Euronet Worldwide Inc (EEFT) 2017 Q4 法說會逐字稿

Greetings, and welcome to the Euronet Worldwide Fourth Quarter and Full Year 2017 Earnings Conference Call.

(Operator Instructions) As a reminder, this conference call is being 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, LaToya.

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

We will present our results for the fourth quarter and full year 2017 on this call.

We have Mike Brown, our Chairman and CEO; and Rick Weller, our CFO, 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 front 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.

Thank you, Jeff, and good morning, and thank you, everyone, for joining us today.

I will begin my comments on Slide 5.

We finished the year delivering fourth quarter revenue of $604.6 million, adjusted operating income of $73.6 million and adjusted EBITDA of $102.9 million.

Our adjusted EPS for the fourth quarter was $1.13, a 14% year-over-year increase and a $0.01 ahead of the guidance we provided in October.

The favorability was largely the result of lower share dilution from our convertible bond as a result of our share price at the end of the -- 2017 being lower than it was at the date we provided guidance.

Currency changes had virtually no impact on our fourth quarter adjusted EPS versus guidance.

Also included in our fourth quarter GAAP results is the impact of the tax reform legislation passed in December 2017.

If you recall, we previously told you that we pay virtually no federal tax on our U.S.-based income because much of our operating income is offset by corporate cost and the balance we have had significant historical net operating losses for which we were not accruing a tax benefit.

With the new tax law, we are required to recognize a U.S. taxable income on historic and current foreign earnings which were not distributed to the U.S. As you know, our foreign earnings are substantial and significantly greater than our pretax U.S. NOLs of approximately $134 million.

The recognition of these foreign earnings creates a current tax liability of $28 million, which is payable over 8 years, and fully utilizes our U.S. NOL.

The remaining difference of about $13 million that we -- that was included in the $41.6 million we reported in the press release relates to the remeasurement of our deferred tax assets and liabilities.

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

EFT grew -- transactions grew 22% from expansion of our ATM network in Europe and India and the return of transactions in the Indian market to pre-demonetization levels.

epay transactions declined 17%, with the largest decline from the loss of a high-volume, low-margin customer in the Middle East we told you about last quarter, together with other smaller transaction declines.

Declines were partially offset by growth in nonmobile transactions which, as you can see in the results, more than made up for the lost revenue on the low-margin transactions from the Middle East.

Money Transfer transactions grew 14%, which was the result of 14% growth in money transfers and 12% growth in nonmoney transfer transactions such as currency exchange and check cashing.

Consistent with prior quarters, transaction growth came from most areas of the business.

Next slide, please.

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

Year-over-year, most currencies increased 3% to 9%, including the Aussie dollar, the euro, the pound, the Hungarian forint, the Indian rupee, the Mexican peso, the Canadian dollar and the Malaysian ringgit.

Outliers included the Polish zloty, which increased 13%, while the New Zealand dollar declined 4%.

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

Here on Slide 8, you can see EFT continued to deliver exceptional results, with constant currency revenue of 24% -- growth of 24%, operating income growth of 45% and adjusted EBITDA growth of 37%.

These strong growth rates were the result of a 9% increase in our ATM network and the return of the India ATM cash supply to pre-demonetization levels.

Revenue and gross profit per transaction were consistent on a year-over-year basis while operating margins expanded nicely.

epay had a strong fourth quarter, producing constant currency revenue growth of 5%, adjusted operating income growth of 10% and adjusted EBITDA growth of 5%.

These increases were the result of continued sales of nonmobile content, partially offset by certain mobile declines.

Revenue and gross profit per transaction expanded nicely, consistent with the increased sales of the higher-margin nonmobile product.

Money Transfer constant currency revenue grew 8% compared with the transaction growth of 14%, the difference of which you will most likely remember was due to the rate reduction at Walmart that was passed on to customers, which further stimulated transaction growth.

The revenue increase was from across most all of Ria's business and continued growth from XE following the conversion to the HiFX platform.

Operating income and adjusted EBITDA declined 2% and 1%, respectively.

Consistent with the previous quarters, operating income and adjusted EBITDA were impacted by the price reductions included in the Walmart2Walmart extension, continued investment in the digital channel and advertising related to the launch of our significantly expanded payout network in India.

Including these items, constant currency operating income would have grown by approximately 7%.

Now let's move to Slide 10 for the full year results.

Full year revenue was $2.3 billion, adjusted operating income was $305 million and adjusted EBITDA was $415 million.

Full year adjusted EPS was $4.58, a 14% increase year-over-year.

This is the fifth consecutive year we have delivered double-digit growth in adjusted EPS, highlighting our success delivering more products and deploying more devices across more markets.

Next slide, please.

Slide 11 provides the full year transaction trends.

EFT transactions grew 25%, with growth from Europe, India and the 2016 acquisition of YourCash.

epay transactions declined 8%, with the largest decline from the loss of a large-volume, low-margin transaction customer in the Middle East, partially offset by continued growth in nonmobile product sales.

Money Transfer transactions grew 12%, with growth across all -- most all sectors of the business.

Let's go to Slide 13 and discuss the full year results on a constant currency basis.

I'm now on Slide 13.

Like the fourth quarter, EFT team delivered a phenomenal year and constant currency revenue growth of 33%, adjusted operating income and adjusted EBITDA growth of 36% each.

This growth is the result of continued ATM and transaction expansion as well as the October 2016 acquisition of YourCash.

The team was able to deliver these impressive results despite having to overcome the November 2016 demonetization in India.

Operating margins expanded nicely, reflecting our strategy to add more ATMs in high-traffic locations.

epay revenue grew 4%.

Adjusted operating income and adjusted EBITDA were essentially flat.

Revenue growth reflects increased sales of nonmobile content, partially offset by mobile declines.

Adjusted operating income and adjusted EBITDA reflect increases in certain advertising and promotion expense.

Money Transfer revenue grew 10%, and operating income and adjusted EBITDA grew 2%.

The revenue increase reflects growth from virtually all aspects of the business.

Operating income and adjusted EBITDA were impacted by the price -- pricing reductions related to the Walmart extension.

The results also included significant investments in our compliance and infrastructure, including investment in digital and the launch of the vastly improved India network.

Including -- excluding these investments, constant currency operating income would have grown at double-digit rates, in line with revenue growth.

With those investments easing in the first half of the year, we would expect to achieve more leverage out of the Money Transfer business as we go -- move through 2018.

We are extremely pleased to have delivered another year of double-digit growth despite margin impacts from the demonetization in India and pricing concessions related to the extension of the Walmart agreement.

This double-digit growth is a true testament to the diversity of Euronet's revenue in both products and geography.

With more ATMs deployed, more nonmobile content, more Money Transfer network locations and a growing digital business, we are well-positioned to move into 2018.

Let's go to Slide 14 and talk about our year-end balance sheet.

On a year-over-year basis, our balance sheet continued to strengthen.

The increase in cash and the reduction in debt is largely from cash flows generated from operations, which were partially used to pay down the revolver.

I would like to also point out that -- I would point out for you how I believe this -- that this simplified view of the balance sheet speaks to the quality of our earnings.

If you multiply our adjusted EPS of $4.58 per share by approximately 55 million shares, you get approximately $250 million.

Then you can see that we used $144 million to pay down debt.

Actually, that was $155 million, given that accreted interest of $11 million was added to debt this year.

That leaves $95 million, $85 million of which shows up in cash.

I would say that's high-quality real cash earnings.

Before I close, I would like to provide some additional visibility into our first quarter guidance.

For the first quarter 2018, as you saw in our press release, we expect to produce approximately $0.73 in adjusted earnings per share.

It is important to note that our first quarter results are being constrained by 3 items totaling approximately $0.10 per share.

The first item is approximately $0.05 for higher income tax provision driven by our first quarter pretax profits being weighted more toward high-rate tax countries and the December passage of the new U.S. tax bill.

In the final bill, it required unremitted foreign earnings to be taxed in the United States, which utilized our historical NOLs.

And further, it included a provision called the Global Intangible Low Tax Income provision, referred to as the GILTI tax by the tax community.

That tax requires that companies which generate profits outside the U.S. pay additional U.S. income tax on half of their foreign earnings before foreign tax credits, essentially a minimum tax.

However, the math gets pretty complicated after that because if you have no U.S. taxable income, the 50% exclusion does not apply.

Accordingly, if you hear the new code essentially applied the tax for foreign earnings if the foreign tax is less than 13.125%, you likely didn't hear that if you do not have U.S.-source income, you lose the 50% exclusion.

And in our case, we do not expect to have U.S. taxable income in 2018.

It is also important to note that this is determined on a tax basis, not a GAAP basis.

This will increase our annual effective tax rate by about 3% to 4% for the full year from roughly 22% to roughly the mid-20s.

However, the first quarter, it will be in the upper 20s to nearly 30% because our first quarter pretax profits are weighted more toward the higher tax rate countries.

Fortunately, the rate for the balance of the year will be more attractive, getting us back to the mid-20s for the full year.

The difference in the first quarter tax rate versus the full year calculates out to be approximately that $0.05 a share I mentioned earlier.

In short, a higher tax rate in 1Q, followed by a lower tax rate in Qs 2, 3 and 4, to end the year in the mid-20s.

The second and third items relate together approximately another $0.05 per share.

To that end, the second item relates to an additional volume discount we agreed to in late 2017 with a large card processing customer in Europe.

For this particular customer, we have been fortunate to see their volumes grow to levels that far exceeded our expectations when setting pricing a few years ago.

Some of that volume came from bank acquisitions that were then consolidated on our outsourcing platform, and others came from greater card transactions in the country where the bank operates.

We fully believe that the bank will continue to see very nice organic volume growth as well as continue to acquire smaller, less stable banks.

So in the interest of our long-term relationship, which we have had for over 20 years, we agreed to additional discounts in exchange for a longer-term agreement, which now takes us into the early 20s.

While the additional discounts we agreed to will impact our first quarter by about $0.02 to $0.03 a share, we expect to largely recover it by the end of the year.

We'll feel a bit -- we'll feel it a bit in the first quarter but nearly overcome it by the end of the year.

It's a high-class problem to deal with.

The third of these items relates to the volume of seasonal ATMs we've installed in the last few years.

At the end of 2016, we had 1,458 winterized ATMs.

And at the end of 2017, we had 2,476 or roughly another 1,000 ATMs where we closed down the ATM due to limited traffic, and we will reactivate them again in the spring but still pay rent and other costs associated with the sites.

The cost of these A -- additional ATMs for the first quarter approximates another $0.02 to $0.03 a share.

Fortunately, these ATMs do quite well in the second and third quarters but place additional burden on the first quarter.

In summary, 3 items that have about a $0.10 per share impact on the first quarter, 2 of which are more discrete into the first quarter, the tax rate and the increased number of winterized ATMs, and one which will largely be recovered by the end of the year.

We trust this overview provides more insight into our first quarter expectations, and hopefully you can appreciate that our first quarter expectations are not the result of declines in revenue but rather 3 discrete items that are transitory in nature.

I think it bears repeating that this was another great quarter and another great year for Euronet, where we continued to invest in the business for future growth while continuing to achieve strong, double-digit growth rates.

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

Thank you, Rick, and welcome, everyone.

As I reflect back on 2017, I'm reminded how proud I am to lead such a dedicated, hardworking organization.

For the fifth consecutive year, we were able to deliver double-digit adjusted EPS growth despite revenue pressure resulting from lower customer pricing in conjunction with the extension of our Walmart agreement and the impact of the demonetization in India.

In addition to consolidated double-digit growth, we also produced some other very impressive numbers: We delivered more than $2 billion in revenues; we processed more than 3.6 billion transactions; our global network now reaches nearly 1.5 million devices and locations; we added 3,300 high-value ATMs across Europe and India; and we were responsible for $95 billion in cash across our 3 segments, which is 13% more than in 2016.

And these are just the start of our achievements in what was part of another very good year for Euronet.

Let's move on to Slide #19, and we'll talk about the highlights of the EFT segment.

Slide 19.

As Rick mentioned, the EFT team delivered another phenomenal year, led by the deployment of more ATMs as well as more products and agreements, some of which are included on this slide.

In India, we signed a software license agreement with Yes Bank, the fifth largest private bank in India, to provide the bank with Euronet's proven transaction switching platform, which has been powering India's national processing infrastructure at the National Payment Corporation of India.

Euronet will help the bank migrate all card and network interfaces from a competitor switch.

This is a complex migration that is rarely awarded in the region, but our history of proven and secure payment technology gave Yes Bank confidence that Euronet could successfully complete this project.

This is really an important win for our team in India, and a successful implementation could pave the way for more opportunities with other private banks in the future.

Also in India, we deployed the first automated deposit terminal for Standard Chartered Bank.

As you may remember, we own or operate almost 3,000 ADTs in Europe, and that expertise allowed us to help SCB launch in the Indian market.

A final point on India.

Last year, we covered ad nauseam the cash demonetization event.

Maybe we'll stop talking about it after this quarter.

Like other things, we got through it.

And now on the other side of it, we're seeing new record levels of ATM transactions in India, driven by more bank accounts opened since the supply of cash was crimped during the demonetization period.

All in all, we will see 2018 that we'll get a net benefit from this demonetization event.

In Poland, we continued to see growth in the acceptance of BLIK transactions.

This is very interesting.

BLIK is a payment network supported by most of the banks in Poland, which allows cardless transactions through the customer's mobile banking app.

No card, no card at all.

Customers walk up to the ATM and select a BLIK transaction.

Their mobile banking app sends them a code to enter into the ATM, which is good for 20 seconds.

They enter their code and proceed with the transaction.

These cardless transactions continue to gain popularity and have grown significantly on Euronet ATMs over the last year.

And then finally, as Rick mentioned, we renewed our agreement with a large card processing customer in Europe, extending our partnership of more than 20 years for several more years.

This customer continues to grow its volumes, and we're happy to extend that relationship into the 2020s.

Please, speaking of 20s, jump to Slide 20.

During the quarter, we continued to use our ATMs to deploy more products.

In Romania, we ran a campaign to dispense Uber coupons on our independent ATMs.

These coupons gave customers preregistered with Uber the equivalent of a $5 free ride.

Also in Romania, we added euro note dispensing to Idea Bank's branch ATMs.

We added POS DCC at several new locations, including the Regency Cazino Mont Parnes in Greece, Andaz and Courtyard by Marriott Hotels in Singapore and several duty-free shops in Hong Kong.

We finished the year with 37,133 ATMs, a 9% increase over last year, and includes the deployment of 3,300 high-value ATMs, exceeding our goal that we gave to you of about 3,000 for the year.

We had a very strong fourth quarter of ATM deployments, adding 1,110 high-value ATMs across Europe and India.

And following the seasonally high third quarter, we winterized an additional 2,100 ATMs.

The year-over-year growth of 9% does not include the 2,475 ATMs that are currently winterized versus approximately 1,500 that were winterized last year, so we will begin the year 2018 with 12% more revenue-producing ATMs than we started with in 2017.

The additional ATM deployments will clearly have an impact on our operating cost in the first quarter, Rick talked to you about that, as we're still required to pay rent and other costs on those sites.

But I am pretty excited to jump-start 2018 with 3,300 more high-value ATMs than we had in 2017.

Before we wrap up the EFT segment, I'd like to take a minute to address the reports out there, some without substantiation, on dynamic currency conversion and our thoughts related to the EFT business and Euronet overall.

As I get into the details, I think it's worth noting that DCC is only available on some of our transactions.

MasterCard allows DCC transactions on all cards globally, while Visa only allows DCC at ATMs on devices in Europe for European-issued cards and all Visa cards for point-of-sale merchant purchases around the world.

As you may have read, the European Commission is working on a consumer financial services action plan to deliver better payment products and more choice.

As one part of their 12-part plan, the Commission is reviewing the transparency of DCC.

First, I think it's important to understand the complexities of this issue.

Currently, on the transactions where DCC is allowed by card organizations, the card-issuing bank does not provide the customer with an exchange rate or any kind of customer fees at the point of transaction, whether it's an ATM or a POS terminal.

So the customer does not know the amount that will be taken from their bank account or applied to their card.

There is a wide range of inconsistent practices amongst parties that provide DCC at both ATM and POS terminals, but when a DCC transaction is selected at a Euronet device, the customer is clearly presented with the exchange rate, making DCC the only choice that provides the customer with transparency and certainty at the time of transaction.

We believe that we are the gold standard in transparency at both the ATM and the POS terminal.

All of our DCC offerings provide the customer with a choice to opt in or opt out and a competitive exchange rate for the convenience and the availability of local currency.

For your perspective, we dynamically monitor and competitively manage our rates, which generally range from the low to high single digits compared with a bank, other competitors and over-the-counter exchange rates, which can be considerably higher.

In speaking with the experts reviewing their practices regarding payments, we know that the European Commission is pro competition, so a complete ban on DCC seems highly unlikely.

The Commission has stated that the outcome of its review could range from no recommended changes at all, to relying on an industry code of conduct, to recommended legislation.

If they do establish new rules, the approach they take could be to require expanded and consistent exchange rate disclosure for both issuing banks and acquirers.

Requiring consistent disclosure amongst all parties and choices would require significant system changes for issuing banks, some acquirers and the card organizations globally and therefore, would require a significant implementation period, if it could happen at all.

It is also important to understand the timing behind how any of these potential changes will come to market.

This is a little dry, I'm sorry.

Just kind of bear with me for a minute.

The first step in the process was a consultation with the Commission, requesting comments from the EU citizens, public authorities, various organizations, companies and industry experts on cross-border fees by October 31, 2017, last year.

The Commission received 141 responses related to all cross-border payment topics, not just DCC, and is now compiling those to determine whether or not to make a recommendation on whether to add additional regulation to DCC.

As we understand it, they are gathering additional information through the second quarter of 2018, making it unlikely that they would be able to make any proposals to the European Parliament and European Council by June of this year, which would, from a practical standpoint, be the deadline if the Parliament were to vote on legislation during their last voting session of the year, which is in December of this year.

Further, if the Council or the Parliament were to adopt any proposals, there would likely be a 6- to 24-month implementation period in which we would be required to comply, meaning that any changes required to our product would likely not apply to us until mid-2019 at the absolute earliest.

Obviously, we are interested in the direction this issue takes, as this is an important product for us.

But we are confident in the position of our DCC product in the market given the transparency and certainty it provides to the customer.

We are proud to say that we practice a consistent approach of clearly providing customers with the exchange rate at the time of transaction, giving the customer the choice to accept our product versus the issuing bank's nondisclosed exchange rate.

We aren't saying it's a nonissue, but because of the wide range of possible outcomes and extended time line for regulation, we don't sit here with a high level of concern.

To give you further perspective regarding the role DCC plays in our business, the revenue we post from DCC barely crosses the double-digit threshold as a percent of our consolidated revenue.

The net revenue is reduced through sharing with other parties, such as merchants, banks and acquirers, and it bears a lot of costs related to the ATM deployment and support.

So it would be wrong to assume that all DCC revenue is pure profit.

I would suggest that the operating margins from DCC are only slightly better than the overall operating margins for the entire segment.

So hopefully, that gives you a better perspective on the role of DCC in our business.

And I reiterate we believe it is highly unlikely that the European Commission will move to completely eliminate DCC at the POS or ATM, and we are confident in the transparency and the certainty of the Euronet product.

With that said, I think it's worth saying one more time as we -- before we move on to epay, that the EFT team had an outstanding year.

They delivered their sixth consecutive year of double-digit constant currency operating income growth.

With 3,300 more high-value ATMs in our fleet and plans this year -- our goal is to deploy 3,500 more in 2018, as well as several strong initiatives we have in India, and some exciting new deployment and outsourcing opportunities in new markets outside our current ones -- we are extremely excited about the ability of the EFT segment to continue to deliver similarly strong growth rates in 2018 and beyond.

Now let's move on to Slide #24, and we'll talk about epay.

The epay team completed the year with a very strong fourth quarter of nonmobile content sales, which, in our seasonally strongest quarter, make up about 2/3 of our segment gross profit for the quarter, bringing the total nonmobile gross profit across the year to about 60%.

This strong result is the effect of our continued focus to provide both retailers and content providers with our diverse market presence and our superior technology.

During the quarter, we added Uber voucher sales, CyberLink and Acronis software to existing retail locations in Australia.

In Germany, we added our nonmobile content to 2 websites for 2 large grocery store chains, Lidl and Penny, and we added Microsoft, Nintendo, Sony and Spotify to the large discount chain Norma.

We expanded our content sales to Saudi Arabia, launching Sony to Modern Electronics, a larger electronics retailer.

Finally, in India, we continued to expand our relationship with Google Play, adding distribution through PhonePE, the mobile wallet operated by Flipkart, India's leading e-commerce marketplace; and through ICICI, through their online banking platform.

Overall, this was a solid year for the epay segment, where we continued to expand our content portfolio to new and existing retailers.

We continue to be excited about the prospects for nonmobile content expansion in the epay segment as we continue to expand in new categories, such as gaming, software and streaming services, while also continuing to further expand the digital channel through websites of traditionally physical retail locations, banking applications and mobile wallet.

Now let's move on to Slide #28, and we'll talk about Money Transfer.

Our Money Transfer network now reaches 343,000 locations in 147 countries, an 8% increase over the same prior year.

Since our acquisition of Ria, we have grown these locations eightfold, making us largely the same size as the #2 player in the industry.

Based on the market, we know we still have room to grow another 50%, making us parity with the largest player in the industry, which is finally within our sight.

During the quarter, we launched 17 new correspondents in 15 countries.

Two of the more significant were the Government Savings Bank of Thailand, with over 1,000 locations; and Farmacias del Ahorro in Mexico, with more than 800 locations.

Both Thailand and Mexico are key receive markets to our Money Transfer strategy, and these 2 additions will benefit our customers sending money to their family members in these countries.

In addition to the launches, we signed 19 new correspondent agreements across 16 more countries.

We'll see those implemented in the near future.

Not only did we continue to expand our physical remittance network, but we continued to focus and invest in our digital products.

During the fourth quarter, we expanded our Ria Digital product to the United Kingdom, so customers in the U.K. can now send money to their loved ones using Ria's website.

It's still very early, but we're enthusiastic about the early ramp-up of customer adoption we've seen in the U.K., Spain and Australia, the 2 latter markets which we launched earlier in 2017.

With 3 new digital markets to grow and more in the pipeline, we are very excited about the progress of our digital expansion efforts and its growth prospects in North America and globally.

Our HiFX and XE group also combined to achieve 18% year-over-year growth in active clients, which accelerated towards the end of the year and we expect to continue to build through 2018.

While we have ramped up the spending over the past year, overall I would say that we've invested very smartly and very effectively, and we are now in a position of being able to realize much better and greater scale and leverage through our new market expansion.

With our investment in digital during the year, our digital international outbound Money Transfer revenues and volume reached 57% of our total Money Transfer volume and 30% of our total Money Transfer revenue.

Combined, our remittance and international payment volumes eclipsed $38 billion in 2017, a 17% year-over-year increase and evidence that both our cash-based and digital-based businesses are healthy and growing.

Finally, because I know you're likely to ask, I'll give you a little update on MoneyGram.

As we said in January, we continue to believe there is compelling commercial logic to a combination of our company and theirs.

However, there are still several significant unresolved developments that MoneyGram continues to do -- to disclose.

We continue to monitor those developments, and we'll provide you with an update if or when there might be further information to share.

The Money Transfer segment had a really strong year, achieving double-digit revenue growth while absorbing the impact of the Walmart extension fee reduction.

With strong performance from our digital business, transactions to India ramping up very nicely and continued network expansion, we're optimistic on growth that will come out of this segment in 2018.

Now let's move to number -- to Slide #29 for a final wrap-up.

Fourth quarter and full year adjusted EPS growth was 14%, the fifth consecutive year we have achieved double-digit adjusted EPS growth.

EFT results reflect the benefits of strong ATM deployments over the last year and the return of India's cash supply to pre-demonetization levels and the expansion of our value-added service products.

Full year results also benefited from the October 2016 acquisition of YourCash.

epay fourth quarter and full year results benefited from increased sales of nonmobile content, as we've been telling you.

Money Transfer delivered strong fourth quarter and full year revenue growth and continued to invest in physical network expansion, primarily in India, and significant expansion in our digital products.

Our balance sheet continues to improve and we continue to produce strong cash flow.

Finally, we expect Q1 2018 adjusted EPS to be approximately $0.73.

This guidance includes an impact of approximately $0.10 per share associated with certain minimum tax on foreign earnings resulting from the new tax reform legislation passed here in the U.S. in December 2017, combined with a seasonal mix of profits generated in higher tax rate jurisdictions, additional discounts agreed for the extension of an important outsourcing customer and the additional costs related to seasonally activated ATMs.

While I would like to give you a larger number for 1Q other than $0.73, I continue to remain extremely bullish on how the business is performing and where we're going.

In EFT, we continue to install ATMs at a very rapid pace, which puts pressure on our first quarter numbers and will continue to do so in the future, I might add, but it pays handsome dividends in the second and third quarters.

We also have several very exciting projects in India and some extremely interesting prospects for ATM deployment and outsourcing outside our core markets.

In epay, we continue to provide retailers and content partners with superior technology and access to more markets through both physical and digital distribution.

And finally, in Money Transfer, we continue to grow our remittance network.

We are seeing strong volume ramp-ups to India, our digital business continues to thrive and we will fully lap the Walmart repricing in the second quarter of this year and begin to see more of the leverage of the Money Transfer business get to the bottom line.

With 3 businesses that continue to have exciting opportunities, I am confident that 2018 will be another strong year for Euronet, and I look forward to confirming for you this time next year that 2018 was the sixth consecutive year of double-digit earnings growth.

With that, Rick and I will be happy to take your questions.

Operator, will you please assist?

(Operator Instructions) The first question comes from Andrew Jeffrey of SunTrust.

Appreciate all the color on this DCC topic, Mike.

I guess a couple of questions in Money Transfer, which I still think long term is the most important growth driver for Euronet.

Can you elaborate a little bit on the investments in India and how you're taking share, especially in the context of some of these long-term exclusive agent agreements that seem to be breaking down a little bit?

And then I have a follow-up on digital.

We mentioned to you that we signed up 2 of 3 of the largest cash payout networks for the #1 player in the market, who is -- where they were formerly exclusive.

So we signed those up kind of mid last year, and we've been implementing.

And we're watching our transactions to India wrap -- ramp up at really strong double-digit rates.

And -- because we needed that cash payout.

We did have cash payout before, but as we kind of looked at Money Transfer as a product, our product was inferior to the competition because we had to go through an intermediary to do the cash payout.

Now that we have a direct relationship, if ever a customer has a problem, their recipient didn't receive their money or didn't think he did, we can go straight to the source to find out where the money is.

When you have an intermediary, all this stuff takes time, and so you just don't have as an effective competitive product as you would like to have.

So now that we have this, we're watching these numbers grow significantly, really, week-on-week almost.

And I'd add -- I would add to that that you may recall here a couple years ago we acquired this IME business out of the Asia Pac area, again, with a sight on the Indian market, which is the -- arguably equal to or the biggest receive market in the world.

And that puts us just right in the crosshairs of where the most significant volumes are generated, that part of the world.

And so having now a payout network that will complement that kind of send network asset should really start to accelerate our business over there.

So we're looking quite forward to the momentum that that helps us build in that part of the world.

Okay, that's great.

And with regard to digital, which seems to be taking share very quickly of your overall business, can you just discuss a little bit the competitive environment, especially in the context of the expansion into the U.K., where you have at least one very large start-up that seems to be going after what has traditionally been bank volume?

I mean, is this TAM big enough for multiple players?

And how do you think your pricing compares with some of these upstarts that may not have as much of a profit imperative as Euronet does?

That is a little bit challenging sometimes, but you also got to remember that most of these start-ups have effectively no volume on top of it.

So they're marketing big, they're making a big splash with their press releases, but at the end of the day, it comes down to how many transactions you do and whether you have an ongoing and durable business.

We believe we have such.

We continue to grow our digital business along with our bricks-and-mortar business.

Bricks and mortar tends to give you good notoriety, both on the receive side and on the send side.

And the amount of digital transfers that occur worldwide versus bricks and mortar are actually very, very small.

So digital is getting a lot of hype because it's digital.

And we bought XE and we -- and HiFX because we want to play there, and we are playing there, but -- and these guys do give us a little bit of a challenge on the digital side, but there's plenty of TAM out there for a lot of people.

But understand that most -- probably 90% of all remittances in the world are still sent cash-to-cash.

So let's not forget that.

You talk about TAM.

Their TAM is at 10% of the big TAM.

So -- and as long as we can be strong in the bricks and mortar and digital, we're going to win the game, because at the end of the day, it's economies of scale.

The next question is from Lara Fourman of Goldman Sachs.

I just have 2 questions on the ATM business.

First, just in terms of the DCC regulation, I thought that that was really helpful of kind of different outcomes from the European Commission.

When you think about that most likely worst outcome, if you will, about those exchange rate disclosures, it seems like you guys already have the disclosures there.

So kind of what's your worst-case scenario there in terms of how that might change your business?

And then I think you guys mentioned 3,500 high-value ATMs for 2018.

That's an acceleration from talking about that 3,000 number.

So just what gives you the confidence there in terms of being able to accelerate the deployments of those ATMs?

Well, there's -- first of all, there's no -- to answer your second question, there's no company on the planet that's throwing out ATMs as fast as we are in very highly productive sites.

We know what we're doing.

We continue to expand.

We're in 20 -- either 22 or 23 countries in Europe right now, plus India.

Plus we're looking at other countries outside of these core markets.

And so we really know what we're doing, and we're hiring more and more people to help us achieve those goals.

Last year this time, our goal was 3,000.

We hit 3,300.

This year, our goal is 3,500.

I'd like to hit that or beat that.

So we have a lot of confidence that there's still good locations out there around the world.

Yes, and I think -- just to embellish on a point Mike made here, and that is, beyond our core markets that we have historically talked most about, and that was Europe and India, we see some very attractive markets out there.

And hopefully, in the future quarters, we're able to tell you about some of our successes there.

But remember, we operate in 40-some different countries around the world in either our ATM business, our epay business or our Money Transfer business.

So these are not markets that are new to our operating rhythm.

They're markets that we are quite familiar with, that we have people in, that we are excited about going after those.

So it's just -- it's doing all the things that we have done in these other markets, it's just expanding that to some more.

And as Mike said, even if you take a look at the ATMs per population in the markets that we are in and have great success, they are still woefully insufficient compared to other more developed economies.

So plenty of opportunity and good experience under our belt.

And with respect to your first question about outcomes with the European Commission's look at this, it's nice that the European Commission has these technocrats that look at these, at the subject matter.

And these guys are actually pretty smart.

And so when they look at this, they've already recognized that this is a very complex issue.

And the idea that either one choice or the other should have predominance is something that they don't like.

They like competition.

As you know, the European Union is not particularly thrilled with what's happened in the banking community and how banks sometimes take advantage of customers and so forth.

So what that does is it positions us very well for kind of an equal kind of treatment.

And because we really believe we're out there showing exchange rates and total cost and what you get -- and what is debited out of your account or put on your card, we are the transparent one.

They need to work on the other folks.

So as far as what they'll do, we can't -- we don't -- we think it would be highly unlikely that DCC would be forbidden, because they were the ones who forced Visa to allow DCC at ATMs when it was first done.

So we don't see it going away.

We welcome more transparency, and we'd love to have our competitor banks have to do what we do.

Because at the end of the day, people just -- when you just choose your bank, you have no idea.

If you don't choose DCC, you have no idea what the outcome is going to be, and sometimes you just get screwed.

So we're kind of cautiously optimistic that everything will work out really well there because we are the standard.

There have been bad players, particularly on the POS side, who would opt you in whether you choose it or not.

I'd like to have healthy fines levied against people -- these bad actors who do that, because we certainly do not.

So I think there's plenty of things they can do, many of which might actually help us.

The next question is from Mike Grondahl of Northland Securities.

Mike and Rick, just a follow-up on the DCC side.

Did you say that DCC revenue barely reaches double-digit of total company revenue?

Yes.

Got it.

Secondly, your net cash position is around $350 million.

What are you kind of thinking with that balance?

And then if you could also kind of comment, trade accounts receivable seemed to jump quite a bit, how you think about that and kind of the timing on DSOs and whatnot.

Well, the last one's pretty easy.

Trade receivables, it really has a lot to do with just the day of the week that the month ends because our business is generally collecting and moving money more on a weekly kind of basis.

And so that kind of influences.

So there's nothing there that has changed in any kind of significant way on DSOs.

You would also see a similar kind of increase in the payables on the other side of the balance sheet.

So all that is just pretty consistent with what our normal rhythm is, Mike.

As it relates to our cash accumulation, well, as Mike said, people often ask us even about the MoneyGram acquisition.

So they're -- we are acquisitive.

We complete acquisitions routinely.

And so that would be our first interest is to be able to continue to supplement the growth of our business through acquisitions.

And because we operate in so many different countries around the world, we have plenty of things to look at.

There are several that are on the observation table now, but you can just never say when one will come out because of whether it's valuation, maybe bad things you find during diligence, et cetera.

So that would be the first one.

The second one would be we will, as we have done in the past, selectively repurchase shares, especially if there's some price dislocations, some things like that.

So that could be a possibility.

And then finally, we continue to grow our ATM estate.

And let's say to the extent that we would find an attractive place around the world to deploy ATMs, it might be wise to use that cash to accelerate that growth.

So those are the kinds of things that probably come top of mind for me, Mike.

Got it.

Lastly, just real quick on XE.

How are you feeling about that and HiFX going into 2018?

I think -- honestly, I think the end of '16 and the beginning of '17, were weaker than what we liked.

We've seen a lot -- we've got new management there.

We've seen a lot of changes in how we approach and how we use big data to try to figure out better ways to do what we do.

So we are -- we're kind of optimistic about that whole digital piece of our business as we move into '18.

As we said, our accounts increased 18%.

That was nice numbers.

And I think it starts to show you the value of having access to 60 million apps and more than 200 unique visitors to that site.

And as Mike said, we -- last year, as we turned '16 into '17, we were going through the conversion from the competitor platform.

We wanted to try to make sure we did that without breaking customers.

We got through that in a successful way.

And now we've got more focus on growing the business, and we're starting to see that show up in this 18% number here.

So we're quite excited about what we have in front of us and look forward to this being a year that we can really leverage that.

The next question is from Rayna Kumar of Evercore ISI.

Mike and Rick, could you discuss your constant currency revenue growth expectations by segment for 2018?

And specifically, do you expect Money Transfer top line to grow double digits -- to return to double-digit growth in 2018?

Yes.

Is that a yes or no question?

Well, I think it's the second part of the...

It's good to hear a yes.

Can we get a (inaudible)?

Well, that -- yes, that was a really easy one.

Rayna, we don't discuss DCC by segment, but what we would tell you is that substantially all in our EFT segment, okay.

And we would expect that DCC would grow at a rate similar to what that segment would grow.

And as you know, we have grown that segment quite nicely in the strong double-digit category.

The one thing I would tell you is that we would probably expect more of our growth, especially on the DCC front, to be stimulated outside of the European theater because we don't talk a great deal about it, but we offer DCC around the world.

And when they talk about this DCC matter in Europe, that's really just for the EU piece of it.

And then it gets about -- a little bit more complicated because there's other markets around the world that have some more attractive, let's just call them, interchange rates, which makes the international customer more attractive.

And so all that kind of fits into our strategy, as Mike said, to grow -- and to have a few more ATMs on our target to grow next year.

So we don't specifically talk about that growth rate, but I wouldn't expect it to be disproportionate to our overall segment growth rate.

That's very helpful.

Actually, I was asking about your revenue growth expectations by segment for 2018.

Oh, by segment.

And specifically if you expect Money Transfer to return to double-digit top line growth.

Yes.

Well, yes, I mean, again, if you take a look at Money Transfer and you just do some real simple pro forma math, that -- and it did grow year-over-year in a double-digit fashion, it just was in the fourth quarter it didn't grow double digit.

But on a pro forma basis, if you even account for a little bit of the rate decrease that was afforded to the Walmart2Walmart customers, you can see that, that quickly gets you into the double-digit zone.

We had 14% transaction growth year-over-year there, and so I think, as we said in our comments, those -- if you do some pro forma calculations, the revenue and transaction numbers come much more in line.

So with the success we're seeing on the XE, in the digital platform, with the Indian rollout that we've had out there, with attention really around the world, we expect that business to continue, as Mike said, real quickly, to continue to grow at a double-digit pace.

And also, plus the Walmart transactions themselves have been quite strong, and that's how we're getting to the point where we're going to lap them and probably by the second quarter be producing more profits than we did in the second quarter of last year.

It took us a year to kind of make up that difference because there was a significant discount afforded to the customers.

But they have -- they've spoken with their feet and their money and they're actually doing those transactions and growing that piece of our business.

Yes.

If we are to talk about the growth rates, and I would probably be more focused on the bottom line than the top line.

I would expect the top line to be growing a little better than the bottom line there.

But in the epay business, we probably would go into this year with the expectation that that's probably a low to mid-single-digit operating income growth line.

I'd like to see us have a chance this year to break out of that, with digital being a more prominent part of -- I mean, our digital, but the nonmobile being a more prominent part of that segment.

And so I think that we have a chance to be a little bit more productive there.

But again, I'd probably be in that low -- mid -- lower to mid-single-digit number.

On the EFT business, gosh, it -- our team has just continued to find great success at rolling out ATMs.

And as Mike said, we're seeing some stronger interest in outsourcing.

We -- just as Mike also said in this thing here, we were selected by Yes Bank to replace their software platform with a very -- that's a very substantial bank in India.

And all of the folks in that part of the country and elsewhere have some really important decisions to make on their ATM driving infrastructure because of sunsetting by certain competitors.

And that's resulted in us selling more software and doing more outsourcing.

So we think that, that business will continue.

And when Mike said yes, we'll see double digit out of Money Transfer, we'll see stronger double digit out of the EFT.

I being a finance guy, I probably am less reluctant to throw a number out there.

This year, again, we were in the plus 20% range.

We'll only say this.

Wouldn't it be nice if we could do that again?

Yes.

So again, we'll see double digit on Money Transfer, we'll see stronger double digit on EFT and we'll be kind of in the middle singles on the epay business.

Very helpful detail.

What are you seeing out there for cross-border Money Transfer pricing, for the quarter and then your expectations for 2018?

It was -- I'd say for the most part, let's say, call it, down the fairway.

As I looked out across all of our different countries, I saw a few where we had some overall averages that were less than the same period last year.

But then I saw an equal number that were greater than the last year.

So I think, as we've said before, we always see different pockets of competition out there.

It could be in a particular corridor, a particular country, where we're seeing some greater competition, but I would say as we finish the fourth quarter, it was not a lot different, where there were some a little bit down, some a little bit up.

But on average, kind of pretty much down the fairway, Rayna.

Got it.

And if I can just sneak in one last question.

Are you seeing any difference in the economics between the cardless ATM transactions you're doing in Poland versus the card transactions?

And could you expand that technology to other countries?

Oh, certainly we could, and we see the banks may wish to do so.

But we don't have any really economic difference at all.

If anything, a little bit more positive to it.

Yes.

And we have gone past the end of the hour.

I would now like to turn the call back over to Mike Brown for closing remarks.

I just want to thank everybody for taking the time to bear with us.

We went a little over time this quarter, but thank you, and I look forward to talking to everybody in a little less than 90 days.

Thank you very much.

Thank you.

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

This concludes the program.

You may now disconnect.

Good day, everyone.