Euronet Worldwide Inc (EEFT) 2021 Q1 法說會逐字稿

Greetings and welcome to the Euronet Worldwide First Quarter 2021 Earnings Conference Call. (Operator Instructions)

It's 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. We'll present our results for the first quarter of 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, on the call.

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 such update under any circumstances.

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, everyone, who is joining us today. I'll begin my comments on Slide #5.

While I'm excited to be here this morning to talk to you about some pretty spectacular results despite the backdrop of the ongoing COVID pandemic. At this time last year, we were sitting here talking to you about border closings and lockdowns in countries all around the globe with a lot of uncertainty as to where things were going to go. We were pleased today to be updating you on 2 of our segments who have delivered exceptional double-digit adjusted EBITDA growth in 3 quarters since the call a year ago. And we are finally able to discuss border openings and things returning to something closer to normal, albeit unevenly, with India still shut down amid rising cases there, slower reopenings in Europe and faster in the U.S.

As you read in our press release, our epay and Money Transfer segments produced extremely strong, double-digit year-over-year adjusted EBITDA growth in the first quarter. These exceptional results were made possible by our historical focus on building our physical networks with leading retailers and banks around the globe, as well as the investments we have made to develop our leading-edge technology, which enabled us to accelerate our digital growth plans to meet our customers' needs in the midst of the pandemic.

Our more than 125% and more than 80% year-over-year digital transaction growth in Money Transfer and epay, respectively, is evidence of our success in selling our products through digital channels. And of course, none of this would have been possible without our strong balance sheet, which has not only sustained us but allowed us to continue to invest in our mission: To connect the world, one transaction at a time.

While we were happy to see EFT transaction growth turn positive year-over-year as we lap the initial COVID lockdowns of 2020, the growth rates were still well below 2019 levels as much of Europe went into another lockdown phase in the first quarter. Had it not been for these reimposed restrictions, which restrained or constrained the more valuable cross-border transactions, we would have seen a stronger adjusted EBITDA result for the first quarter.

Despite the reimposed restrictions later in the first quarter, we are seeing more and more headlines coming out of Europe about border openings for both European and non-European citizens, which contribute to our more cautiously optimistic, yet conservative, view on the second quarter. Moreover, as vaccinations increase, restrictions relax and borders open, travelers will be anxious to go on that special trip, which leads us to anticipate that our EFT segment will be operating at a higher capacity as we approach the seasonally strong third quarter.

Next slide, please. Many of the questions we have been answering recently revolved around what expectations should be for EFT in 2021. So here on Slide 6, we have provided a few data points to help you frame expectations for EFT as the year unfolds.

After a year of talking about travel restrictions and border closing, it sure nice to be sitting here talking to you about countries lifting these restrictions. Just last weekend, the President of the European Commission updated their policy to allow tourists with proof of vaccination into all 27 European -- or EU countries, which would include all vaccinated Americans.

However, many European countries depend heavily on the economic impact of tourist travel. So they are not waiting on the European Commission to finalize this deal, they have already created bilateral agreements with other European countries and have made their own rules about opening their borders. Some countries like Croatia have already opened their borders to both European and non-European tourists. While many others, including Greece, Italy, France and Serbia, have announced the reopening of their borders to tourists in mid-May.

The opening of borders to countries outside of Europe is noteworthy for our EFT business. As you may remember, last year in the third quarter, as soon as the European countries began opening their borders to other European citizens, travel immediately resumed and we saw a corresponding increase in transactions on our ATMs. However, about 1/4 of our 2019 tourist transaction came from non-European countries, like the U.S., which were not allowed into the EU last year. So with the reopening of borders for non-EU citizens, we are hopeful to regain some portion of those transactions.

Research from the European Travel Commission makes us hopeful that we can expect the same response from travelers this year. The survey indicated that 56% of the respondents planned to take a trip by the end of August with about half of those respondents planning to travel outside of their home country.

Moreover, according to the UN World Tourism Organization, actual flight and hotel bookings through March are trending ahead of previously forecasted levels with large spikes seen at the beginning of 2021, which we have presented in the graph on the right side.

Finally, and maybe the most encouraging, in their March update, the European Organisation for Safety of Air Navigation, commonly known as EUROCONTROL, updated various scenarios on travel data, which they had originally forecast in January of 2021. We have included this graph on the left of the slide. The green line is their travel forecast, which assumes that borders began reopening in June. The red line assumes a later September reopening. The blue line is the actual data through March of 2021. As you can see, the actual data is ahead of their forecast, indicating that people are ready and willing to travel as soon as the borders reopen.

I will note that things are changing rapidly across Europe. With vaccine distribution expanding, there is an eagerness to travel. And certainly, the economic benefit, together with the immediate transaction gains we saw in our ATMs last year in Q3 when certain borders reopened, we are hopeful that we will see meaningful earnings contribution out of the EFT segment in 2021.

So now let's move on to Slide 7, and we'll talk about the segment-specific highlights, beginning with EFT. Slide 7. As we announced in March, we have agreed to purchase Piraeus Bank's Merchant Acquiring business in Greece. This will expand our omnichannel payment strategy in one of the largest markets with a trusted partner. We continue to target a late 2021 closing and expect to see the economic benefits of this acquisition beginning next year.

Also during the quarter, we signed an agreement with the Bank of the Philippine Islands, BPI, to take over 300 of their existing ATMs. This is an important milestone. BPI is the first Filipino bank to turn over their ATMs to a third-party processor. Given their strong market reputation, we're confident that other banks will follow in leveraging Euronet's leading-edge technology and solutions.

Last quarter, we told you about 8 new network participation agreements with Spanish banks where their cardholders can access cash from their accounts using thousands of Euronet ATMs across the country. This quarter, we expanded upon that success and signed network participation agreements with 4 additional banks in Spain, bringing the total number of banks we have added to our network to 12 in just the last 2 quarters. This is a testament to the value banks see in providing their cardholders with convenient access to cash and their recognition that Euronet's network is the largest and most efficient way to accomplish this goal.

Finally, as you may have noticed in our press release, we have provided an additional data point around our ATMs. In addition to ATMs that were active at the end of the quarter, we've added the total ATMs that we've installed to give you a better idea of the status of our entire ATM estate.

During the quarter, we added 340 new Euronet-owned ATMs and temporarily closed almost 1,000 to save costs with increasing lockdowns across Europe. While we lost about 346 ATMs, mainly in Pakistan, where the provider decided to move the processing in-house. And as you can see in our totals state -- as you can see, our total estate remains stable, with the number of new deployed ATMs offsetting the net loss, Pakistan, for those outsourcing ATM.

At the end of the day, in a normal year, we have in a state of over 45,000 ATMs, ready for the tourist season with open borders. We have continued to invest in our EFT business despite the impact of COVID, that it's had on our business. Our people are ready. And as travel resumes, we will reopen our ATMs and expect a much better second half of 2021.

So let's now move on to Slide 8, and we'll talk about epay. Slide 8. I just have to repeat that our epay results were just outstanding, and I'd like to pause and highlight how we achieve them. For years, epay has focused on 3 areas to expand and grow the business.

First, expanding content distribution. This started with the move from solely distributing mobile content to adding digital media content with the launch of iTunes and adding brands like Google and Sony and Microsoft, among others, to hundreds of brand partners, which we now sell through our network.

Second, we leveraged our leading-edge technology to develop new solutions to both help our retail and brand partners improve the distribution of these products.

And finally, we expanded the channels in which we -- in which all of our content is sold, from solely physical retail to distribution through online stores, mobile apps, mobile operators, bank accounts and mobile wallets.

The results are not an accident. They are a result of years of hard work and dedication to serving our brand and retail partners in the best, most efficient ways possible.

During the first quarter, we continued to expand our presence in both our leading physical retail channels and our digital channels. This quarter, we partnered with Microsoft to launch their end-user fulfillment platform in 50 countries around the world. For Microsoft Office, they are transitioning away from a discount promotion called Save Now to an added value program called Extra Time. epay is providing the global technology backbone behind this innovative new customer proposition.

We also launched content distribution with Fame Hype, a white label platform for game influencers via digital channels in 14 countries.

In India, we continue to successfully enter digital channels by launching Google Play recharge code distribution through Flipkart, India's largest e-commerce platform.

Finally, in the Philippines, we launched Netflix distribution through Shopee, a large online marketplace with a presence across Southeast Asia; and through TouchPay, a kiosk outlet with 2,500 points of sale in the country.

It was another outstanding quarter for epay. And with the strong pipeline of new distribution agreements, we expect to see continued growth from epay.

Now let's move on to Slide #9, and we'll talk about Money Transfer. Holy smokes, have you seen these results? Wow. I mean, we saw international outbound transaction growth of 27% in the quarter. This is compared to a decline of 7% as projected by the World Bank. That is just stunning growth.

And you might be asking how we got here. I'll tell you, it's been through a lot of hard work to grow our network and provide the most reliable, convenient and safe money transfer service for our customers. Our retail network now reaches 475,000 locations across 159 countries, and we are connected to approximately 3.6 billion bank accounts, essential for digital money transfer delivery.

During the quarter, we launched 13 new correspondents in 13 countries, including service with Petnet in the Philippines with over 200 branches. We also expanded our presence in Israel by launching the Ria service at WIC WorldCom. And we signed 17 new correspondent agreements across 15 countries that will join our network in the coming quarters.

We continue to see exceptional growth in our digital initiatives, highlighted by direct-to-consumer transaction growth this quarter of more than 125% year-over-year. This was made possible by the geographic expansion of our digital presence via our mobile app riamoneytransfer.com, from availability in 9 countries at the beginning of 2020 to 22 countries at the end of this first quarter, with more countries being launched in the coming months.

During the quarter, we launched our app in Lithuania and launched a partnership with Bred Banque in France to pay pensions to French expats.

Our bank deposit network continues to grow with transactions and volume growth of 48% and 57% year-over-year, respectively. Let me repeat that, transactions grew 48% and volume grew 57% year-over-year. That is just remarkable. I'd like to take a moment here to explain to you why these numbers are more impressive and important than they may even appear here.

For years, Ria was chasing our competitors, whose physical networks were much larger than ours. While we have clearly been successful in growing that network, we have simultaneously been building direct connections with our correspondent bank partners to allow for bank deposits. And we can now deposit cash into approximately 3.6 billion bank accounts worldwide. This is important to note because as we have gone through the COVID season, we have seen volume begin to shift from cash pickup to bank deposits, and Ria was ready for the shift.

This is not a network that you can build overnight and requires technical integration to connect these banks. Ria has by far the most advanced bank deposit network in the world. With the COVID closures, we saw customer bank account openings and mobile wallet adoption accelerate in the lesser developed countries, and we were best positioned to capitalize and win this volume.

As we wrap up our discussion on Money Transfer, I'd like to point out that these results aren't just from 3 months of work or investments, but rather years of hard work and investment on multiple fronts. We have built our retail network in both the independent and large retail chains to become the second largest in the world, and we can reach approximately 3.6 billion bank accounts for the digital money transfer, making us #1 in the world for that.

We have invested in our brand. We've made significant investments in our compliance, invested in our digital money transfer service and expanded to more countries. All of this has built momentum which has resulted in double-digit growth for the last 3 quarters. And with our momentum accelerating, our network growing and our increasing brand recognition, if we can keep the current rate of growth, we'll continue to outpace the market by a significant measure. Overall, it was another successful quarter for Euronet.

So let's go on now to Slide #10, and I'll share with you some REN successes. Slide 10. The first is an agreement with Standard Charter Bank, known as SCB, a British multinational banking and financial services company which is headquartered in London, but with a very strong presence in Asia, the Middle East and Africa. With a transformation to digital services inevitable, SCB is launching Nexus, a new Banking-as-a-Service solution, under which, they will provide their banking license and balance sheet to leading consumer-facing digital platforms to enable convenient access to financial services to millions of new tech-savvy customers. SCB has selected Euronet's REN technology as their payment stack to be offered as part of this Banking-as-a-Service model.

The first country involves Indonesia, where we are helping the bank connect to leading e-commerce marketplaces in the country, to offer financial products and payment solutions. This is one of several projects in which SCB is leveraging Euronet's REN technology as part of their digitalization and platform modernization strategy.

Second, as we have told you on previous calls, we believe real-time payments has the potential for revolutionizing payments for customers, merchants and corporates and our REN technology is ready to support banks and central banks as they investigate how to participate in this new trend.

To that end, Euronet's REN Connect solution, a derivative of our REN Ecosystem, allows banks to connect to domestic real-time payment schemes. Additionally, banks can accelerate innovation and deliver enhanced customer experience using our digital overlay services. The bank can deploy these new services on their mobile banking application to provide fintech-like instant payment experience to their customers.

So in the real-time payment space, this quarter, we signed a deal with one of the largest banks in the Philippines, Bank of the Philippine Islands, to enable them to connect to the real-time payment scheme of the Philippines called InstaPay. Under this project, we will enable BPI to offer both person-to-person and person-to-merchant payments n real time using Euronet's REN Connect solution with our overlay solutions.

We are excited about these technology developments and look forward to telling you about more in the coming quarters. As you can see, the years that we have spent investing in our retail channels and in developing our technology are delivering real results across our business and opening the door to many new opportunities to accelerate our growth potential.

With that, I'll hand it over to Rick.

Thanks, Mike, and good morning, everyone. I, too, would like to welcome you to this First Quarter Earnings Call. I will begin my comments on Slide 12.

I think it's worth repeating that we continue to make the most of every opportunity that we have been presented, which is reflected in another quarter of impressive results, particularly out of the epay and Money Transfer segments. And as we discussed, as we move through 2020, it is really the strength of our balance sheet that has afforded us the opportunity to make the investments that in turn produce such strong results.

As you can see here, we ended the fourth quarter with more than $1.1 billion in cash and about $940 million of availability on our revolver. You may recall, we shared with you that at -- in year-end, we borrowed on our revolver for treasury management purposes and repaid it shortly after the start of the new year. This paydown is reflected in the change in both cash and debt on this slide.

Next slide, please. Slide 13 now. For the first quarter, we reported revenue of $652.7 million, operating income of $10.4 million and adjusted EBITDA of $52.2 million. The better-than-expected revenue growth rate was the result of stronger-than-expected revenue production in the epay and Money Transfer segments. These results might have been a little better but for the imposed lockdowns across Europe toward the end of the latter part of the quarter, which resulted in fewer of our higher-value travel-related transactions. We delivered adjusted EPS of $0.23 a share compared to $0.55 in the prior year.

On Slide 14. EFT transactions grew 18%, driven by increased point-of-sale transactions in Europe and a large volume of low-value payment processing transactions for an Asia Pacific customer's bank wallet and e-commerce platform, partially offset by the more valuable tourist transactions as a result of COVID lockdowns across Europe. epay transactions grew 49% primarily driven by continued 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.

As we turn to Money Transfer, we were quite pleased to see that our most profitable Money Transfer transactions, that is U.S. outbound and international outbound transactions, grew 28% and 27%, respectively. These were partially offset by declines in U.S. domestic transactions, which netted to 14% growth overall for the segment.

On Slide 15, we show our results on an as-reported basis. Year-over-year, currencies in most of the major markets we operate increased in the mid- to upper single-digit range, with a few anomalies, including the Brazilian real, which declined 19%; and the Australian dollar, which increased 17%. To normalize the impact of currency fluctuations, we have presented our results on a constant currency basis on the next slide.

I'm now on Slide 16. EFT revenue declined 43%. Operating income declined 851% and adjusted EBITDA declined 163%, driven by the pandemic-induced impact of lower domestic and international ATM transactions in Europe and Asia, especially high-value cross-border transactions across Europe.

epay revenue grew 33%. Operating income grew 67% and adjusted EBITDA grew 61%, driven by continued strength in digital media content and mobile sales through digital channels and certain customer promotion activity, which is recognized as revenue on a gross basis, and accordingly, more significantly contributes to revenue but less to gross profit.

Money Transfer revenue, operating income and adjusted EBITDA grew 17%, 47% and 34%, respectively. These strong growth rates were the result of growth in the U.S. and international outbound transactions of 28% and 27%, respectively, partially offset by declines in the U.S. domestic business. Revenue and operating income grew faster than transactions as a result of a shift in the mix of lower-value domestic to higher-value cross-border transaction and the leveraging of a closely managed operating cost structure.

Overall, it's worth repeating that we are pleased with these very strong double-digit growth rates out of epay and Money Transfer. It is difficult to compare the EFT results with those of last year, where we had 2 months of normal activity before the complete lockdown in March. While this year, we had many of our transaction closed and faced reimposed lockdowns towards the end of the quarter. However, we look forward to better results in the coming quarter as we reopen our ATMs and Europe prepares to welcome both EU and non-EU travelers.

Despite the good news of Europe reopening and studies indicating people are ready to travel, it is difficult to estimate to what level and at what speed tourism will return, and the borders of Asia remain closed. Accordingly, we will refrain from giving official guidance. However, we think it is important to provide you a couple of data points to help frame your expectations.

We would expect second quarter consolidated revenue to be in the 30% to 35% growth range compared to the same -- to the prior year second quarter. From these revenue levels and with careful expense management actions, we expect second quarter EBITDA to be in the $75 million to $85 million range.

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

Thank you, Rick. And as you can see, there's a lot to be excited about, cautiously, anyway. And with so much good news, it's inevitable that I will be asked if we can continue to grow all 3 businesses as tourism returns.

I will emphatically answer yes. We will start to gain momentum in EFT as borders start to open and travel resumes. We had outstanding results in epay with 3 consecutive quarters of double-digit earnings growth, our Money Transfer business momentum is accelerating, making these strong results sustainable for the long term. And we continue to benefit from our technology and digital investments. So I am confident that we will be talking to you about some strong growth rates for many quarters to come.

With that, I'll be happy to take questions. Operator, will you please assist?

(Operator Instructions) Your first question is from Rayna Kumar with Evercore.

Some really helpful details you gave on just the 2 -- second quarter guidance. Could you help us understand how your revenue and EBITDA growth can look by segment?

And also specifically for EFT, what are the underlying assumptions you're making specifically for the second quarter on cross-border travel?

Maybe I'll answer the second one first, let Rick answer the first one. So boy, I'll tell you, it is a challenge to try to figure out who's going to close and who's going to open next week or next month. We got a bit of a surprise when things started to get a little bit better. And then we had the third or fourth wave, whatever it was, in Europe, where we've got pretty much full lockdown in Europe in March, which certainly contained the transactions we were hoping to achieve in this last quarter. So it is challenging.

However, the economic realities are still there in Europe, and these countries, particularly our biggest countries with our biggest estates of ATMs, which border on the Mediterranean, these countries can't afford to have a lockdown all summer. So they began, even before the EU made its pronouncements, to say they're going to start to open mid-May to mid-June. So we kind of expect not a lot of EFT activity in the second quarter, but nice activity in the third quarter.

Of course, third quarter still won't be 2019's levels because there still are going to be some restrictions and some reticence to travel. But just based upon what we saw last year in the third quarter, where there were no prophylactic measures, no vaccines, people just ran out of the house and went on vacation. And we saw for those 8.5 weeks we were open, it was nice transactions, and some of those countries doing 50% of the 2019 transactions with only 2 week's notice.

So we're kind of thinking that the money and the transactions should be coming back in the third quarter. And so that's really -- and not too much in the second quarter on EFT.

And Rayna, let's say, just a little more discussion around the, let's call it, revenue and EBITDA contributions in the second quarter.

As we said it, we believe that on a consolidated basis, we'll be about 30% to 35%. And if you kind of look under the surface there, you would see that -- that our EFT will be leading the way in that growth, which you would expect because, one, last year in the second quarter, EFT was probably the single most significantly impacted by the lockdowns. And as we've shared with you this morning, we see, with borders opening, and expect some lift out of those transactions.

I would -- I think it would be fair to tell you that we're being a little cautious on exactly how quickly and how much that lift will come in the second quarter. Maybe 6 weeks ago, we would have been a little bit more bullish because, prior to seeing some of the reestablishment of some lockdowns. But then today, we sit here and we see a lot more announcements about opening of the borders and the encouragement of people to travel so that Europe can kind of capture a lot of that tourism revenue that they missed last year.

So I'd say we're being a bit cautious there. But clearly, the pace of revenue growth will be stronger in the second quarter for EFT. As it relates -- and then I would tell you that the Money Transfer numbers are expected to be down the fairway in that range we gave, followed by epay. All 3 of which are contributing nicely to that very sound double -- strong double-digit growth.

In terms of the EBITDA. As I said, I think we're being a little conservative there, which I believe is the right thing to do because it's just kind of hard to outguess exactly when and how quickly the travel will return. If we were to see a more robust pickup in travel, I would think that we will see that flow right to the EBITDA line because that's the one that will contribute the most lift in the second quarter as we see that.

So as Mike said, we're cautiously optimistic, yet conservatively viewing what we think will come out of the second quarter. But I would tell you that, that's more of what's behind our thinking of maybe a little lighter second quarter on the EBITDA range. And that is just the speed and velocity of cross-border transactions out of EFT.

That's extremely helpful. And 2 follow-up questions to that. One, what is your ATM strategy? As in what is your pace of ATM implementation in a post-COVID world? Since we're now getting there.

And then separately, your epay business, 61% constant currency adjusted EBITDA growth. Was there anything unusual in the quarter? And could we -- or should we anticipate this type of strength to continue throughout the remainder of 2021?

Well, with respect to our ATM deployment strategy, we still see lots of opportunity. Our goal was to put in between 4,000 and 5,000 new ATMs this year worldwide. Some of those were going to go in Asia. So that's a little bit of a wildcard, but that might have only been, call it, 10% of those. Europe still looks strong for what we were expecting.

We're also seeing this COVID thing has given kind of air cover, you might say, to a lot of the banks in Europe. They're using that as the excuse for closing branches. When branches close, ATMs disappear, offers us obviously less saturation in a given market, so that's good for us. So we're still kind of on track to do what we promise.

And the comment with respect to epay, one is I would always believe that 61% year-over-year growth is a hard measure to keep up with. But let's reflect on a couple of things.

One, in the first quarter of last year, we did see some adverse impact because of COVID that came into it. In the early rounds of the lockdowns, lots of retailers were closed and things like that. And so we had kind of an impact in that first quarter. And I would tell you that, that carried over somewhat into the second quarter.

But we started seeing the lift come, where you -- we had more sales of digital product going through digital channel really helped us quite nicely. We launched a number of new distribution agreements, primarily in the distribution space. As Mike shared with you, we opened up and launched more big brand products, whether it was helping Microsoft launch stuff or it was launching Google Play, et cetera.

So throughout the year, we've had some great channel expansion as well as product expansion. And so that gave us a little bit of that extra lift there in the first quarter.

There wasn't anything unusual or onetime kind of items in the first quarter. So I think it's really kind of comparing a very good quarter to a weaker quarter of last year.

So I think epay will continue to produce some very impressive results, but I wouldn't model them at 61%. I'd love to see that year after year, but I think I would have the expectation that they're going to be -- they're not going to be at 61%. But that's not to take anything away from the epay because I think the epay team has done a wonderful job on expanding geography, expanding distribution and expanding product, and that all should lead to continuation of good results.

Your next question is from Andrew Schmidt with Citi.

And appreciate the detailed commentary, as usual. I wanted to also dig in a little bit on the epay segment. Historically, we've always thought about this as a mid- to upper single-digit grower, but it seems between your growth initiatives and post-COVID digitization, this has stepped up fairly meaningfully. Would you agree with that?

And are we thinking, just structurally, the epay segment more of a double-digit grower going forward?

And then I think along those growth vectors that you've outlined, whether it's geography, distribution and product, where do you see the most lift potential?

Andrew, this is Kevin. So there's kind of 2 things happening. As we've reported historically, we've seen a pretty significant decline in mobile over the last 5 years. And mobile for epay has stabilized. And in fact, we're actually getting a little bit of growth on the mobile side. So we no longer have that. As of now, we no longer have that drag that was on the business historically.

And then second, to your point, everything that Mike and Rick talked about in terms of content expansion and channel expansion is starting to pay off. And I think it's a reasonable assumption to move us from a high single-digit to a double-digit growth income as part of the business, in part because some of these new channels that we've talked about are performing quite well, and they're quite stable. And so I think we've kind of hit an inflection point in epay, and I continue to be optimistic about its future.

That's great to hear. Very constructive. And then I appreciate the disclosure on the installed ATMs versus the active ATMs, really highlights the amount of -- the number of ATMs that are deactivated. Could you remind us how quickly you can turn ATMs back on should you see a tourism recovery? And is that something you would do if you saw a recovery, you would switch them, kind of [turn significant] ATMs on?

Yes, for sure. For sure. So last year, just to give you an idea, when we entered the third quarter of last year, we had 11,500 ATMs, you might call it COVID-tized. In the old days, we called it winterized. And -- but within 2 weeks, we had 7,500 of those turned on. We didn't need the other 4,000 because the volumes weren't there, of tourists. So it doesn't take long.

And in fact, they're all technically live, they just are decashed. So what you just have to do is -- and that's a nice thing about having all of these on-the-ground offices around Europe. I mean, we -- they know when the tourists are starting to show up at the tourist places. And when they've determined that this ATM now could potentially be profitable, they -- it takes 2 days. That's it.

You just put it into the queue to have the money delivery company bring the cash, bring a cassette in, and then it's live. So it's very, very fast.

Your next question is from Peter Heckmann with Davidson.

Deposit network. And you talked a little bit about that last quarter and a little bit more this quarter. But how should we think about Euronet monetizing that and being able to deposit into billions of bank accounts and in multiple countries as well? Today, how much of the monetization of that deposit network is attached to another Euronet service, like Money Transfer? And how much of it is occurring through maybe leasing that network to third parties?

I'm a little bit confused on your question, but I'll do my best. Okay. So when we talk about that deposit network of roughly 3.6 billion accounts. This has been primarily all set up through the Money Transfer segment.

When we very first started 15 years ago, some of our bigger competitors had exclusives on cash payout in a number of these countries, and so we focused on bank account payout just so that we could add that -- those countries to the list. Since then, we've continued to grow that, plus our physical presence. But most all of those exclusives on payouts have evaporated, and so now we have 475,000 physical locations, too.

So most all of this was started within the Money Transfer segment, and that's where most of it will be used, obviously, on person-to-person kind of money transfers.

Okay. But as regards to the potential around the move to real-time payments, transfer...

Okay. Okay. So that's a little bit different. So real-time payments, we do -- we have 2 different products, one is where we actually light up a whole central bank, a whole country where we are the central bank's switch for real-time payment. And like we did that with Mozambique, and we're working on other deals like that.

But what we've also found is, in the countries where there are real-time payment systems now, it's less than 30% of the banks in those respective countries have actually connected to the real-time payment system. And the reason being is because banks are sitting on 40-year-old technology. You almost can't find a bank on the planet that's got a piece of technology that wasn't architected at least 25 to 40 years ago.

And so they've got a challenge of how do I get this old stuff to talk real time? And the old method of -- the old ISO standard was ISO 8583, which was designed 40-plus years ago, and that's kind of what they're used to. So we put in a REN Connect version. And it puts its tentacles deep into this bank's systems and allows it to go real time. And the real-time ISO version is called 20000 -- ISO 20022, and it's a real time, much more robust connection than ISO 8583. So that's kind of the language that the real-time payment systems use right now, and REN Connect does a great job of matching one to the other.

Yes. Pete, I would add that as we kind of take a look at the intersection of the assets across our segments here, this is where we start to see some real promise for the future because, as Mike says, we've got our REN product, which is the perfect design to accommodate the recent or the most innovative payment technology structures out there. We're not working with old technology.

You've got new players coming into the market all the time, fintech players, et cetera. You've got people that are -- that have wallets, that have other distribution platforms whether they're the likes of the Googles or the WeChat or the Alipays or whatever. And these folks all have interest to be able to get payments around the world.

These payments could -- and as Mike said, will probably most likely initially come out of the consumer space, but can quite easily come from the business space, too, where they're paying vendors and talent and royalties and things like that. And so while today, most of the enterprise value that we get from this comes from our Money Transfer business, we see that there's a lot of opportunity as we go across our consumer bases and our customer bases, whether it be the digital platforms that we distribute through for epay, or it's the technology platforms that we're installing in the EFT segment.

So we see that there's a great deal of opportunity out there to enable other people to connect to get to 3.6 billion accounts.

Got it. That's helpful. And then just a housekeeping issue. But you talked about increasing some investment spending ahead of the close of the PBMA deal. Can you quantify that for the second quarter?

I wouldn't say it's necessarily any kind of extraordinary. It's just putting the right investments that we currently have in the run rate of our business into that.

Your next question is from Tim Willi with Wells Fargo.

I guess a couple -- one question I had around Money Transfer. I guess there are 2 here. First one, could you just talk about, I guess, the ongoing engagement and activity of the newly acquired digital customers that have joined Ria over the last year? I mean, is the retention strong? Do you see a churn issue? Or are these people that once they've signed up, they're sticking and they're engaging?

That's a -- I'm glad you answered -- that you asked that question, Tim, because this is one of our big, braggable points. Interesting that you saw that our bricks-and-mortar business are basically our -- most of our bricks-and-mortar business was growing 27%, 28% on international remittance, okay? And so obviously, what people worry about is, when you do digital, are you cannibalizing your current customers?

We did another analysis just the other day just on last month, and it was something like 72% of our digital customers that came in, in that month were brand-new customers. So that would imply that 28% were current customers that we may have been servicing through bricks and mortar. So we are cannibalizing a little bit. But still, even though we're cannibalizing, we're growing 27% on top of that.

And so what we've also found, and we've done -- it's interesting. We've seen that having an omnichannel approach to this is advantageous because sometimes, people might do this digitally and then they might go into a brick-and-mortar merchant or bodega or something and do the next transaction, or some combination thereof. So having an omnichannel approach is excellent.

But I'm telling you, these are new customers coming in, and that just grows our market share.

Yes, that's great to hear.

And Tim, on the matter of retention, we continue to see strong loyalty to our brand consistent with what we see in our brick-and-mortar store. We provide a product that's quality, secure, delivered on time, all that type of stuff. So good retention from these -- no different than we see in our other business.

Great. And my follow-up was around XE, which I think, obviously, most people focus on Ria. And just sort of thinking about XE, which was the high-dollar sort of transactions when you originally bought it. With everything you got with the REN ecosystem and your global reach, is there an opportunity? Or is there something already going on within XE to think about sort of cross-border B2B payment engines? It just seems like that's something that [could sort of fit. Okay.]

Well, for sure. I mean, that's what XE does. And you're right, that's actually one of the benefits that accrue to us because of our real-time payments expertise. I just saw a report the other day where 3 -- where we've lit up real-time payments with XE to 3 different countries. And those transactions were growing something like 20% month-on-month, okay?

So once people understand they've got real-time payments, it gives XE an advantage of that a competitor B2B money transfer company does not have, and we get the transaction.

I mean, everybody wants to see their money land in the accounts they're targeting instantly. I mean, people -- nowadays, people think it should be like a text message. And as opposed to the old SWIFT way or something where you could wait 3 or 4 or 5 days till the money actually hits the account. And during those days, you never know exactly where it is on the ether of the worldwide financial networks.

Yes. It just seems like that should be a nice reopening play as well, sort of a second...

Absolutely. And as we add more -- yes. And as we have more real-time payment options for us, we'll see more transactions go that way. It's just inevitable.

Your next question is from Andrew Jeffrey with Truist Securities.

Mike and Rick. I'm not going to ask you to predict travel trends. But I do wonder, when I look at your EFT business, at such point that cross-border volume recovers to a level comparable to '19, for example. Is the cost structure materially different? Can margin in that business be higher at a return to peak traveler or peak cross-border volume?

And that's interesting. I would say there's a couple of kind of things. So we were able to renegotiate some rents at some of the more expensive places like maybe airports or some of these deals to be more commensurate with the number of travelers who come. So we might get a little bit of a break there.

But just in general, costs do go up over time. So maybe it's kind of an offset. I don't see a significant change in margin. But remember, margin in our third quarter is always [due to erupt] in EFT. And it's because you have a much higher percentage of those higher-dollar, higher profitable transaction than say, in Q1.

So if you can bring in more of those transactions, if we can continue to expand to the rest of the world like we're doing, we've announced Egypt, we announced Lithuania, we're in one country in Southeast Asia and want to open up a couple more. As those things come through, then our margins would tend to migrate upwards. It's just a question of will rents and so forth on the cost side keep us in that kind of mid-30s margin or not.

Did I get that math right, Rick?

Yes, yes. Yes. I think, certainly, there's a little bit of benefit we'll have on the expense side because of the restructuring of rates and things that we've done over this period of time. I think we've peeled off the less profitable ATMs. We've taken a number of those out of the mix. And so the quality of our estate is increasing. But I think, for your basic next box deployed, it will probably be in relatively the same kind of margin ranges. And where we would expect to see the real margin expansion would be continued leverage of putting more boxes in more countries.

And not different than our success has been over the last 20, 25 years, it's all about getting more units in more countries and more products on it. And as we do that, we'll continue to see our margin improve. But I wouldn't anticipate the margin lift to be dramatic because of cost-saving initiatives we had over the last year.

Okay. That's helpful. And Mike, obviously, the growth in the agent network, the Money Transfer agent network, is really impressive. Is there a point at which you think there are diminishing returns to growing received agents? Or should we continue to see you just compound the growth?

Well, I think -- the reality is it's a chicken and the egg thing. If you don't have ubiquitous payout, convenient payout for someone's love one to pick up their cash, you're going to do less transactions. But it is true. I mean, once you get to the point where we have almost 500,000 locations right now, the next 100,000 won't be as productive as going from 100,000 to 200,000. But still, more ubiquity wins.

And the other ubiquity thing on -- is really comes down to those bank accounts. Because the future, much of this future, is going to be digital transfers. Many of these people are going to come from cash-based economies and still do cash. But when it comes to the digital stuff, digital transactions, when you have roughly 3.6 billion connections, that's a big, big differential and a big asset.

Yes. And let's not forget that we're playing an incredibly huge market here, okay? And we've got a small percentage of the total market, and we've got a key competitor that's sizably bigger than us. And so there's a lot of opportunity out there. So I think as -- and I would also maybe venture to argue that, who says that the right number of networks is -- locations is 550,000? Hell, maybe it's 1 million, I don't know.

But what we have been all about is, again, opening up new markets, more places and getting out more products. And so given that we're a -- right now, we've got a meaningful but still small piece of an incredibly big market. We're still not #1, but certainly, we'll get there someday.

And there's more channels to go through, too. There's more players getting into the market that weren't there. Fintech players and things like that. And so there will be other ways that we can use our network.

So yes, as Mike said, there's probably some level of diminishing return there. But I think we still need -- we're still pushing to see where that is, and we've not found the top yet.

And our partners, like PayPal and Remitly, have recognized this asset is something you just can't buy. And -- but they can rent it from us. So I think more -- you'll see more and more partners like them basically say we've got the best network, we want to have ubiquity. And we can make a little bit of money on those transactions, too.

Yes. One more question, please, operator.

Your final...

We lost you, operator.

Question is from...

Operator, you're breaking up.

Your last question is from Andrew Bauch with Wolfe Research.

Congrats on a pretty sound quarter despite a challenging environment here. One housekeeping question. In EFT, you put a pretty sound transaction growth of $925 million, which was up 18% relative to the trend of low double digits. I mean, understanding that this is probably driven by a lot of domestic. I mean, what's really working there? Because I think that, that number would suggest some real engagement within the base and potentially new ways to monetize that network.

Yes. Good question. And absolutely. And I think here's where you see the interplay of our technology in driving transactions in our business. These high volume of transactions is the result of us getting our REN technology into these new environments that are connected to real-time payment engines and things like app. So we're playing a role of bringing together this high volume of transaction processing in these new environments.

So while these transactions are not highly valuable, like we've historically seen in the Money Transfer -- I mean, in the EFT segment, we're seeing the crossover between the delivery of our technology and getting to a vein of incredibly high-volume transactions that are all incrementally full bottom line profit when we get those installed. So that's really what's driving that.

No, it definitely should set up for a pretty nice flywheel effect when the high-value transactions come back.

Oh yes. For sure.

And my second follow-up is I know that we don't really have much to go off of here with regards to the cross-border EFT volumes. But any update on what you've seen from the DCC disclosure rules? And any impact on your -- in testing environments that you've been working on there with regards to attach rates?

We've been adhering to all those rules. I think 90% of the rules, we always adhered to. The new rules, the only new rule that changed, we've been adherent to since last year. Really haven't seen any impact past what we had expected and we communicated. So really kind of much ado about nothing.

All right. Very good. And with everybody -- operator, I think we'll end now. And I would like to thank everybody for taking your time this morning. We look forward to, hopefully, we have some more exciting news in 90 days from now.

And this concludes today's conference call. Thank you for participating. You may now disconnect.