Euronet Worldwide Inc (EEFT) 2017 Q2 法說會逐字稿

Greetings, and welcome to the Euronet Worldwide Second Quarter 2017 Earnings Conference Call.

(Operator Instructions) As a reminder, this conference call may be recorded.

It is now my pleasure to introduce your host, Mr. Jeff Newman, Executive Vice President and General Counsel for Euronet Worldwide.

Thank you.

Mr. Newman, you may begin.

Thank you, Charlotte.

Good morning, and welcome, everyone, to Euronet's Quarterly Results Conference Call.

We will present our results for the second quarter 2017 on this call.

We have Mike Brown, our Chief Executive Officer; Rick Weller, our Chief Financial Officer; and Kevin Caponecchi, Executive Vice President and 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 first page of the PowerPoint presentation we'll be making today.

Statements 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 first page 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 under any circumstances.

Now I'll turn the call over to our CFO, Rick Weller.

Rick?

Good morning, and thank you for joining us today.

I will begin my comments on Slide 5. For the second quarter, we delivered revenue of $536 million, adjusted operating income of $71 million and adjusted EBITDA of $99 million.

Adjusted operating income, adjusted EBITDA and adjusted EPS exclude costs from 2 items: first, approximately $2.5 million in cost related to the proposed MoneyGram transaction; and second, a $2.3 million noncash write-off of intangible assets from the closure of our Pure Commerce office in South Korea.

Second quarter adjusted EPS was $1.09 a share, a 12% increase year-over-year and in line with the guidance we provided in April.

This $1.09 includes about $0.02 of headwind compared to last year's second quarter from share dilution on our convertible bond as we continue to see a nice appreciation in our stock price over the year.

Since our guidance, our share price continued to appreciate and impacted our earnings by about $0.002 to $0.003 a share from additional share dilution, which was offset by FX rate improvements.

I would also point out that last year's second quarter GAAP pretax income included a $19 million gain on Visa Europe shares, which we did not include in our adjusted EPS numbers.

Next slide, please.

Slide 6 shows our 3-year transaction trend by segment.

EFT transactions grew 26% from the expansion of our ATM and POS networks in Europe, the October 2016 acquisition of YourCash and transaction growth in India.

As has been the case for the last couple of quarters, the transaction declines in India from fewer cash withdrawals as a result of the government demonetization were more than offset by a higher volume of low-value transactions related to the low-margin agreements that we have made in India, and those agreements have made minimal contributions to our overall operating results.

epay transactions declined 4%, with declines from mobile transactions in the Middle East, North America, France, India and the U.K. partially offset by growth in Germany and Poland.

Total Money Transfer segment transactions grew 11%.

Money transfers grew 12%, while nonmoney transfers grew 2%.

Consistent with prior quarters, Money Transfer growth came from most all areas of the Money Transfer business.

Next slide, please.

Slide 7 presents our results on an as-reported basis.

The year-over-year changes in currency varied widely, with modest 3% to 4% devaluations in the euro and Canadian dollar; more significant devaluations in the Malaysian ringgit and British pound of 7% and 11%, respectively; while the Australian dollar, the New Zealand dollar and the Polish zloty appreciated approximately 1% to 2%.

To normalize the impacts of these currency fluctuations, we have presented our results adjusted for currency on the next slide.

Slide 8, please.

For the second quarter, EFT delivered constant currency revenue, adjusted operating income and adjusted EBITDA growth of 38%, 53% and 50%, respectively.

These exceptional results were driven by a 44% increase in ATMs and a 26% increase in transactions, with growth from Europe, India and the acquisition of YourCash.

Revenue and gross profit per transaction improved year-over-year, and operating margins expanded year-over-year.

So as you can see, the investments we have made to deploy more ATMs are paying off as this was another outstanding quarter for the EFT segment on all fronts: growth, margins and leverage.

And finally, this quarter's EFT segment results included close to a $1 million negative impact from the India demonetization, which was roughly in line with our expectations shared with you last quarter.

As we enter the third quarter, we anticipate that the situation in India will continue to stabilize.

However, it is a fluid environment in India, and government policy continues to evolve.

Now to epay.

epay constant currency revenue growth of 4% was the result of continued growth in nonmobile product sales, partially offset by certain mobile declines.

Declines in constant currency operating income and adjusted EBITDA were largely the result of nonrecurring settlement charges.

One item related to the formatting of VAT invoices and the other related to a preacquisition employment dispute from more than 10 years ago.

Revenue and gross profit per transaction improved in epay on a year-over-year basis, consistent with our focus of adding more high-value nonmobile content.

Now let's turn to the Money Transfer segment.

Double-digit constant currency revenue increases were driven by growth across most all sectors of Ria's business, together with the conversion of the XE business to the HiFX platform.

Revenue and gross profit per Money Transfer transaction remained stable year-over-year when Walmart-2-Walmart transactions are excluded.

Operating income and adjusted EBITDA declines reflect last year's benefit of the strong trading patterns in the HiFX business from the Brexit vote; discounts given in the renewal of the Walmart agreement and certain implementation costs of the Walmart-ASDA agreement in the U.K.; and finally, cost to further expand and upgrade Ria's network, particularly in India.

Excluding these items, constant currency operating income and adjusted EBITDA would have grown 17% and 14%, respectively, reflecting leverage on revenue growth.

Now to Slide 9. On Slide 9, we compare the June 30 balance sheet to the first quarter.

Cash increased compared to the prior quarter due to the additional cash requirements to support the seasonally higher ATM cash withdrawals in the second and third quarters together with cash flows generated from operations.

The significant increase in cash required is directly correlated to the organic deployment of more than 3,000 ATMs in the last year.

In similar fashion, the increase in debt is primarily from borrowings to fund the increased cash bills.

I also point out that while our leverage ratio at June 30 was a bit higher, on a net debt basis, it remains essentially 0 given that the borrowings during the quarter are simply setting in cash at the ATM.

In summary, we had an excellent second quarter and first half of the year in which we have delivered strong earnings while also making investments across each of our segments to deliver strong results in the second half of the year.

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

Thank you, Rick, and thank you to everyone who is joining us today.

I'm on Slide #13, and I will start with the EFT highlights.

As I said to some here in Kansas, we make hay while the sun is shining.

Certainly, the sun is shining on our EFT segment this summer.

Looking at the exceptional EFT results, there was plenty of activity in the second quarter, so I will just hit some of the highlights.

In India, we signed an agreement with AU Small Finance Bank to drive their ATMs and offer card management and reconciliation services.

We are also pleased to renew agreements with several of our customers.

In Poland, we renewed ATM and deposit agreements with Idea Bank, DNB Bank and Citibank.

And in India, we renewed our brown label ATM agreement with ICICI Bank.

Next slide, please.

We continue to roll out new features -- we're on Slide #14, by the way -- and products across our independently deployed ATM networks, which make cash access more convenient for the customer.

This quarter, we expanded contactless card acceptance and cardless payout across more of our ATMs, which makes using the ATM faster and more convenient.

In Poland, we partnered with TU Europe, a European travel insurance provider, to offer customers the ability to purchase travel insurance.

Customers can choose to purchase a domestic or global insurance option and pay using their debit card on the ATM.

Our POS DCC business continues to nicely expand despite the closure of our South Korea office.

This quarter, we launched in the Hilton, Fullerton Bay and Marriott hotels in Singapore.

We also launched POS DCC service with First Hawaii Bank in Guam, Saipan and Hawaii.

Finally, in India, we partnered with Thomas Cook, the largest issuer of prepaid cards in Asia, to launch their proprietary travel card.

As Rick mentioned, the impact of demonetization on our results was roughly in line with our previous estimate, consistently improved through the second quarter, and we saw transactions on our brown label ATMs approach similar levels as in June of last year.

We are cautiously optimistic barring any additional intervention from the Indian government, and that situation in India will -- as that situation in India continues to stabilize.

We finished the quarter with 37,383 ATMs, a 44% increase over last year.

During the quarter, we added 1,171 high-value ATMs across Europe, and we've reactivated 934 seasonal ATMs and added 133 ATMs under our low-margin agreements in India.

Year-to-date, we have organically deployed more than 1,700 ATMs, on pace to meet our goal of 3,000 for the full year.

As you can see, the ATMs we installed over last year are ramping up nicely.

And as the summer travel season begins, the benefits of these investments are evident in EFT's exceptional second quarter results.

Now let's move on to Slide 17, and we'll talk about epay for a minute.

epay remains focused on their strategy to expand our content portfolio and to lever -- and to deliver that content to more retailers and more channels.

Nonmobile now makes up more than 55% of our gross profit.

And as we continue the transition to nonmobile, the epay business will continue to become more seasonal, with more earnings being shifted to the fourth quarter.

In the United States, we launched new customer activation along with expanded prepaid mobile distribution for Verizon Wireless into independent retailers.

Verizon previously only activated new customers in national retail, so this partnership expands Verizon into new channels.

We also expanded our relationship with Google by adding distribution of Google Play cards and digital codes to 5 new countries across Europe.

We introduced our first digital kiosk solution in Rewe, a large German supermarket chain.

The digital kiosk complements the traditional gift card mall and expands the display of content while adding customer convenience.

Finally, we added distribution of Amazon digital codes into the banking channel in Germany with Postbank and Sparkasse.

Overall, this was a solid quarter for epay, with good progress made to expand our nonmobile content distribution.

Now let's move on to Slide #20, and we'll talk about Money Transfer.

Our Ria Money Transfer network now reaches 324,000 locations in 144 countries, a 3% year-over-year increase.

As you know, in April, we renewed our agreement with Walmart.

And along with that renewal, we agreed to a rate reduction.

At the same time, pricing to consumers across all tiers of the Walmart-2-Walmart product was reduced.

As we expected, we have seen a nice increase in volume at Walmart, including an increase in the percentage of new customers using the product as well as existing customers using the product more frequently.

We believe that the volume gains are resulting from increased market share and potentially attracting customers for more traditional payment methods such as cash, checks or money orders.

The increased volume from these changes reaffirm our shared efforts to improve customer pricing and drive volume as part of our extended agreement with Walmart, and we look forward to the next 3 years powering the Walmart-2-Walmart product.

This demonstrates again the customer acceptance and appreciation for Walmart's everyday low prices strategy.

As you probably saw in our press release last month, we launched direct partnership agreements with 3 of India's leading cash remittance payouts: Paul Merchants, Weizmann Forex and Transcorp.

All 3 of these well-recognized agents have more than 15 years of remittance experience and were previously exclusive with one of our largest competitors.

These partnerships will significantly improve Ria's payout network in India while also offering improved brand recognition and tremendous convenience for beneficiaries to receive cash remittances.

This is a material improvement to our payout network in India, where previously we had to rely on a number of indirect agents, which offered suboptimal service and pricing and limited our ability to expand our transfers to India.

When recognizing that India's remittance market is approximately $75 billion annually or about 3x the size of Mexico, you can more fully appreciate our excitement about this significant achievement of our Money Transfer team.

In addition to these launches in India, we also launched service with 18 additional correspondents across 17 countries.

These new agents are located in strategically important countries like Serbia, Vietnam and Nigeria.

We also continue to invest in our digital property.

This quarter, we launched riamoneytransfer.com in Australia, our third country to go live with our digital family remittance solution.

And as expected, we have seen stronger customer activations from the XE conversion.

XE will be a really great contributor in the next few years.

Overall, this was a great quarter for our Money Transfer team, with another double-digit revenue growth quarter, together with 2 very significant achievements: the Walmart renewal and the expansion and upgrade of our network in India.

More significantly, on top of these great accomplishments, our team continues to make good progress in further expanding both our physical and digital presence while at the same time implementing the extension of the Walmart agreement without significant adverse financial results.

This is a credit to the strength of the product and the overall Money Transfer operating performance around the world.

Now let's move on to Slide #21 to wrap up the quarter.

First, we delivered a 15% constant currency revenue growth.

Second, EFT results reflect the benefit of the strong ATM deployments made in the past several quarters.

epay continued to benefit from its focus on expanding its nonmobile content portfolio to prepare for the fourth quarter holiday season.

Money Transfer delivered a strong quarter, implemented the Walmart extension and made investments in our network, particularly in India, which position us well for further growth.

Our balance sheet remains strong with good cash flow generation.

And finally, we expect our Q3 adjusted EPS to be approximately $1.60 per share, assuming consistent foreign exchange rates.

With that, we will be happy to take questions.

Operator, will you please assist?

(Operator Instructions) Our first question comes from the line of Pete Heckmann from D.A. Davidson.

Had a couple questions on Money Transfer.

What was the effective date for the contract renewal and the new pricing?

I'm trying to get a feel for how much of that was reflected in the second quarter.

Well, all the second quarter had that reflected, Pete, since the beginning of April, yes.

Okay, okay.

And then in terms of go lives, the timing for the 3 large direct agents in India and then the ASDA units in the U.K., are those up and running currently?

Or should we expect those to ramp through the back half?

Okay.

With respect to the Indian banks, we are rolling them out now, but it also operates kind of location by location.

So we expect the full rollout to be by the end of the year, but we are live with all 3 of them right now.

And that is -- was a significant investment on our part, but it's an investment in really when it comes down the family remittances, the largest corridor on the planet.

Got it.

Got it.

And the ASDA units?

Yes, pardon me, what was the second question?

Just on the ASDA units in the U.K.

Oh, yes.

So ASDA, we're still rolling out there.

I don't have the exact units at the top of my head, but we're still rolling out.

We're not done yet.

That was originally expected to take until the end of the year as well.

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

Mike, could you spend a minute or 2, the Thomas Cook prepaid card deal, just kind of talk about how you make money there.

And do you see more deals like that across kind of Europe and Asia?

Oh, yes.

And in fact, that's one thing that we've talked to you about over the last couple of years as we've expanded our capabilities, both for acquiring and processing travel cards, prepaid debit cards, et cetera.

And so this is one where we did the processing for them.

It's under their brand.

But we would have -- go back over the last several calls, we've announced several of them.

You might remember the

Wizz Air cards that we did in Switzerland and Hungary and Poland.

And we've got other ones in the works.

So we'll continue to do that.

These are all reflected in our EFT division.

Got it.

Got it.

And when you look at the strength in the ATM business, it seems like it's primarily unit-driven, which have been really strong.

Are there -- is there much services that you're offering changing there?

Or would you say units are the primary driver?

Well, units are the primary driver.

We've mentioned that before.

Now there are some other drivers, too.

One is if you have increased number of tourists, that doesn't hurt.

And we've seen an increasing number of tourists throughout Europe that help us in these summer months, certainly.

But really, what it comes down to is finding those excellent sites one by one across all these countries.

We're live in 23 countries in the EU right now, and the EFT team is just crushing it when it comes to finding good locations in a market where the average number of ATMs on a per capita basis is probably 40% of the United States.

So there's still more ramping there to go, and we're going to continue to find more sites.

And I'd just add to that, that as we've said for years, it's also the addition of more product to the machine.

Sure, we get more machines out there.

But as we continue to layer more of those products in there, we've talked about things like having cardless-based ATM cash withdrawals, depository transactions, lottery or promotional payout type of transactions.

And these are all very high-value, rich margin type of transactions.

And it just makes our ATMs more attractive to the banks and to other parties as the place to go.

So yes, it is units, but it's getting more and more and more product on there.

And we're capable -- we're -- we can do that because we run the ATMs with our own software, both in our back office as well as at the ATM.

So it's a combination of getting the machines out there and getting the products on the machine.

Yes.

One of the things that we've added in a couple of countries now are the ability to buy tickets to summer concerts and clubs and so forth.

That's another example.

And then the nice thing about that is if somebody comes to your ATM to buy a ticket, they're going to probably get some cash while they're there.

So -- or vice versa.

You can advertise the tickets.

So all these things really come down to get more people to your ATMs versus, say, a bank's ATM that might be somewhere further away because all a bank's ATM can do is basically give you a cash withdrawal.

Yes.

And so just as this ticket example that Mike gave here and cardless withdraw transactions, what that really does is that makes our ATMs that much more appealing to a much broader group of customers out there that we see deploying more alternative payment products and things like that.

So we feel good about getting more of those ATMs because we get more product out there to show each and every customer that walks up.

Got it.

You commented on travel, Mike, in Europe, and we've done a bunch of work there the last couple months.

Is it a -- I'd like your opinion, but is it sort of a fair conclusion that after many years of okay travel in Europe, this one is shaking up to be kind of a new level of travel where you're seeing kind of a significant step-up?

Is that fair?

Yes.

Well, we mentioned this on the last call, I think.

I don't have the numbers for every one of the countries, but let's take Greece as a real touristy kind of destination for both Europeans and other people around the world.

It was -- it did about 27 million tourists last year, and it's projected to do 30 million this year.

So that's an 11% increase.

And then -- so those kinds of things are -- now why is this happening?

I think more people just are out traveling.

Maybe they have more disposable income, maybe because the economy is getting a little bit stronger across Europe, but it's also because the alternatives are not as positive in people's minds as they used to be.

Lots of Europeans used to save a few bucks by -- or a few euros by going to Egypt or to Turkey or whatever to still have a beautiful kind of summer vacation, but a little bit cheaper.

Well, people aren't going there now because you go to those places, Tunisia, some of these places, they've all had terrorist incidents, and it kind of scares some of the people away.

Our next question comes from the line of Andrew Jeffrey from SunTrust.

I wonder if you could elaborate a little bit, Mike, on the XE integration and the kind of progress you've seen there and perhaps you could quantify that for us.

And then any thoughts about applying some of those leads against the C2C business over the next couple quarters?

Well, as you know, XE is the most trusted name in currency rates in the world.

I mean, last year, we had something like 280 million unique IP addresses hitting our website.

And we have something like 57 million downloads of our app, and about 10 million of those are used every single month.

So we've got this huge audience, you're right, this huge funnel of potential leads because about half those customers actually profess interest and saying that they had an imminent cross-border payment need.

So we've got this great, big funnel.

How do we use it, that's your question.

So we have integrated well now with HiFX.

In fact, we were able to take all the transactions that formerly went to a competitor -- or leads that went to a competitor.

We're taking all those now.

Our sign-ups are coming at a much increased rate than they used to.

Our key now is to make sure that we convert them.

And this is kind of a work in progress.

You try lots of things to increase this conversion.

We have several things that are happening now in process.

We'll be delivering new versions of both our app and our website design between now and the end of the new year.

There are several actually revisions in plan.

So we see this as nothing but a big growth opportunity.

We're calling this one digital, which is really our digital approach to doing cross-border payments, whether that's family remittance or high-end things like HiFX.

And so the results have been great because we've had 2 to 3x the number of activations that we have had in the past before we got away from the -- when we used to be on the competitor, and now we're on ourselves.

So all this kind of adds up to a lot of potential.

Haven't seen it all get to the bottom line because we've got to get people activated and signed up and get them to make that first transaction, but we're very encouraged.

Okay, great.

We look forward to more updates there.

And with regard to EFT, certainly appreciate the value add and the impact there as well as the low number of ATMs per capita.

I wonder if you could just expound a little bit on the runway.

If you -- can you look out and think about the kind of ATM growth you've seen 3,000-plus machines a year sort of compounding over 5 years, 10 years and then the addition of sort of the high-yield services.

In what inning might you be in terms of this European ATM deployment?

It's interesting because we talk about that all the time.

I mean, you keep wondering, how can you do 3,000-plus every year.

But every year, there are 3,000-plus.

So I don't know what inning we're in.

Maybe we're in the second inning, maybe we're in the third inning, but we're certainly not in the eighth inning.

And there's just a lot more opportunities, and that doesn't include if there -- if everything changes more towards the U.S. model, where every place in Continental Europe then has kind of a surcharge model, more like the U.S. model.

That hasn't come yet.

The only 2 new countries that have been added over the last 3 years with respect to surcharge are Spain and now Austria.

So that would change things considerably as well.

So -- and it makes you target different kinds of sites.

So I mean, we just see a lot of expansion in Europe, and we also are eyeing expansion outside of Europe.

There's a big world out there.

There's a big world out there, and we don't believe we are even scratching the surface yet.

Right.

No, that makes a ton of sense.

And it also sounds like it's safe to say that you're not relying just on DCC for some of these value-added services as, I guess, it's encouraging from a launch or on a consumer value perspective.

That's correct.

And here's an interesting thing, both DCC and just the normal local guys.

Once you've got a network built and you continue to find profitable locations, then you look in a country and you might have 1,000 locations.

You might have 1,000 ATMs or 2,000 ATMs.

Once you have that kind of critical mass, you can then sell other kinds of features, too.

Just with respect to our network across all of Europe, we're able to sell cross-European advertising strategies and stuff like that to big-name customers.

And it's just kind of one success begets another.

And in addition to that, as Mike said, when you get that volume of ATMs across the country, that gives us new opportunities to talk to banks about participation agreements and things like that, where their customers can have access to our very conveniently located 7/24 always-up machine.

Yes.

There's no bank in Europe that has our coverage across the EU.

None.

And in fact, there's no bank that has even half the number of ATMs that we have in Europe.

So as we continue to grow -- and by the way, banks aren't adding many ATMs because they still all -- most all these banks in Europe have balance sheet problems and they don't like to do CapEx.

So while they're sitting there stagnant -- and in fact, the number of branches are being reduced every year in Europe because they're unprofitable and these banks still have kind of upside down balance sheet, that just means that we become even a higher percentage of the total ATMs in a given market.

So we've kind of got a lot of things working in our favor because of our momentum, our first-mover advantage and also the fact, like Rick said, where we have a single system that's operated in one country -- or basically, our back office is split between Warsaw and Budapest, which are both over 20 years old with the company.

We have that one system that's multicurrency, multi-language and multi-country that can run any ATM anywhere with all this flexibility.

We just really have an advantage over it.

Nobody has that.

Our next question comes from the line of Chris Shutler from William Blair.

So on the -- in Money Transfer, what drove the agreement with the 3 big agents in India?

Just kind of wondering why now and not a year or 2 ago.

Well, we've been trying for freaking 5 years, Chris.

So you're over there saying why now, I'm saying why wasn't it 5 years ago.

And the reason was is, I think, it took these agents a while to understand that the largest money transfer players to India haven't really increased their volume over the last 5 years.

And so they're sitting there looking at their P&L, and they're saying, "How do I make more money?

Should I hang with this exclusive or not hang with exclusive?" And so we were finally able to kind of beat some sense into them and realize that we are the up and comer, we're the growth engine for money transfer in the world, and they ended up accepting our proposal.

Got it.

And then on Walmart, just based on the -- kind of the volume trends that you're seeing to date with Walmart since you renewed the agreement, how should we think about what's a reasonable expectation for when you'll be back to kind of a breakeven per se?

Is it a couple of quarters out?

Or is it further than that?

Yes.

I'd say that's probably right.

Because don't forget, we're talking about mid-teens reduction in our fees and mid-teens reduction in the price to the consumer.

So by definition, we've got to grow a little bit past that in number of transactions to break even.

Okay, got it.

And then in epay, so the nonmobile piece continues to grow really strongly.

Can you give us the percentage of gross profit?

And on that nonmobile growth, maybe just talk about -- or give us some sense of how much of that is same-store sales versus adding new content providers or new locations.

Just trying to get a better sense of what's really driving the underlying growth.

I know it's a bit of everything, but if you could give us some sense of magnitude.

Yes.

So the -- this is Kevin, Chris.

So the mix continues to be what we've described.

So we don't give a specific number, but it's over 55% of the gross margin that's now the nonmobile content.

And that will continue to go in that direction as mobile declines and we add new products.

Regarding same-store versus new, most of the growth right now is related to same-store.

But because it takes -- just like an ATM, it takes a little time for all the new content to ramp up in volume.

The other emphasis that we've got, Chris, is increasing our distribution of that nonmobile content.

Increasingly, it's going to digital channels.

So as consumer behavior changes and as brand partners look to reduce their total distribution cost, digital channels are the best avenue.

And because of the strength of our platform, we tend to be very strong versus our competitors on -- as it relates to digital distribution of this nonmobile content.

Got it, okay.

And then just one last one on the EFT segment.

You've been adding a lot of high-value ATMs over the last couple of quarters.

So just given you have so many more new ATMs and the business is becoming more seasonal, just wondering how that kind of factors into the way that you provide guidance.

Is it becoming tougher to kind of predict the third quarter?

Or do you feel pretty comfortable with the numbers?

No.

Yes, yes.

We -- the nice thing is we've been picking sites and doing this for 20-some years.

So when it comes to EFT, we can -- by this time in the third quarter, a few weeks in, we've got to -- and looking at Q2's results, we feel pretty comfortable about where we are with respect to the third quarter.

But you are right.

It's growing.

And so certainly, in the last year, we've kind of missed a little bit, we overachieved.

I don't know if we'll do that this year, but we feel pretty comfortable.

It is very seasonal.

And then for people who are kind of new to this call, understand, our biggest quarter for both the company and for EFT, which is 40-plus percent of our business, is the third quarter.

And that's thanks to the seasonality of our EFT business.

Yes, where we -- we've got -- when we look at our business, we've got really a lot of strength in EFT in Q2 and Q3, and then epay comes into its own in the fourth quarter.

And unfortunately, in Q1, kind of everything is not so good, so we have to get by first quarter to get to the next 3.

Our next question comes from the line of Jason Deleeuw from Piper Jaffray.

A question on the EFT business with the revenue per ATM transaction.

That increased nicely year-over-year.

It was up 8%.

And just want to understand all the drivers there.

DCC, some of the value-added services, is that kind of a key driver?

And just trying to get a sense of the sustainability of this level of revenue per transaction.

Or should it even increase from here?

Well, there's a little bit of averaging going on here.

Remember, we had bought all those ATMs, those 5,000 ATMs, for YourCash last year.

And we mentioned that their profit per ATM is kind of like half of what our average was in Europe.

So as we continue to add more high-value ATMs under our model across Continental Europe, those numbers are twice that average.

And so you just kind of get a weighted cost or weighted average to our favor, and that's one of the things.

Plus, we're just finding good sites.

We know how to find good sites in multiple countries.

It may sound a little bit repetitive, but it's all about getting more product out there, getting more agreements signed up with banks and giving more choice to the customer.

And so as we put those things out there, like using that ticket example again, not that that's made that big of a difference yet, but it's a good example of putting another product out there, and then we're distributing that across that entire fleet then.

So we get the really kind of like the multiplicative effect, the network effect, if you will, of having a bigger network, a very flexible software structure that we can change the screens, we can make an offer, we can -- we even make offers to customers for mortgages, for loans, for things like that.

I mean, we've got a nice complement.

And it's just as you put more of that in there, you get more benefit from that.

And we can modify that.

I talked about my system, the single system.

This can be delivered by ATM, by country, by region.

We can delineate it any which way we want.

So it just gives us lots of flexibility to do lots of local deals and international deals.

Okay.

So it sounds like there's some positive drivers going forward to revenue per tran.

What about the margins?

We saw some nice margin expansion in EFT this quarter.

Is that kind of the way we should be thinking about kind of the rest of the year?

We can continue to expand margins in this business?

Yes.

We will.

But one thing you do need to be a little bit careful of is that as we look forward and we put more and more of these ATMs into Western Europe, the rents are higher there.

So we might make the same profit per transaction, but the operating costs are higher.

So it'll look like our margin is going down.

So it's nice that the margins have gone up, but it isn't necessary for us to do that to increase our profit significantly.

In support of Mike's comments, and I think what we've shared with you before, we expected to see a little margin expansion here in the second quarter, and that came home.

We would expect to continue to see margin expansion in our EFT segment.

And again, it's all the result of getting more product that has that -- essentially is contributing favorably to the bottom line because we don't have to add the same amount of infrastructure cost across the business.

So -- and we were particularly pleased this quarter with our margin expansion given the fact that, as Mike said, we now have the mix of the YourCash ATMs in there that operated at half the margin that our other business did, and we still expanded.

And we have yet some negative drag from the Indian business in there, and we yet continue to expand.

So we think that the network really reflects the dynamics of having good value products that the customers are buying, so more machines, more products, more countries, more margin.

And with respect to YourCash, we're also making improvements there.

We'll be implementing -- running their ATMs -- or part of their ATMs off our platform before the end of the year.

These guys are smart.

They're figuring out what our model is and which parts of their model and our model work together.

So we should see a little bit of margin expansion on their side over the next year as well.

Great.

And then switching gears to Money Transfer and the margins there.

The revenue's still up 8%, but EBITDA was still down 3%.

It sounds like the 2 key headwinds are the Walmart pricing and then the India network investments.

But kind of going forward, India should be less of a headwind or even a tailwind because it sounds like those investments have been kind of made up front.

And then Walmart should be ramping as the year progresses, too, so also less of a headwind.

So should we think of the margins in Money Transfer kind of getting better as the year progresses?

And 2018, can we think about margin expansion again?

Yes, I think that's a fair statement there.

As Mike said, though, in the India of lighting up all those sites, they didn't light up day 1. We've got to roll those out throughout the year.

So it'll have some continued expense that goes along with that as well as ASDA as we bring that live throughout the rest of the year.

But generally, your thesis, as you articulated it, is consistent with our expectation in the business.

The farther we grow -- we get from the initiation of the Walmart renewal gives us more growth on that category.

So again, I think your thesis is sound.

Our next question comes from the line of Rayna Kumar from Evercore.

What is the average price difference between Euronet's Money Transfer offering and Western Union's?

And how do you expect that to change over the next 12 to 18 months?

Okay.

So you might break that down for international to domestic.

When it comes -- did you mean more of the domestic side with our new pricing?

I mean, more so on the cross-border side.

Cross-border, we're a bit less expensive.

And it depends -- all this is market by market.

So that's the thing you've got to look at.

I can't say we're 10% or 15% less because it really depends on the market and the competitiveness actually even right down to the location.

Yes.

In the very highly competitive markets and channels, you'd probably find that we are pretty darn close in pricing because it's very competitive.

Some markets are very competitive.

In other markets that has less competition, where there may only be 3 or 4 money providers or transfer providers in those countries, you're going to see those margins widen out a little bit.

So as a general rule of thumb, I don't think that you can say that on average, it's x percent.

It also really makes a big difference in terms of what each of our respective mixes are in those particular countries.

So in those highly competitive, it's going to be very, very little difference.

And in the less competitive, you're going to see double-digit differences in the pricing strategy there.

That's very helpful.

And then secondly, as you see the online Money Transfer market grow, do you expect Euronet to continue to grow Money Transfer top line double digit?

And do you have any plans to increase your online Money Transfer capabilities?

Absolutely.

I mean, you just saw it.

We just opened up riamoneytransfer.com for family remittance in Australia.

We will open that up to multiple other countries as well.

We continue to light up more sites for payout to do the same thing.

I mean, digital is a major endeavor for us.

As Mike said, from the XE customers, these 200-plus million uniques that come each year, half of those said that they have an imminent cross-border payment need.

And we know that 35% of that half said that they would prefer to have cash-based pickup available.

So yes, we're going to continue, just as we did in the important acquisition of XE.

That's an important and growing part of it, so you'll see more in the future.

Our next question comes from the line of Josh Elving from Lake Street Capital.

So I wanted to talk a little bit more, see if you could offer up some more thoughts around some of the trends you're seeing in transaction volumes per ATM, if you have some sort of same-store sales metric.

I know you referenced a few potential impacts to those numbers with the acquisition, et cetera.

Maybe just geographically, a couple of thoughts around the trends you're seeing in volumes.

Well, the volumes are kind of -- as we have seen them, our volumes are highest in India.

So when you kind of look at your weighted numbers, you're going to see higher numbers there.

There's very little DCC in that market, so we make money off domestic interchange, which is like $0.18 a transaction or something.

Those numbers sometimes are 5,000, 6,000, 7,000 transactions a month where the ones in Europe might be 1/2 or 1/3 of that.

So I would say we do see some increase in the volumes.

But mostly, our total increase in volume comes from more adds.

No, I guess, I mean, per -- on a per ATM, so demand for (inaudible).

Yes.

I would say that they're roughly stable, increasing slightly probably.

Okay.

And then talking a little bit about DCC, do you have any sense for kind of -- maybe not necessarily specific take rates.

But is use or acceptance of DCC at ATM, is that increasing or decreasing?

Or is it stable?

For us, it's increasing actually this year.

For you, it's increasing?

Yes.

Okay.

And then with regards to the Pure Commerce closure...

Let me talk to you about just -- and let me tell you maybe why that is.

People talk about DCC a lot, both on the POS terminal and on the ATM, okay?

Now -- and there have been cases, it you read through the Internet, where people are hacked off at DCC providers on the POS terminal because the merchant -- those terminals are really tiny and the screens on them are really tiny, so it's not very transparent to the customer what they're choosing.

And then it only takes 1 or 2 customers to write nasty blogs about you if they choose the wrong thing by accident because it wasn't clear.

And there's a totally different approach with ATMs.

ATMs, you've got a big screen.

You've got lots of print.

You can make this offer really clear to the customer.

So transparency is the key here, and you end up I think with -- I think that's the reason why we have stronger opt-in rates on the ATM because we're giving that customer a choice.

He doesn't have to do it.

He can do it if he wants to if he wants to lock in a rate right there and then.

Otherwise, you have to wait until he gets home to look at his bank statement to see what number of charges his bank has levied against him.

Great.

And then as far as Pure Commerce in South Korea, what drove that closure?

I mean, you're obviously using DCC at ATM.

But it -- was that more of a POS solution?

No, no, no.

Everything in South Korea was POS.

And we just deemed that, that market there, we couldn't go forward and be profitable.

So we just closed that up.

Okay.

And then, I guess, one last question.

Just you talked about nonmobile prepaid content having a big fourth quarter.

Have you offered any guidance or thoughts around kind of the mix of prepaid revenue in the fourth quarter?

I know it's your strongest quarter throughout the year.

Well, if you look at last year's number, the mix was about 5% higher on the nonmobile than the prior quarter.

So it wouldn't surprise me if we see 60%, 60-plus percent in the fourth quarter as nonmobile.

But we'll just have to see.

We have to load as many products on the shelf as we can for that Christmas holiday season and then see what happens.

Our next question comes from the line of Matthew O'Neill from Autonomous Research.

My first question is around the EFT segment and if you guys would be willing to parse at all the contribution from YourCash or give us kind of an organic view, given the constant currency acceleration to 38%?

And then as a follow-up, I was just curious if you had any updated comments around the pending Ant, MoneyGram deal given the recent refile for the 75-day extension.

I'll let the...

You got a whole handful of questions in there.

We'll parse it out.

We'll let Rick parse as deep as he wishes.

All right.

We -- why don't you start with the first one here for me, which was...

Yes.

It was just around organic revenue growth in EFT.

So it accelerated to 38% constant currency, and I was just wondering maybe how much YourCash contributed to that in the quarter.

Yes.

You could -- we don't disclose the continuation of that particular number on an ongoing basis.

You could go back to what we had disclosed in our previous numbers there in terms of what we expected as revenue numbers coming from YourCash.

But in really -- in real macro kind of terms, of that revenue growth, we would have had -- a single-digit percentage of that number came from YourCash.

So a relatively small amount of the overall increase.

And with respect to the Ant, MoneyGram potential transaction, we really don't have any comments other than it's pretty clear that people other than just ourselves, and we believe it fervently that there's a national security risk for this transaction going through, we don't see any way to be able to hive off or protect that data from unscrupulous national interest of the Chinese.

So we just -- we'll just have to see what the CFIUS Committee decides.

Because at the end of the day, they're responsible for our national security.

Yes, definitely.

And the reason actually I was most curious is that the new White House communications director, Scaramucci, of course, has his own deal with his SkyBridge business pending -- effectively CFIUS approval from the Chinese acquirer.

And so I feel like that adds some extra dynamics to the decisions here.

Yes.

It's dynamic.

Yes, yes.

There will be politics involved.

I have a feeling.

And at this time, I'm not showing any further questions and would like to turn the call back over to CEO Mike Brown.

Okay.

Thank you, once again, everybody.

We're 2 minutes past the hour, so we're 2 minutes over time.

But thank you, one and all, for your time and attention today.

We look forward to talking to you in about a month -- I mean, in 3 months.

Yes.

Talk to you later.

Bye-bye.

Bye.

Ladies and gentlemen, thank you for participating in today's conference.

This does conclude the program, and you make all disconnect.

Everyone, have a great day.