Release Date: July 19, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Euronet Worldwide Inc (EEFT, Financial) delivered a record second quarter with revenue of $986 million, adjusted operating income of $134 million, adjusted EBITDA of $178 million, and adjusted EPS of $2.25.
- The EFT segment showed double-digit constant currency growth across all financial measures, driven by improvements in travel trends across Europe, strong performance from the merchant services business, and expansion into new markets.
- The company produced strong free cash flows of over $80 million and repurchased $114 million of its shares, which is expected to improve future earnings per share by 2%.
- Money transfer revenue grew 8%, with direct-to-consumer digital transaction growth accelerating to 24%, highlighting the success of increased marketing and promotional campaigns.
- Euronet Worldwide Inc (EEFT) expanded its ATM network by launching in three new markets and closing strategic acquisitions, contributing to a 60% growth in adjusted EBITDA in the EFT segment.
Negative Points
- Epay results were similar to the prior year, with muted growth due to the timing of customer promotional activities, which did not recur in the second quarter of 2024.
- Adjusted EBITDA for the money transfer segment declined by 1%, and operating income grew only 2%, partly due to increased marketing and promotional spend.
- The company faces hyper-competitive dynamics in the money transfer business, with some competitors exiting markets, which could impact market share and margins.
- The timing of promotional activities in the epay segment creates unevenness in quarterly results, making it challenging to predict consistent performance.
- Despite the strong performance in the EFT segment, the company still faces challenges in expanding domestic access fees to larger markets like Poland, which could limit potential revenue growth.
Q & A Highlights
Q: Can you discuss the competitive environment in the money transfer segment and the allocation of marketing expenses?
A: The money transfer business remains hyper-competitive, but Euronet has not felt significant changes in competition, as evidenced by stable revenue per transaction and margins. Most of the increased marketing spend was allocated to digital channels, resulting in 24% growth in digital transactions and 44% growth in new customer acquisition.
Q: How did the tourist ATM performance come in relative to expectations, and what are the early observations for the third quarter?
A: The tourist ATM performance met expectations, and the travel recovery is nearly complete, with tourism at 95% of pre-pandemic levels. Future growth will focus on network expansion, optimizing the ATM network, and increasing margins through access fees.
Q: Are there plans to roll out ATM access fees in larger markets like Poland and Spain?
A: While access fees have been implemented in smaller markets like Cyprus and Malta, Spain already has surcharge and access fees. There is potential for local access fees in Spain later in the year, but implementation in Poland is not expected this year.
Q: Can you provide a geographic breakdown of the ATM fleet and its focus on travel versus local transactions?
A: The recently acquired ATMs in Malaysia focus more on local transactions, while other markets target both locals and international tourists. Euronet has around 3,500 ATMs outside of Europe, with a larger focus on deploying ATMs outside of Europe in the first half of the year.
Q: What is the outlook for epay's operating income growth in the second half of the year?
A: Epay is expected to achieve mid- to upper-single-digit operating income growth for the full year, with stronger numbers anticipated in the second half due to the execution of promotional programs, particularly in the fourth quarter.
Q: Has the merchant services business expanded beyond Greece, and what is the impact of expansion into Spain, Portugal, and Italy?
A: The merchant services business has seen significant growth in Greece and is now expanding into Spain, Portugal, and Italy. The expansion is expected to drive further growth, with a focus on attracting similar margins in these new markets.
Q: What factors allowed the introduction of direct access fees, and can you quantify the impact on revenue and operating income?
A: The introduction of direct access fees is driven by changes in the market environment, including increased costs for banks and the need to maintain ATM infrastructure. While specific quantification is withheld, the fees are expected to reinforce growth this year and contribute to double-digit growth rates next year.
Q: Why was there an increase in digital marketing spend for money transfer, and was it a response to competitors?
A: The increase in digital marketing spend was not a response to competitors but rather a result of improved performance from a new digital marketing team. The additional investment aims to capitalize on the positive results seen in digital customer acquisition and transaction growth.
Q: Can you provide more details on the $3.9 million increase in marketing and advertising spending for money transfer?
A: The $3.9 million increase was spread across regions, with a significant portion allocated to the US, reflecting the distribution of transaction volumes. This amount represents an incremental increase over the existing marketing spend.
Q: How do direct access fees impact transaction pricing, and what is the potential revenue increase per transaction?
A: Direct access fees replace interchange fees, allowing Euronet to set higher fees per transaction, potentially increasing revenue from EUR1 to EUR3 per transaction. The impact varies based on the mix of transactions, including cross-border and local transactions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
