Euronet Worldwide, Inc. (EEFT) Earnings Call Transcript & Summary

Thank you, operator, and welcome to Euronet's 2020 Annual Meeting. Joining me today is our CFO, Rick Weller; our Deputy General Counsel, Desmond Acosta; several members of our Board of Directors; and representatives of KPMG, our independent auditors, who will be available to answer questions at the end of our presentation. On today's ballot, we will be voting for 3 directors. These directors have diverse backgrounds, provide great leadership and have been instrumental in Euronet's success. Dr. Olechowski is from Poland and previously served as the Finance Minister of that country. He brings extensive financial and international experience to our Board. Mr. Scocimara brings significant finance, international business and entrepreneurial experience having served as the President of a private investment firm he founded as well as the President and the CEO of the Hungarian American Enterprise Fund. And finally, Mark Callegari is a proven entrepreneur with valuable insight and experience developing industry-leading technology and software solutions. Also on the ballot is ratification of KPMG, our independent auditor firm. And finally, an advisory vote on executive compensation, which has historically received high levels of support from shareholders largely due to the high pay-per-performance standards will be on the ballot. I will now turn the call over to Desmond to formally open the voting of the meeting. Desmond?

Thank you, Mike, and welcome, everyone. On Slide 6, you will find the proposed resolutions. As Assistant Secretary of the corporation and inspector of elections, I'll now formally declare the stockholders meeting open to conduct voting on the proposals that have been submitted to the stockholders in the proxy materials. These proposals are also summarized on Slide 6. Stockholders of record as of the close of business on March 24, 2020, are entitled to vote at this meeting, and each share of common stock held of record on that date is entitled to 1 vote. On this slide, you will see an affidavit of Broadridge Financial Solutions dated May 6, 2020, certifying the mailing of each -- to each stockholder of the notice of meeting, proxy statement and formal proxy. The Chairman of the Board has appointed me to act as inspector of elections. I have signed my oath of office. A copy of which is also shown on this slide. If there are any stockholders present who have not yet filed their proxy or wish to vote by ballot at this meeting, please use the voting tools on the website to submit your vote while Mike Brown and Rick Weller give their presentations. I will close voting following the presentation by Rick Weller. On March 24, 2020, the company had 52,199,350 shares of common stock outstanding. 46,528,994 shares or approximately 89% are represented at this meeting by proxy. A quorum of shareholders -- stockholders is present. So this meeting can now proceed with voting on the proposals presented. The first proposal is the election of 3 Class II directors: Dr. Dr. Andrzej Olechowski, Eriberto R. Scocimara and Mark R. Callegari have been nominated to serve 3-year terms as directors or until the election and qualification of their respective successors. We have not received any notice of nomination of directors by any stockholders. The second proposal is ratification of the appointment of KPMG LLP as Euronet's independent registered public accounting firm for the year ending December 31, 2020. And the third proposal is an advisory vote on executive compensation for named executive officers. I'll now turn the meeting back over to Mike.

Thank you, Desmond. I will continue my presentation on Slide #8. For those of you who may be newer to Euronet, this slide gives a brief overview of our 3 business segments and the network assets that we have built. We operate in 3 segments. In EFT, our founding segment, we now own or operate more than 50,000 ATMs, provide value-added services to an additional 136,000 ATMs and provide software services for several hundred clients around the world. In epay, we provide content distribution for leading global brand through more than 730,000 POS terminals around the world and digitally through a wide range of wallets, apps and online stores including PayPal, Google Pay and Amazon, just to name a few. Finally, our money transfer network now includes more than 400,000 physical locations and a growing digital presence, which we expect to cover 19 countries for sending by the end of this quarter. In 2019, through the 3 segments combined, we processed more than 4.7 billion transactions, and we're responsible for $117 billion in payments. We have also developed REN, the most advanced modern architecture payments platform available. The REN Foundation not only operates our own payment processing, but it modernizes payments processing for financial institutions and central banks around the world. Next slide, please. As you can see on Slide #9, we had an exceptional 2019. We delivered nearly $2.8 billion in revenue, $474 million in adjusted operating income and $607 million in adjusted EBITDA. Our record adjusted earnings per share was $7.01, a 27% increase over the prior year and the seventh consecutive year we have delivered double-digit adjusted EPS growth. This strong double-digit growth was driven by double-digit operating income contributions from our EFT and epay segments and strong double-digit revenue growth in our international remittance business. Let's go on now to Slide #10. And I'll give you a few highlights from each of our segments. Slide 10. The EFT segment delivered revenue of $889 million, an 18% year-over-year increase and adjusted operating income of $295 million, a 45% increase over 2018. This strong growth was driven by a 14% increase in our ATM networks and a 12% increase in transactions. In addition to adding more than 4,000 of our Euronet owned ATMs in 2019, we also expanded our ATM operations to the United States. In December, we acquired Dolphin Debit, a full-service ATM outsourcing provider. We also continued to expand our leading REN platform to additional financial institutions and central banks around the world. This platform makes available to our customers leading-edge payments and settlement options such as real-time payments, multifactor authentication, QR or barcode identification and so forth. In epay, we earned $769 million in revenue, a 3% increase over 2018 and an operating income of $89 million, a 13% increase over 2018. This growth was highlighted by our continued digital media expansion, which now represents more than 70% of epay's gross profit. The digital media content from leading brands such as Microsoft, Amazon, iTunes and others is available across our network of 728,000 POS terminals and retailers such as REV, MediaMarkt, DM, et cetera. This content is also available digitally through wallets, apps and online stores including PayPal, Google Pay and Amazon, just to name a few. In money transfer, we earned revenue of nearly $1.1 billion, a 5% increase over 2018 and adjusted operating income of $135 million, a 4% increase over 2018. We have grown our physical money transfer network up to more than 400,000 locations and counting. In 2019, we extended our agreement with Walmart to include Walmart2World international remittances, which we have now extended for an additional 3 years, along with our Walmart2Walmart domestic agreement. And we also signed agreements with 2 post offices in Europe, the Austrian Post and the Belgian Post. And along with our physical expansion, we continue to invest in our digital money transfer products. We have upgraded and expanded our XE digital online and app markets with new features and functionality and our Ria app, which we expect to be available in 19 countries by the end of this quarter. And we are seeing nice growth in the digital transactions as a result. As you can see, we had an outstanding 2019, and we're extremely -- we are now extremely well positioned to deliver another year of double-digit growth in 2020. Let's move on to Slide #11. Well, as strong as we finished 2019, we began 2020 with the same strong growth trends in all 3 segments. We are poised to deliver another year of double-digit revenue and earnings growth to add another 4,500 ATMs in new and existing geography, to continue to grow our digital presence in both epay and money transfer and to continue to grow our brick-and-mortar money transfer business 2x to 3x faster than the market. We are also fielding additional inquiries on our leading-edge technology delivered through our REN Foundation. And we are well capitalized to accomplish all of these initiatives with over $1 billion of cash in the bank together with another $950 million of availability on our revolving credit facility. And then, just as you know, the COVID-19 pandemic hits the world, and everything changed. Now many companies are just trying to survive. A recent study pointed out that more than 2/3 of businesses have been adversely impacted, Euronet being one of them. So while we were one of the many businesses impacted by the virus, we're one of the fortunate ones. We continue to have a very strong balance sheet with more than $1 billion of cash and no significant debt service obligations for 5 years. To put it into perspective, we could cover several years of payroll with the cash that we have in the bank. So let's start with how we are getting through this. A couple of months ago, our first thoughts were ensuring the health and the safety of our nearly 8,000 employees. As a result of our previous investments in our global network, including all of the right preparations to ensure cybersecurity and remote access, together with exceptional contributions from our employees, we were able to transition virtually all of our employees to remote work-at-home arrangements in about a week, all while ensuring that service was not interrupted for our customers. And remember, Euronet started as an international multicountry business, so conference calling, video calls, file sharing and cloud computing are all part of the way that we do business every day. It really didn't require us to adopt new forms of operations. We have also been drawing our -- on our experiences from the 2008 financial crisis to use this time to improve our market positioning in all 3 of our segments. During the 2008 crisis, we focused on expanding geographies, products and distribution channels for each of our 3 segments. We introduced new products and solutions, and we continue to invest in our technology. In fact, our market-leading EFTS ATM management software was quoted during those crisis times. Back then, we chose to keep our employee workforce and, in fact, hired 400 to 500 more employees in 2008, '09, just to attack the market. We had a good balance sheet, which even the rating agencies recognized, and upgraded our credit rating for consistent earnings performance and conservative balance sheet management practices during that time. We emerged a stronger, more diversified company with expanded market shares, and we plan to do much of the same in this crisis. We continue to be financially conservative, and we have a much stronger balance sheet by far now than we did then with more than $1.2 billion in cash. We have had compounded earnings growth of over 20% for 7 years running. We added to our Treasury, and we capitalized our business with low-cost, long-term fixed-rate debt that has no maturities for 5 years. So we are fortunate that we will get through this. But as I heard it said a long time ago, you do make your own luck. Well, we continue to make our own luck. We are actively working to ensure that we are fiscally conservative during these challenging times. We have implemented a cost-reduction plan with the goal of saving $130 million in SG&A and third-party costs, 80% of which has already been identified and is being executed. And all of these expense reductions are being made without any impact to our future growth potential. For example, we have extended our ATM winterization program to include more than 10,000 ATMs cutting our operating expense considerably. It is unlikely that we will install the 4,500 ATMs we planned in -- to do in 2020 due to the government-mandated lockdown orders in most countries. You see, installation of new ATMs generally isn't considered an essential service, but when countries, states and cities begin to restart the economy, we will accelerate our deployment plans as quick as possible. We'll be ready because we have the ATM sites ready to go. And as I said earlier, it is our desire and plan to keep all of our employees. We have not initiated any employer salary cuts to date, and we have communicated to all of our employees that it is our intention not to cut salaries or lay off employees. We believe that this will allow our associates to focus on growing our business while working from home rather than worrying about how to pay their bills. And trust me, we are keeping them busy. Our employees are actively adding new products and solutions, including our REN and REV real-time payment product for financial institutions and central banks wanting real-time payment solutions. We will continue to expand geographies and channels as well as further diversify our business into old and new business lines. For example, the acquisition of the U.S.-based ATM outsourcing provider, Dolphin, we -- that we bought, we will go after large and attractive U.S. outsourcing opportunities. Finally, we will conserve our balance sheet to ensure that we are here to grow for the long term. Because we are well capitalized with significant liquidity, we don't have to fight to survive. We can and are focused on expanding our market share, product lines, geographical markets and technological superiority. In looking forward, while we will work diligent to make the most out of this year, we are squarely focused on a post-COVID world when we come out of the gates swinging. With that, I'll hand it over to Rick.

Thanks, Mike. Because Mike has already commented on the highlights of the P&L, I will retain my comments to the balance sheet. Here, on Slide 13, we present our balance sheet as of December 31, 2019, and the most recent quarter ended March 31, 2020. As Mike mentioned, we had an exceptional 2019, delivering record results and double-digit earnings growth for the seventh consecutive year. This strong earnings track record helped us exit the year with an exceptionally strong balance sheet with $786 million in unrestricted cash and $665 million in cash in our ATM. After each of our businesses got off to a strong start in 2020, at the beginning of the first quarter, we continued to invest in our ATM network, and we repurchased $240 million in shares. Upon seeing the COVID-19 impacts on our business, we curtailed share repurchases, pulled back on CapEx and identified plans for cost-saving initiatives Mike previously mentioned. We finished the first quarter with $709 million in unrestricted cash on hand. While we believe that this $709 million cash balance is more than sufficient to sustain the business through the difficult times brought about by COVID-19 pandemic, the company also has approximately $560 million cash in ATMs at the end of the quarter, which could be redeployed to operations, giving the company more than $1.2 billion of cash and no significant debt service obligations for 5 years. In fact, on a net debt basis, our debt is 0. Our total indebtedness was $1.1 billion as of March 31, 2020, largely unchanged since the end of the year and with the first maturity date of March 2025. So while our 2020 financial results are not going to be as strong double-digit growth rates we expected, we are fortunate to have a strong balance sheet that gives us confidence that we will get through this temporary challenge brought on by COVID-19. With that, I will turn it back over to Desmond to provide the voting results.

Thanks, Rick. I now formally close the voting and announce the preliminary results. I would like to note that the results in the 8-K filing, which will be filed following this meeting, may vary from these preliminary results to account for shares voted during this meeting. Regarding the first proposal, which is the election of 3 Class II directors for additional 3-year terms, Dr. Andrzej Olechowski has received 90% of the votes in favor. Eriberto R. Scocimara has received 86% of the votes in favor. And Mark R. Callegari has received 95% of the votes in favor. As a result, each nominee for director has been elected a Class II Director of the company to hold office until the election and qualification of his respective successor. The second proposal, ratification of the appointment of KPMG LLP as Euronet's independent registered public accounting firm for the year ending December 31, 2020, has been adopted with 99% of the votes cast in favor. And finally, regarding the third proposal, the advisory shareholder vote in support of executive compensation, 97% of votes have been cast in favor of the executive compensation plans. This concludes the official business of the stockholders' meeting. I now hand the meeting back to Mike.

Thank you, Desmond. As I wrap up, I would like to reiterate my confidence in this business. We have an extremely strong balance sheet with plenty of liquidity to see us through this pandemic. We've taken steps to protect our financial position without harming our future growth prospects. We expect that we will begin to see some improvement in our financial results towards the end of 2020. And we will enter 2020 ready to hit the ground running. With that, let's turn to questions that we may have received online.

The first question that I see here is, "What, if any, opportunities has COVID-19 presented Euronet worldwide?" Well, actually, in the midst of this dark cloud, there is a silver lining, and that's, that we're financially strong, and many of our competitors are certainly not so. So we're able to go out and aggressively pursue new deals with our competitors where we've got the financial strength and they do not. In addition to that, we're able to go to some of our competitive agents, some of our -- some of the sites that might have ATMs where we have competitors. And we can go to them and suggest that they kind of switch horses and come our way. We can do that with financial incentives and other things. And then we've also been really strong in the epay segment. The epay segment results have been bolstered by this pandemic because people are doing more online entertainment, and we do online purchases of entertainment products. We've connected to wallets in places like India and elsewhere, and these have been really good results for us in epay. So epay will be the -- as far as the pandemic goes, epay will be the least affected because it's actually seen a boon to part of its business because it's so. But with my other 2 businesses, money transfer and EFT, we will take advantage of this to weaken our competitors and maybe steal some business from. So my next question that I see up here is "Has or will the company buy back any shares?" Well, as you know and as Rick mentioned, we did buy back about $240 million of the shares in the first quarter. We currently are not buying back any shares because our first and foremost focus here is to maintain our financial independence, make sure that we've got a strong balance sheet to go into 2021. And so at least at this time, we don't have that inclination, but we'll just have to wait and see where the stock price goes and what other opportunities that we have. The faster that we have some recovery obviously gives us more confidence with respect to stock buybacks. But right now there are none playing. Is that it? Okay. Well, I'm looking on the screen here, and I don't see any more questions. So with that, I guess I will close the meeting. I want to thank everyone for taking the time to listen, and we will be talking to you at the end of the second quarter with updates. Thank you very much.