or Mastercard, but other than that, it falls through.

Okay.

And when we think about cost saves that are maybe still running through the P&L that would come back, is there any way to give us a sense of the figures, how much incremental cost are out of the P&L right now that would come back in, let's call it, in '22 when things more normalize?

Probably the biggest single thing are some of the rent relationships that we've renegotiated like with a number of the -- some of our biggest payouts are to airports, as an example.

I mean, we're in over 100 airports in Europe.

And so we went back and renegotiate with them so that we pay a rent proportional to the passengers that go through the airport.

So you'll see more of that come back as more travelers come back.

And then we've got other smaller deals like that.

Okay.

And just if you -- you go ahead.

If you try to get some numbers around it, we've told you how many more ATMs we're going to have that are going to be going active and things like that like as you can appreciate is the first day you take the ATM active, you've got all of your, what I'll call, semi-fixed costs that go with that.

You got your rent, you got your cash fill, you got maintenance, you've got communications, you've got all that kind of cost that's with it.

So then it really depends upon how many transactions walk up to that ATM.

As Mike said, each time a new transaction walks up to us, it's very high profit, incremental profit margin for us.

So I think if you try to take some of the ATM numbers that we've told you about how many more ATMs we have, how many more are going to be active this quarter.

We've told you in the past that it cost us nearly $1,000 a month to run an ATM, you can pencil out some kind of grenade math to kind of see what the change in that cost is going to be kind of second quarter over third quarter.

Got it.

The last one is just quickly on epay.

When we looked at the -- but the growth rate has obviously been materially stronger through the pandemic, given all the digital transactions, digital to digital, both sides, fairly unique business model that you guys offer for a lot of the media companies and digital giants.

When we think about structurally.

Yes, Kevin, do you see that as sustainable?

So beyond the pandemic, are we in a world where epay can actually keep growing this double-digit range long term?

Yes, Darrin, good questions.

So the digital growth has been obviously accelerated through the pandemic but we believe that it will -- that trend will continue.

When we look at our sales pipeline of new opportunities, they're overwhelmingly digital versus physical and that digital presence there also gives us a great way to enter new geographies cheaply.

And as we discussed previously, the technology, with the underlying technology within epay is what's enabling this whole digital adoption and distribution ship.

So in summary, we're operating under the assumption that will continue to deliver double-digit growth in epay into the future.

Your final question comes from David Togut with Evercore ISI.

Two quick questions, Mike.

First, what are your updated thoughts on pricing strategy in the Money Transfer business, both in the traditional retail cash to cash and online business?

And then second, any updated thoughts on capital allocation priorities would be appreciated.

We've had -- with respect to Money Transfer, we've had stable pricing for several years now, really.

I don't expect that to change any time soon.

So we'll just stay stable where we are.

And then with respect to capital allocation, we -- even last year, which was our most horrible year ever, it felt like, we still cleared $100 million in cash.

So we'll clear some cash this year as well.

So we're always looking for opportunities.

The best opportunities are the the 1 plus 1 equals 3 kind of acquisitions.

So we're looking for those.

And sometimes when we see big market dislocations, we'll buy back stock, although that isn't our preference, but we'll do it like we did last year when we bought back 3.9% of the company.

So kind of no change there.

And I would say on capital allocation, it -- one of the things that's really helped us over this pandemic is that we have had a very strong balance sheet.

And I think a conservative management of that balance sheet has enabled our Money Transfer and epay businesses to flourish in this time when our -- when the travel has been restricted, and we haven't seen that same kind of contribution coming through from EFT.

So while we could always find quick and easy ways to go spend the money, it's been very helpful to have a very strong balance sheet.

And it's also helpful not just in terms of supporting our business, it gives our customers confidence that we're going to be here.

We deal with some of the marquee name customers in the world.

And they knowing that -- and we're handling their money.

We're just not processing transactions for them.

We are in possession of their money, and they trust us.

And so it's been very helpful to have a good, strong balance sheet.

But as we see opportunities come up like with the Piraeus transaction in Greece, that, as Mike says are 1 and 1 equals 3, we'll certainly go after those, but we're quite fortunate to have the strength of our balance sheet to allow our business to flourish.

Okay.

And thank you, everyone, who has joined us today.

Hopefully, we'll have some good news in about 90 days from now.

Talk to you later.

Thank you for participating.

This concludes today's conference call.

You may now disconnect.