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Edited Transcript of EEFT earnings conference call or presentation 23-Oct-19 1:00pm GMT

Q3 2019 Euronet Worldwide Inc Earnings Call

Leawood Oct 25, 2019 (Thomson StreetEvents) -- Edited Transcript of Euronet Worldwide Inc earnings conference call or presentation Wednesday, October 23, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jeffrey B. Newman

Euronet Worldwide, Inc. - Executive VP, General Counsel & Secretary

* Kevin J. Caponecchi

Euronet Worldwide, Inc. - Executive VP and CEO of epay, Software & EFT Asia Pacific Division

* Michael J. Brown

Euronet Worldwide, Inc. - Chairman, President & CEO

* Rick L. Weller

Euronet Worldwide, Inc. - Executive VP, CAO & CFO

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Conference Call Participants

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* Andrew Garth Schmidt

Citigroup Inc, Research Division - Senior Associate

* Andrew William Jeffrey

SunTrust Robinson Humphrey, Inc., Research Division - Director

* Darrin David Peller

Wolfe Research, LLC - MD & Senior Analyst

* Mayank Tandon

Needham & Company, LLC, Research Division - Senior Analyst

* Peter James Heckmann

D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst

* Rayna Kumar

Evercore ISI Institutional Equities, Research Division - MD

* Timothy Wayne Willi

Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst

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Presentation

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Operator [1]

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Greetings, and welcome to the Euronet Worldwide Third Quarter 2019 Earnings Conference Call. (Operator Instructions) 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.

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Jeffrey B. Newman, Euronet Worldwide, Inc. - Executive VP, General Counsel & Secretary [2]

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Thank you, Bridget. Good morning, and welcome, everyone, to Euronet's quarterly results conference call. We will present our results for the third quarter of 2019 on this call. We have Mike Brown, our CEO; Rick Weller, our CFO; and Kevin Caponecchi, Executive Vice President and CEO of the 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.

Please also note that the reconciliation of certain non-GAAP measures to the GAAP equivalents included in the supplemental data is included as an annex to our PowerPoint presentation.

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

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Rick L. Weller, Euronet Worldwide, Inc. - Executive VP, CAO & CFO [3]

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All right. Thank you, Jeff, and thank you, everyone who's joined us today. I will begin my comments on Slide 5.

We delivered third quarter revenue of $787 million, operating income of $194 million and adjusted EBITDA of $227 million. These results represent a 14% constant currency revenue growth, 34% operating income growth and adjusted EBITDA growth of 30%, all very impressive double-digit growth numbers contributing to the adjusted EPS growth rate. Our adjusted EPS for the third quarter was $2.84, a 31% year-over-year increase and the sixth consecutive quarter that we have delivered double-digit growth in adjusted EPS. This strong growth rate was driven by operating income contributions from all 3 segments and benefits from income taxes. About half the tax benefit was from certain nonrecurring items, while the other half was from recurring items such as the recently announced lower tax rate in India. Additionally, $0.01 of headwind from changes in foreign currency rates was offset by $0.01 of favorability from share repurchases.

On Slide 6, we show our 3-year transaction trends by segment. EFT transactions grew 13% driven by expansion of our ATM and point-of-sale processing networks in Europe and Asia. This included growth in our local and international withdrawals and deposit transactions as well as value-added transactions on ATMs and point-of-sale terminals, including dynamic currency conversion, domestic and international surcharge and foreign currency dispensing. epay transactions grew 40% with continued digital media expansion and significant contributions from wallet-driven mobile top-up transactions in India, which earn a small amount of revenue per transaction compared to our more traditional commission-based revenue. Excluding these lower India revenue transactions, epay transactions would have grown at a very nice double-digit rate of 11%.

Money transfers grew 5%. This growth was the result of exceptional double-digit growth from our U.S. outbound and international-originated sends, partially offset by limited growth from our XE business stemming from Brexit uncertainties and declines in our U.S. domestic transactions as a result of additional ID requirements at Walmart.

Next slide, please. Here on Slide 7, we present our segment results on an as-reported basis. Year-over-year, most major currencies where we operate declined at mid-single-digit rates. To normalize the impact of currency fluctuations, we have presented our results adjusted for currency on the next slide.

Slide 8 here. For the third quarter, EFT revenues grew 26%. Operating income grew 42%, and adjusted EBITDA grew 38%. These very strong double-digit growth rates were the result of a 13% increase in both ATMs and transactions, new outsourcing agreements and our ability to offer Visa DCC on all cards worldwide. Revenue, gross profit per transaction and operating margins all expanded nicely.

epay revenue grew 7%. Operating income grew 27%, and adjusted EBITDA grew 23%. These strong growth rates were the result of continued expansion of digital media products and SaaS solutions. Revenue and gross profit per transaction came in a bit as we continued to see a stronger mix of mobile top-up transactions out of India. However, operating margins expanded nicely. Moreover, constant-dollar gross profit grew 11%, consistent with the transaction growth when excluding the low-margin India transactions. So for those of you that are more familiar with the epay business and know that we share about 80% of the commission revenue with retailers, leaving the roughly 20% as our share, you might say that our epay revenues grew double-digit this quarter, an excellent result from epay. Overall, this was an outstanding quarter for epay and the fourth consecutive quarter we have delivered double-digit op income and adjusted EBITDA growth.

Money Transfer revenue grew 7%, and operating income and adjusted EBITDA each grew 6%. This growth was driven by strong double-digit results from our U.S. outbound and international-originated remittances, partially offset by constrained growth from the XE business stemming from Brexit uncertainties and the previously announced decline in U.S. domestic transfers as a result of additional ID requirements.

As it relates to the XE business, you may recall that when the U.K. voted for Brexit in the second quarter of 2016, we reported stronger-than-normal profits as a result of the volatile pound. We continue to expect that the Brexit uncertainties, as they begin to lift, we will start to see the XE business resume more normal trading patterns and thus making larger contributions to the growth of the Money Transfer Segment. To that end, as we have seen the British pound appreciate above $1.28 to the dollar in the first few weeks of October, we have seen a corresponding uptick in transactions, furthering our confidence that this is a transitory event.

To conclude on Money Transfer Segment. This was a solid quarter for our business. Our core U.S. outbound and international remittances continued to outpace the market rate of growth at very strong double-digit rates. And as we pass the 2 isolated events within the segment and as we get into this next year, we anticipate the Money Transfer Segment will again be posting the double-digit growth rates we are accustomed to reporting. In summary, this was an outstanding quarter for Euronet with op income contributions from all 3 segments.

Now let's go to Slide 9 and discuss the balance sheet a bit. Here, you can see that our balance sheet continues to strengthen. The cash increase resulted from cash generated from operations and settlement timing in the business, partially offset by approximately $40 million in share repurchases in the third quarter. Of the $1.7 billion in cash, we had approximately $650 million in the ATMs. Of the remaining cash, about 40% is related to settlement needs, leaving about $600 million discretionary cash. Together with about $1 billion available on our revolver, we are well positioned to fund the liquidity the business needs to grow. This was another outstanding quarter for Euronet.

And with that, I'll turn it over to Mike.

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Michael J. Brown, Euronet Worldwide, Inc. - Chairman, President & CEO [4]

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Thank you, Rick, and thank you, everybody who's joining us today. I'll begin my comments on Slide #11 with an update on how our leading-edge technology continues to contribute to success across all 3 of our business segments.

In the quarter, we launched a QR code-based payment app with Commercial Bank of Ceylon in Sri Lanka. The app, called ComBank Q+, utilized the Digital Integrated Payments Cloud microservices architecture and open APIs to develop an end-to-end solution that included development of the QR code customer app; a merchant app with a QR code central processing engine, reconciliation and settlement services for all transactions; and the associated IT infrastructure on a pay-per-use model. The app ensures a friction-free, secure and faster payment experience for customers and merchants and allows customers of the Commercial Bank of Ceylon in Sri Lanka to have available at their fingertips a QR code-based payment service that is easy and simple to use, like Alipay or WeChat Pay.

In India, we signed agreements with Amazon Pay and Google Pay. With Amazon Pay, we have signed a strategic agreement as a technology partner to provide a number of services Amazon wants to enable for their customers. In September, we launched the first service with a bill-pay provider, BPCL. Customers can now make bill payments to BPCL using their Amazon Pay account, and we expect more such services will follow in the coming months.

Google Pay has signed up for various epay services and initially launched value-added services such as top-up and bill payments. We also continued the expansion of our Alipay processing to Mueller and dm stores in Austria and to multiple retailers in Italy.

This quarter, we launched a monthly recurring subscription service for AppleCare products at one of the largest retailers in the U.S., Target. This implementation allows customers to purchase AppleCare products with iPhone, iPad and Apple Watch devices for a low monthly recurring price. This provides a significant value proposition to both the end consumer and Target, who could previously only offer a 2-year subscription to AppleCare, which had a much higher price point versus the monthly plan. This is a good example of how epay, through our Digital Integrated Payments Cloud, provides authorized retailers and product providers with a convenient SaaS solution for implementing and offering the new product and service to its customers.

Now let me pause here to reflect on the significance our technology played on the delivery of this product for Apple and Target. It leveraged several capabilities from our Digital Integrated Payments Cloud technology. As you have seen -- as you see, we have grown our relationships with our brand and retail partners. We have found that they want to offer new solutions to meet customer needs but need a partner to develop and deploy the solutions faster and more cost-effective than they can do it themselves. To launch AppleCare recurring monthly subscriptions, we brought together several of our microservices, including compliance, data protection, the renewal payment engine, tokenization, cloud processing and cloud storage of credit card information necessary to facilitate the payment on a recurring monthly basis. As you can see, this is not just another transaction process, but this is a software solution that enabled a compelling customer value proposition for Apple and Target. It's also another example of how our technology has enabled us to break into large retailers which we have historically not have had access to.

Our SaaS solutions are more complex and sophisticated than most SaaS solutions. In our case, we are combining several functions and capabilities to deliver a new solution for our customers. Through a simple connection, we are enabling a unique product such as AppleCare. But to make it work, there's also unique software that tracks, bills and collects recurring payments, cloud hosting, host-to-host connections, compliance, payment processing and settlement, all with one solution.

Finally, with respect to Ren, as an update, we continue to make good progress on the installation of Ren as the national switch of Mozambique. We are on track with all of our deliverables and still expect Ren to be fully implemented in late 2020. Moreover, Mozambique won't be the only one. We continue to have discussions with several customers. In fact, as we speak, our software solutions team is holding a conference in Thailand with more than 100 registered attendees, 90% of them prospective clients. We remain confident in our ability to monetize this groundbreaking solution and look forward to providing you additional updates as we have them. As you can see, the leading-edge nature of our technology, assets and our ability to create unique solutions to problems our customers face continue to contribute to our success in all 3 segments.

Now let's move to Slide #14, and we'll talk about the first segment, EFT. Our EFT team continues to knock it out of the park. What can I say here? With a 42% constant-currency op income growth this quarter. During the quarter, we added our 29th country to our IAD network by launching ATMs in Slovenia. And to update you on the new Asian market we launched last quarter, the initial results of the first 60 ATMs are very positive and could be quite advantageous to our results next year and beyond. Moreover, we have active efforts underway to launch in several new key markets in the coming quarters.

We also launched a merchant deposit network participation agreement with one of the largest parcel delivery companies in Poland, kind of like a FedEx, and cash deposits for Central European International Bank in Hungary. In Uganda, we enabled ATM cash recycling for dfcu Bank. And finally, we renewed our POS acquiring and merchant management services for Habib Bank in Pakistan.

Next slide, please. Slide 15 gives you an idea of some of the value-added agreements we have implemented for our customers during this last quarter. The list is extensive, so I will only highlight a few. In the Netherlands, we have partnered with Amber Alerts Europe to publish alerts and awareness campaigns on our ATMs. Amber Alerts Europe assists in connecting law enforcement with other police experts and with the public across Europe. Our ATM network in the Netherlands is one more touch point for alerting the public to missing children, and we hope to add more countries soon.

In Poland, we signed a new merchant cash deposit network agreement -- network participation agreement and expanded our card-less transaction processing services to enable new card-less payouts for several new customers in Poland. In New Zealand, we signed a POS DCC agreement with Windcave, the fifth largest merchant acquirer in the country. We also launched new card issuing products for customers in Sri Lanka, Bahamas, Egypt, Bolivia and Oman.

And finally, we finished the quarter with 47,209 active ATMs, a 13% year-over-year increase. During the quarter, we deployed 922 new high-value ATMs, about 325 new outsourced ATMs and a few new low-margin ATMs in India. We de-installed 244 loss-making ATMs from YourCash, and we deactivated almost 450 ATMs for the winter season. For the full year, we have added 3,412 independent ATMs, almost hitting the low end of our 3,500 to 4,000 full year guidance range at the end of just 3 quarters, bearing in mind that we generally expect about 500 outsourced ATMs in the 3,500 to 4,000 goal. With strong ATM deployments, a strong pipeline of new agreements and 42% operating income growth, I think it is worth repeating that this was another exceptional quarter for EFT.

Now we'll move on to Slide #18, and we will talk about epay. Okay. I mean I've got to start with look at these freaking results there. Both op income and EBITDA in the 20-plus percent range, constant currency. I am very proud of these epay results as they continue to redefine the segment with much more digital media distribution across more channels and development of leading-edge technology that provides innovative solutions within the payment space. epay continues to expand its digital media portfolio, with digital media and SaaS gross profit comprising more than 70% of the total segment gross profit for the quarter. We have expanded our distribution agreement of Google and Amazon to Austria through Lekkerland stores. In Switzerland, we launched sales of Kaspersky, McAfee and Nintendo and Coop stores, and we continue -- and we signed distribution of Nintendo products through the SIBS ATM network in Portugal, another example of a customer utilizing our Digital Integrated Payments Cloud to offer services from another segment, in this case, epay content being sold through ATMs.

Next slide, please. In addition to the Alipay launches we previously mentioned, in Australia, we signed agreements to launch Alipay to 170 additional retailer locations. We also signed an agreement to distribute Panda antivirus software to all retail partners across Europe. Finally, in India, we signed an agreement to process mobile top-up, bill payment and other recurring payments through Amazon Pay.

epay continues to transform itself and has become much more than a transaction processor. epay has evolved into a sophisticated leading-edge electronic product delivery and payments company. This successful transformation is reflected in the 27% constant-currency op income growth in the quarter.

Now let's move on to Slide #22, and we'll talk about Money Transfer for a couple of minutes. Our Money Transfer network now reaches 389,000 locations in 161 countries, an 8% year-over-year increase. During the quarter, we launched 17 new correspondents in 15 countries. The most significant launches include cash pickup and bank deposit service with ZB Bank in Zimbabwe. In addition, we expanded our capability to transfer funds to mobile wallets. In Ghana, we can now deliver funds to MTN, AirtelTigo and Vodafone mobile wallets. And in Bangladesh, we launched service into bKash and Upay. In addition to these launches, we have signed agreements with 23 new correspondents in 16 countries, which will be launched in the coming quarters.

Ria has entered into a new digital partnership with Finablr PLC company, Travelex. In support of money transfer engine for Samsung Pay, Ria will provide additional network scale via its cash payout and bank deposit rails. And we on-boarded the Unitransfer network of agents in the U.S. and Canada, partnering with one of the leaders in the payout market to Haiti. Finally, we launched the new RiaMoneyTransfer mobile app on both iOS and Android.

We don't have much more to add regarding the headwinds we weathered regarding the additional non-regulatory imposed ID requirements on our domestic transactions with our partner, Walmart. We look forward to annualizing the lapping of these new requirements as we enter the new year. In the meantime, growth in our network, together with the diversity of our Money Transfer business, have provided for year-over-year growth and positions us very nicely for 2020.

As you can see, we have a lot of things happening here in the Money Transfer Segment. On the surface, you may look at growth and wonder what's going on in the business. These aren't the growth rates that we prefer to post, but we have no doubt that we will get through these 2 isolated events happening in the segment, the ID requirements at Walmart and the uncertainties of Brexit. However, as we work through those, we are pleased to see that the most substantial portion of the Money Transfer business worldwide is growing at strong mid-teens double-digit rates that others would kill for. And as you remember, this is an addressable market of $700 billion. We are confident that our Money Transfer Segment continues in the right direction, and we look forward to improved growth in the coming quarters as we lap the transitory events and continue to see the double-digit growth in the majority of our Money Transfer business which is producing.

Now let's go on to Slide #23, and we'll wrap up the quarter. First, we delivered adjusted EPS of $2.84, a 31% year-over-year increase and the sixth consecutive quarter of double-digit EPS growth. We continue to develop and launch leading-edge SaaS-like solutions that solve problems for our partners. EFT delivered exceptional double-digit growth rates while continuing to invest in ATM network expansion, which will continue to pay for us in the coming months and years. epay's 27% constant-currency operating income growth resulted from a continued digital media growth, leading-edge SaaS-like solutions and network expansion. Money Transfer continues to deliver exceptional double-digit growth rates in the U.S. outbound and international remittances. The generation of free cash flow contributes to our strong balance sheet. And finally, we expect the fourth quarter adjusted EPS to be approximately $1.61, assuming constant foreign exchange rates.

With that, operator, I'd be happy to take questions. Would you please assist?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from the line of Rayna Kumar with Evercore ISI.

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Rayna Kumar, Evercore ISI Institutional Equities, Research Division - MD [2]

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So for the third quarter, we saw some strong margin expansion. You had adjusted EBITDA margin increase 350 basis points year-over-year. Can you maybe talk a little bit about the key drivers to that expansion and how we should think about margins in the fourth quarter and then going into 2020?

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Rick L. Weller, Euronet Worldwide, Inc. - Executive VP, CAO & CFO [3]

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Yes, Rayna, the first part of your question had broken up. Can you repeat that? We only got about half of it maybe.

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Rayna Kumar, Evercore ISI Institutional Equities, Research Division - MD [4]

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Sure. So your adjusted EBITDA margin expanded 350 basis points in the third quarter. If you can discuss the key drivers to that growth and also your expectations for margin expansion into fourth quarter and then going into 2020.

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Rick L. Weller, Euronet Worldwide, Inc. - Executive VP, CAO & CFO [5]

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Yes. Well, as you know, one of the big drivers in that was the addition of the additional Visa DCC that we were able to pick up in the business in our EFT segment. We continue to grow and expand our ATM deployment, so that, again, contributed to it. And as Mike pointed out, epay had a very good result, so -- and then I can't help but to emphasize again that third quarter is our seasonally strongest quarter. And as we go into the fourth quarter, we would, again, get some -- on a year-over-year basis, we'll get some additional benefit from the Visa DCC expansion. And that's also when we come into our strongest quarter for the epay business, and so we expect to see some numbers nice.

So on a quarter-to-quarter, yes, I think it's fair to say that our margins will come in going from third quarter to fourth quarter because of the seasonality of third. But on a year-over-year basis, we would continue to see that margin expansion be present in our business, particularly in the EFT and the epay business.

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Rayna Kumar, Evercore ISI Institutional Equities, Research Division - MD [6]

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That's very helpful. And then just 2 questions on Walmart. When exactly do you lap the Walmart ID requirements that you put into place? And second, how are your initial talks with Walmart progressing on your April 2020 contract renewal? When do we expect to hear an update on the conclusion to that?

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Rick L. Weller, Euronet Worldwide, Inc. - Executive VP, CAO & CFO [7]

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Well, I would say -- I mean, we -- the ID requirements, let's say, for the most part, went in, in kind of like a third quarter of last year. We started feeling some of it, but it wasn't as pronounced. We really probably saw the lion's share of the pressure come into the second quarter. So I kind of would expect that for the most part that, that lapping would be kind of, give or take, the first quarter there as we get through it, okay? And then as it relates to our discussions, I think that they're going quite well. Our product, the Walmart2Walmart, has performed very good, and we continue to have those discussions.

So I think kind of consistent with the last time we had a renewal, it went kind of into the next year. But we'll just have to see. But we continue to have a very good relationship with Walmart and would expect to wrap that up at some point here. But there's no exact time line on it, Rayna, but things are going well.

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Michael J. Brown, Euronet Worldwide, Inc. - Chairman, President & CEO [8]

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I think last time around, we kind of started those discussions in December. We've kind of begun those discussions. Now they've got a lot on their plate. But I imagine over the next 90 days or so, we'll have a pretty good idea.

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Rayna Kumar, Evercore ISI Institutional Equities, Research Division - MD [9]

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Great. That's very helpful. And just a final question for me. What progress are you making towards surcharging on European ATMs? What other countries do you expect to implement surcharging in the medium term?

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Michael J. Brown, Euronet Worldwide, Inc. - Chairman, President & CEO [10]

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Okay. Well, we don't expect any right now because usually, these are kind of surprising to us. We know that there are good economic reasons why most of the big bricks-and-mortar banks would like to have surcharging in Europe. They're countered by the kind of consumer advocate groups who would like to have all transactions for free in the country. It's really not up to us. It's not our discussions. It really is between the banks and the regulator. So we'll just have to wait and see.

They're kind of like -- I guess you could call it kind of aces up our sleeve, but we can't quite play them. So we'll just have to wait and see.

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Rick L. Weller, Euronet Worldwide, Inc. - Executive VP, CAO & CFO [11]

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Yes. I mean as we take a look at some of the countries over the last few years that have moved to surcharge, you kind of get to a tipping point where the economics for the banks just really make no sense. They continue to be pressured by alternative banking products that are living off of the investment that the banks have. And so what we've seen is in a few of these markets, kind of when you get to that tipping point and the banks really go, "We can't continue to operate any longer that way," then they kind of push in that direction. So you hear different noises around Europe, and we'll have to see. But as Mike said, we don't have any kind of signals or sense of which one would be next.

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Michael J. Brown, Euronet Worldwide, Inc. - Chairman, President & CEO [12]

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We'll just continue to expand in our current markets, and we're particularly excited about the new international markets that now are a potential due to the Visa change.

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Operator [13]

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And our next question is from Andrew Schmidt with Citi.

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Andrew Garth Schmidt, Citigroup Inc, Research Division - Senior Associate [14]

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A quick question on the EFT Processing Segment. I was wondering if you could break down the mix of transactions in the quarter and, more specifically, talk about DCC transactions relative to your expectations.

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Michael J. Brown, Euronet Worldwide, Inc. - Chairman, President & CEO [15]

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Well, I think with respect to DCC, it's pretty much right on target with what we expected and what we even forecasted a year ago or so, so they are -- that's all good news there. But in addition to that, I mean let's not forget, we make a lot of money off just domestic transactions. We've got a lot of surcharging now that happens across the continent. We have DAF, which is direct access fee, allows us to surcharge foreign cardholders as well. So DCC certainly is a big component of what we're doing, but we have other products too that garner us revenue.

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Andrew Garth Schmidt, Citigroup Inc, Research Division - Senior Associate [16]

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Understood. And then the -- good to hear the comments around the Money Transfer Segment. It sounds like the underlying growth there is fairly robust. But as we move into 2020, I appreciate the commentary on getting back to double-digit growth, but I was wondering if you could talk about some of the underlying assumptions there, specifically as it related to domestic money transfer. Is there assumption -- is there an assumption embedded in there that, that improves? Clearly, you have the lapping, but there's some -- but that segment hasn't grown too much in the past few years. So just curious if you could break down the assumptions that go into that double-digit growth trajectory into next year.

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Michael J. Brown, Euronet Worldwide, Inc. - Chairman, President & CEO [17]

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I think what you've got is -- we're not expecting a huge amount of growth in the Walmart2Walmart product. We do have opportunities to do -- to continue to grow our international business, both with Walmart and ourselves. And that's the neat thing about this is if you really -- if you take a look at kind of the triangle of where the transactions are in domestic remittance, about 70% of all transactions are done at small retailers, mom-and-pops, bodegas, et cetera, smaller chains of stores and so forth. And that's the sweet spot for us. I mean we are kind of kings at that. We know how to manage both their compliance and their credit. We have about -- our 5% worldwide market share is out of that 70%. So you can say that the market is really 15x bigger than -- or 14x bigger than what we have today. That's why we've been in the mid-teens to higher kind of growth rates for international remittance. So we're kind of the kings there, and we will continue to grow that business. That's what gives us -- the nice thing is the market, this $700 billion market out there, is really where our sweet spot is. That's why we're excited about the future.

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Andrew Garth Schmidt, Citigroup Inc, Research Division - Senior Associate [18]

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Got it. That's helpful. And then last question, just housekeeping. In the fourth quarter, what's the tax rate assumption?

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Rick L. Weller, Euronet Worldwide, Inc. - Executive VP, CAO & CFO [19]

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Well, I would tell you that we would continue to expect it to be kind of in the mid-20s to a chance that it'll be a little better than that. As I said, we did see some rate improvement out of India. We got a little bit of extra benefit in the third quarter because that was a retroactive rate to the beginning of the second quarter. So I would continue to say mid-20s to potentially a little better than that.

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Operator [20]

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And our next question is from Darrin Peller with Wolfe Research.

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Darrin David Peller, Wolfe Research, LLC - MD & Senior Analyst [21]

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Let me start off on the EFT segment. The transaction growth was stronger this quarter than last quarter, but the revenue growth, about the same, which I think is underscoring the questions we're getting around the mix from DCC contribution this quarter versus last. Can you just help us, I guess, unpack what the growth rate would have been without -- on the revenue side without the DCC contribution? And then just maybe reconfirm the $0.65 or if that's changed at all in terms of annual impact.

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Rick L. Weller, Euronet Worldwide, Inc. - Executive VP, CAO & CFO [22]

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No, it didn't. The one thing to bear in mind is that the additional margin or benefit we got out of the Visa DCC was not extra transactions. We were already getting those transactions. It's just that we could not offer DCC on those transactions, okay? So that didn't stimulate that extra growth. The additional growth on the transactions, I would tell you, is right in line, lockstep with the number of ATMs that we had out there. You could see that they were 13% on the ATMs, 13% on the transaction. So it's the combination of putting out more of our own ATMs, more outsourced ATMs, et cetera. It wasn't stimulated by the additional Visa DCC stuff. Now clearly...

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Darrin David Peller, Wolfe Research, LLC - MD & Senior Analyst [23]

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Right. Now I guess what I was asking is just why the mix -- if the mix changed because I saw transaction growth accelerated, but revenue growth didn't accelerate. It was the same growth rate as it was last quarter. Albeit a strong growth rate, it didn't go as -- it didn't accelerate with transactions.

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Rick L. Weller, Euronet Worldwide, Inc. - Executive VP, CAO & CFO [24]

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And that would be, let's say, reasonably consistent with the second quarter, also having part of that the additional benefit from the Visa DCC lift there.

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Darrin David Peller, Wolfe Research, LLC - MD & Senior Analyst [25]

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Okay. I mean is there any way to break out what the actual revenue that came from the new Visa rule was this quarter and what the growth rate would have been without that in terms of revenues?

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Rick L. Weller, Euronet Worldwide, Inc. - Executive VP, CAO & CFO [26]

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Well, we didn't -- we haven't put that number out specifically. But as we've generally shared with folks is that if you kind of go backwards up and calculate on the math from the $0.60 to $0.65, that you'll get to an estimated revenue number. And we get about 45% of that number in the third quarter, and we get only about 10% of it in the first quarter. And the other difference, the other 45%, is a little bit more biased to the second quarter than it is the fourth quarter. So with that math, you can kind of get to a rough number on what it would be.

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Darrin David Peller, Wolfe Research, LLC - MD & Senior Analyst [27]

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Okay. And just a quick follow-up on the Money Transfer side. The breakdown, I know you're saying the cross-border side continues to do well, mid-teens growth. Was there a change of growth? There had to be some sort of a change in growth given that the overall constant-currency growth in the segment decelerated a little bit. So was it either on the cross-border side or was it on the domestic side? And maybe just break down what you expect to -- if we anniversary that, the Walmart issues or the ID issues in the beginning of next year, what the full segment growth profile could look like.

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Rick L. Weller, Euronet Worldwide, Inc. - Executive VP, CAO & CFO [28]

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Yes. Well, interesting observation, and it was. We happened to lose some volume from a larger, very price-competitive agent in the Middle East. And that brought in those transaction numbers a little bit compared to like what we saw in the second quarter because our year-over-year difference on the domestic transactions was relatively -- was similar in third quarter as the second quarter. So the math that you observed there was really kind of out of this Middle East large agent.

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Darrin David Peller, Wolfe Research, LLC - MD & Senior Analyst [29]

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Okay. And just last question, guys. When I think about guidance on Q4, anything we should keep in mind in terms of tough comps or easy comps or anything just unusual or extraordinary and for modeling purposes in terms of how to think about the revenue side as well as the profitability?

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Rick L. Weller, Euronet Worldwide, Inc. - Executive VP, CAO & CFO [30]

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Well, I think one on the revenue side is the Money Transfer has to do with the ID requirement, and that wasn't showing up as strongly yet in the fourth quarter. As I said earlier, we really saw the pronounced effect of that in the second quarter of this year. So that will still kind of have some weighting on us in the fourth quarter, and that would be on the downside. On the plus side, obviously, is the benefit from the Visa DCC lift that we got. Those are the only couple of things that I could think of. I mean consistent with our historical fourth quarter, our epay business does better in the fourth quarter, but there isn't any kind of unusual comps in there on the fourth quarter that would call out anything different in the math. So I think that would be largely it.

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Operator [31]

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And our next question comes from the line of Tim Willi with Wells Fargo.

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Timothy Wayne Willi, Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst [32]

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I had 2 questions. The first one was a housekeeping question. Rick, I think in your discussion around Money Transfer at the beginning of the call, you made some comments about XE. And I think -- I just want to make sure I heard it correctly. Did you say that, so far through this month or sort of sequentially through the quarter into the current month, that there have been some improvements or bottoming out in volumes? Can you just go back to that?

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Rick L. Weller, Euronet Worldwide, Inc. - Executive VP, CAO & CFO [33]

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Yes. Well, as we got into October, we started seeing that the pound started improving on the -- against the dollar. And I think that was kind of consistent with what the sentiment was out of the U.K. on having something positive happen with the Brexit solution. And so as that -- you may recall kind of in the third quarter, we saw the pound to the dollar was, gosh, down to about $1.20, $1.21 kind of just a few months ago. And so it had been at pretty much some all-time lows. And when we started seeing it break above the $1.28 mark, we started seeing the volume numbers tick up.

So we did see that kind of in the first part of October. We're cautiously optimistic that, that's a good sign of the return of people's trading interest and that, that will pick up. So we'll kind of wait and see. There were some more news out yesterday on some Brexit things that appeared. Maybe we'll get through it here. But yes, we did see some positive movement there. So hopefully, it's a good foreteller.

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Timothy Wayne Willi, Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst [34]

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Great. And my second question was about epay. And obviously, versus where we were a couple of years ago, the product set, the momentum, all are obviously sharply better. Now I'm curious, when you think about the new business you're winning, is there a way to think about -- is it the new cloud-based technology that is getting the attention of all the mobile wallet providers you've talked about working with you and/or is it sort of this big content catalog that you've built out over the years that the wallet providers are now realizing "We want to have a robust offering within our wallet. Who can we go to that can bring us content?" Is there any way to think about what is leading or if there's a network effect sort of emerging here around those 2 topics?

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Kevin J. Caponecchi, Euronet Worldwide, Inc. - Executive VP and CEO of epay, Software & EFT Asia Pacific Division [35]

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Yes, this is Kevin. So yes, you've hit on a couple different things. So I would parse it like this. First and foremost, as Rick and Mike commented earlier, it's about technology, having the right technology stack to enable the wallets to easily and frictionlessly deliver this content. So yes, your point about having a portfolio or catalog is important. But you also have to have the easy connectivity because the wallet providers are very different than a physical retailer. Their needs and requirements are very, very different. I mean providing a digital code in a safe and convenient manner and then reconciling that transaction with a fintech company is very different than distributing a plastic postcard onto a J hook and into a retail location. So because Euronet/epay is really more technology-oriented, we've kind of become a preferred partner of these wallet companies and various fintech players.

And then the second part of the question about kind of what is the overall -- I think sort of what is the overall driving momentum and what's the mix in the business, it is a combination of the distribution of more digital media with things like the announcement of AppleCare, where we're providing complex SaaS-based solutions to both our brand partners, in this case, Apple/AppleCare, and our retail partner/Target.

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Timothy Wayne Willi, Wells Fargo Securities, LLC, Research Division - MD & Senior Analyst [36]

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And if I can slide in one last one on the subscription stuff you just talked about with Target. We talked about this a little bit, I think, maybe about a year ago, Kevin, is we're in a subscription-based world now, I guess, in certain respects, right, whether it's things like Netflix or consumer goods being delivered every month. And I guess as you think about that market and what you've done here with AppleCare, I mean is this a sizable end-market opportunity globally or just in the U.S.? Or is the AppleCare just sort of a one-off innovative opportunity that you saw?

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Kevin J. Caponecchi, Euronet Worldwide, Inc. - Executive VP and CEO of epay, Software & EFT Asia Pacific Division [37]

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Good observation. So the engine that was built to support AppleCare can be applied to any subscription-based offering. The unknown is going to be what percentage of consumers initiate a subscription model from a physical retail location. We're quite optimistic that, that's going to be attractive because a physical retailer can do merchandising and tell the story in a different way than a direct sale. So the solution built for AppleCare can apply to any of the subscription services we've talked about, Spotify, Netflix, Steam, whatever. The unknown is how many consumers will adopt those subscription services from a physical retail location, but it's a large underserved market. The brands are not able to reach every consumer in a direct fashion. So there is a lot of optimism about the success of the solution globally.

And I guess I'll make one more comment that came out in Mike's comments. The other important feature of the renewal is breaking down the price point of something that's relatively expensive into something -- into monthly bite-size pieces. And there is a lot of excitement and enthusiasm about how that could also be used with lots of different products.

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Operator [38]

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Our next question is from Peter Heckmann with D.A. Davidson.

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Peter James Heckmann, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [39]

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Curious on the integrated payment cloud. As you start to ramp up those services, how do we see it manifest in the results? Clearly, we'll see revenue and likely high margin. Will it be included in the transaction count as well? And how should we interpret that? It sounds like there's a lot of these applications in prepaid, but there may be some -- go ahead.

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Michael J. Brown, Euronet Worldwide, Inc. - Chairman, President & CEO [40]

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That was a little bit cut out there, Pete. But I think, yes, you'll see in the transaction count, for sure. And then your other question, I couldn't understand what the other question was. Did you, Rick?

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Rick L. Weller, Euronet Worldwide, Inc. - Executive VP, CAO & CFO [41]

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No, no.

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Peter James Heckmann, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [42]

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Just the information -- essentially, we'll see, perhaps, revenue per transaction fall a bit but from the cloud-based transactions, but those will be coming through at very high margin. So we should think about that in our modeling.

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Rick L. Weller, Euronet Worldwide, Inc. - Executive VP, CAO & CFO [43]

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Yes. As we think about our technology, it's really going to be, let's call it, across 3 different kinds of categories, okay? One is we're going to get service type of -- recurring service and licensing type of revenues from projects like Mozambique, okay? Those installations then are going to lead to further transactional types of revenues that we get from the other 21 banks that are involved in that particular central switching infrastructure. And then we're also -- we're going to get more transactions. And as you say, we believe that better margins, whether it's from like connecting with the Xooms of the world or the Finablrs of the world or developing product like the AppleCare that we've just talked about here.

So there's going to be several different areas that we would see the revenue come in. But I would tell you that our strongest interest is to see that it is driving continuing recurring monthly transaction type of numbers that would give us better margins per transaction. So I think that's where we'll probably see it more than anything. But as we come up with more of those products and have more successes, we'll kind of plug you in to follow it along the way. But I think for your modeling, I would anticipate that this gives us the ability to continue to drive more transactions at a better margin.

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Peter James Heckmann, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [44]

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Got it. That's helpful. And then just one housekeeping item, and I apologize if I missed it. Did you quantify the tax benefit to EPS this quarter?

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Rick L. Weller, Euronet Worldwide, Inc. - Executive VP, CAO & CFO [45]

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We didn't quantify it, but it's kind of in the low double-digit range, so call it $0.10 to $0.12 a share.

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Operator [46]

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And our next question is from Andrew Jeffrey with SunTrust.

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Andrew William Jeffrey, SunTrust Robinson Humphrey, Inc., Research Division - Director [47]

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So with regard to XE, what you're talking about in Brexit and how that is affecting the B2B side of your business makes a lot of sense. Obviously, we read every day in fintech about a lot of capital being invested at high valuations in some of XE's competitors that maybe aren't as profit-oriented as Euronet generally. Can you talk a little bit about how XE positions itself competitively in the cross-border market? Is it -- what differentiates XE? And I suppose it's good to see the bounce in transactions with the strengthening of the pound. How confident are you that there isn't a competitive risk from some of these disruptors that, as I said, really aren't maybe as price-focused as Euronet is?

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Michael J. Brown, Euronet Worldwide, Inc. - Chairman, President & CEO [48]

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Well, that's an interesting thing. So -- I mean, for sure, we do have competitors. They're out there everywhere. A lot -- they've got lots of investor money that they're blowing and giving people everything for near free. The nice thing that we have, though, with XE is -- I mean traditionally, we were a higher-price point product. So where these little fintech guys work for somebody sending $3,000 or $4,000, $5,000 or $10,000, where XE's numbers were quite a bit higher. They might be $13,000 for an individual and $50,000 for a CFO of a small, medium-size kind of enterprise. So we've kind of -- we originally went upscale that way. What's interesting, though, is I think the fintech competitors have shown us that there's a big market for us, downscale or medium scale, you might say. And since we have redone our -- both our website and our apps, we've been acquiring a lot more of these transactions in this middle range. So we do see competition, but we also see a larger market, you might say.

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Rick L. Weller, Euronet Worldwide, Inc. - Executive VP, CAO & CFO [49]

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And I would add to that when you ask what really attracts them is we've got a very efficient compliance process because -- and that's really one of our advantages in this business because a lot of these start-up folks are struggling, and you're beginning to see more of their struggles publicly with things like compliance. All of the regulators that we deal with, whether it's in the United States, it's Europe, wherever it is, are concerned with compliance. And some of these folks that start up don't have the same level of attention to compliance. So we've really worked on really making that an efficient, effective process. When they come in, they go through compliance, and then they find that the engine is easy to use. It's simple. It's got attractive competitive rates. And so that kind of experience is a lot better than what they've ever received before, certainly, at a traditional bank. I think one of our advantages against some of the other fintech guys is our compliance and how well we've got that process honed. So we've seen more and more subscriptions. But we'll really welcome the opportunity as we get through this Brexit thing to get the steam back at it.

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Operator [50]

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And our next question is from Mayank Tandon with Needham & Company.

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Mayank Tandon, Needham & Company, LLC, Research Division - Senior Analyst [51]

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Mike, on the EFT side, could you talk about the time line on expanding more aggressively in Southeast Asia and Lat Am and when we can expect that to start maybe contributing to revenue growth and transaction growth on the EFT side?

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Michael J. Brown, Euronet Worldwide, Inc. - Chairman, President & CEO [52]

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Okay. So to get into a new country is a bit of a challenge, okay, because you've got to -- in most all the countries in the world that aren't English-speaking or aren't EU countries, it's actually not allowed by the regulator to have a nonfinancial institution own and operate an ATM. So that makes -- it's kind of slow-going at first because you've got to get in there. You've got to find a potential sponsor bank for Visa and Mastercard. And number two is then you take that sponsor bank into the regulator, and you get the regulator to basically change its rules.

This takes -- I mean in the current market that we're in where we only have 60 ATMs, that took 2 full years. And we've been working on -- we were working on them long before Visa changed its rules because we had a -- we could kind of smell that the rules would change. And so we've been working on -- we're working on about 5 other markets right now. And so whenever I can get one to bust, when the regulator says go out, then I will go into that next market. We feel rather confident that we'll get one maybe in the first quarter of next year, but we'll just have to wait and see.

And in the meantime, the one that we've got working, the math on it is excellent, and we've only got 60 ATMs now but plans for a big expansion throughout next year. And so where it will make -- it will actually move our needle. 60 ATMs, no matter how good they do, don't really move our needle because our EFT division is just darn big. But by next year, we'll definitely do so.

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Mayank Tandon, Needham & Company, LLC, Research Division - Senior Analyst [53]

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That's helpful. And then very quickly, Rick, could you comment on capital allocation, especially given the stock is off its highs? Would you consider a buyback? Or is M&A still the main theme that you're looking at from a capital allocation perspective? Any thoughts around that would be very helpful.

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Rick L. Weller, Euronet Worldwide, Inc. - Executive VP, CAO & CFO [54]

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Well, as we did in the third quarter, we bought when we saw some pressure on the price. So I guess as we've said in the past, if we see some dislocation, we're prepared to do that. But we wouldn't probably state -- we don't have any specific plan or number in mind. But if opportunity presents itself, we might be buying some.

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Mayank Tandon, Needham & Company, LLC, Research Division - Senior Analyst [55]

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And acquisition.

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Rick L. Weller, Euronet Worldwide, Inc. - Executive VP, CAO & CFO [56]

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And acquisition, we're just -- we're always looking at them. There's several on the examination table. It's just a matter of whether or not we get them to the finish line. We've had some that looked quite promising and fell apart in the latter days because of issues that we found. We continue to see that there's some maybe irrational exuberance expressed in some of the valuations out there. So if we can see that the valuations line up with how we can see that we can make money, if they're fundamental growth engines, we're not interested in just being what we would call Pac-Man acquisition. We're interested in growth engines to our business. So we continue to look. And at some point, I'm sure we'll be successful in finding one. But stay tuned. We'll keep the examination process going.

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Michael J. Brown, Euronet Worldwide, Inc. - Chairman, President & CEO [57]

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All right, operator, I think that should probably be the last question because we're at the top of the hour. And I'd like to thank everybody who joined us today. And I look forward to communicating some of our good stuff we've got in the hopper over the next several weeks. Thank you.

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Operator [58]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.