Greetings and welcome to Euronet Worldwide Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [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..

Thank you, Sarah. Good morning and welcome everyone to Euronet's quarterly results conference call. We will present our results for the second quarter of 2019 on this call. We have; Mike Brown, our Chairman and CEO; Rick Weller our CFO; and Kevin Caponecchi, the CEO of our epay Division on the call.

Before we begin, I need to call your attention to the forward-looking statements disclaimer on the first page of the PowerPoint presentation we'll be making today. Statements on this call that concern Euronet's or its management's intentions expectations, or predictions of future performance are forward-looking statements.

Euronet's actual results may vary materially from those anticipated in such forward-looking statements as a result of a number of factors that are listed in 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.

In addition, the PowerPoint presentation includes a reconciliation of the non-GAAP financial measures that we will use during the call to their most comparable GAAP measures. Now, I'll turn the call over to our CFO, Rick Weller.

Rick?.

Good morning and thank you, Jeff and thank you everyone for joining with us today. I will begin with my comments on Slide 5. We delivered second quarter revenue of $692 million, operating income of $118 million, adjusted operating income of $117 million and adjusted EBITDA of $150 million.

Our adjusted EPS for the second quarter was a $1.69, a 28% year-over-year increase and in-line with the guidance we provided in April. This strong result was driven by double-digit constant currency operating income results from all three segments of our business.

Versus guidance, we saw that a bit of tax favorability was offset by headwinds from changes in foreign currency rates. I'd also like to point out that our GAAP calculation of weighted average shares included about half of the total shares issued to settle the value in excess of principle of our 1.5% convertible bonds.

However, you will notice that we have included all of the issued shares in our non-GAAP adjusted EPS calculation to be consistent with both the GAAP and adjusted EPS share calculation in the first quarter and the number of shares we considered in our second quarter guidance.

With these shares fully included in this quarter in our adjusted EPS you will not see any further dilution from the settlement of and the redemption of the 1.5% convertible bonds on our adjusted EPS calculation in future periods. Let's go to Slide 6. Here on Slide 6, we show our three year transaction trends by segment.

EFT transactions grew 11% driven by expansion of our ATM and point-of-sale network processing in Europe and Asia. epay transactions, grew 40% with continued digital media expansion and significant contributions from wallet driven mobile pop-up transactions in India and digital code server transactions in the U.S.

both of which earn a small amount of revenue per transaction compared to our more traditional commission based revenue. Excluding these lower margin transactions, epay transactions would have grown 9%. From the Money Transfer segment. Total transactions grew 7% and money transfers grew at 8%.

This growth was the result of exceptional double digit growth from our international remittance business and digital sends partially constrained by limited growth from our XE business stemming from Brexit uncertainties and declines in our domestic transactions as a result of additional ID requirements at Walmart.

While we have seen some softness in domestic transactions, we are confident in our relationship with Walmart as evidenced by the previously announced domestic payout agreement with Walmart and our partnership with Walmart's Massmart in South Africa. We optimistically look forward to new products in the future. Next slide please.

On Slide 7, we present our segment results on a as reported basis. On a year-over-year basis the major currencies where we operated declined at mid-single digit rates, to normalize the impacts of these currency fluctuations we have presented our results adjusted for currency on the next slide.

Here on Slide 8, you can see that for the second quarter, EFT revenue grew 26% adjusted operating income grew 50% and adjusted EBITDA grew 42%.

These strong double-digit growth rates were the result of a 13% year-over-year increase in active ATMs and 11% increase in transactions, new outsourcing agreements, and our ability to offer Visa DCC on all cards worldwide.

ATM growth outpaced transaction growth as a result of an additional roughly 1,000 new outsourcing ATMs which were added late in the quarter and therefore did not contribute equally to the transaction growth in the quarter.

Transaction growth includes increases in our core domestic cash withdrawal 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. Revenue and gross profit per transaction and operating margins all expanded nicely.

EFT continues to deliver exceptional double-digit growth rates across all metrics. epay revenue grew 16%, operating income grew 13% and adjusted EBITDA grew 12%.

These double-digit growth rates include continued expansion of our digital media products and benefit from certain promotional activity where revenue was recorded on a gross face value basis versus commission basis. Gross profit per transaction came in slightly.

As we continued to see a stronger mix of mobile pop-up transactions from India and digital code server transactions from the United States. As we continue to expand our technology and sign more and more agreements, our transaction profile will likely change some. But every new transaction will lead to more profitability in our epay segment.

If not for the additional gross face value recorded in revenue, operating margins would have remained the same. Overall, this was a great quarter for epay and the third consecutive quarter where we have recorded double-digit operating income and adjusted EBITDA growth in epay.

Money Transfer delivered constant currency revenue, operating income and adjusted EBITDA growth of 9%, 12% and 11% respectively.

These growth rates include strong contributions from our international remittance business, partially offset by limited growth in XE business stemming from Brexit uncertainties and the decline in domestic transactions I mentioned on the previous slide.

Constant dollar revenue and gross profit per transaction and operating margins all expanded in the quarter as a result of stronger European growth rates. This was another excellent quarter for Euronet where all three segments contributed double-digit operating income and adjusted EBITDA growth rates.

Now let's move to Slide 9 for a few comments on the balance sheet. As you may recall in mid-may we successfully issued EUR600 million in seven year senior notes with a 1.375 coupon and we completed the redemption of the remaining $352 million outstanding on our 1.5% convertible bonds.

The netting of these two transactions contributed to the increase [Audio Dip] cash increased by the excess cash from the euro bond issuance together with the cash generated from operations partially offset by settlement timing in the business.

This EUR600 million bond transaction gives us long-term fixed rate capital, which is naturally hedged with our European operations. All in all, we believe it was a good transaction.

Of the $1.5 billion cash about half of it was in the ATMs and about half of the other half related to settlement needs leaving about 400 million discretionary cash, together with about a billion dollars available on our revolver, leaving us with adequate expansion capital.

I think it's worth repeating that this was another exceptional quarter and I believe we are well positioned as we head into our seasonally strongest quarter. With that, I'll turn it over to Mike..

Thank you Rick and thanks everyone for joining us today. I'll begin my comments on Slide 11. I've been visiting with many of you and you've asked for concrete examples of how our technology gives us a competitive advantage for our business.

So, before we jump into the segment specific highlights, I would like to share with you a few examples of how we are utilizing our technology to accelerate the growth of our business. For those of you that are new, there are three ways which we utilize our technology.

First, we use the technology internally in our business across all three segments to leverage our assets to offer customers additional products, kind of cross-selling. Second, we expand our network and connections to third parties to allow them to access our broad product portfolio.

And third, we sell our technology to third parties interested in creating a new payments ecosystem, which would give them all of the advantages of our technology as well as the extension of Euronet assets that they may choose. We continued to have success in all three areas.

I will start with an example here on page 11 of how we have sold our technology to a third party to create a new payment ecosystem for an entire country. As you may remember earlier this year, we told you about our agreement to implement Ren with the Bank of Mozambique and SIMO the entity that owns the central banking switch in the country.

What we are delivering here is a new financial ecosystem for the whole country with a full suite of digital capabilities that will make the country one of the most advanced financial systems in the world.

And while you and I might not think of Mozambique very often, it's important to note that it is a country of 30 million people or slightly larger than Australia. The government of Mozambique requires all 22 banks to participate in SIMOs payment network.

So when Ren is fully implemented, all 22 banks, all 1800 ATMs, 33,000 POS terminals, all mobile operators, billers, card associations and digital wallets will be connected to Ren.

Ren will process and settle all transactions regardless of type that flow through the payment rails in Mozambique without requiring one change to the existing front-end consumer facing interface. In other words, every person in Mozambique with a bank account or a wallet will interface with Ren, but without any change to their current behaviors.

All thanks to the capability of our technology and because everyone is connected, Ren will facilitate person-to-person payments between wallets as well as business to consumer payments. Further, one of Ren’s strengths is to connect traditional payments to alternative payment schemes and digital wallets.

When Mozambique wants to offer their customers alternative payments scheme such as merchant enabled acceptance of outside wallets, for example, maybe Alipay or WeChat pay rather than cards or leverage Euronets digital content, the technology will be in place to enable these alternative methods almost overnight.

I hope you can understand that our ability to retool the financial transaction infrastructure of an entire country is incredibly significant. We're glad to have signed this agreement and we are working to implement it.

We are pleased with the inquiries we have received since we have announced this agreement and we look forward to talking to you more about other successes in the future. Please move to Slide 12.

While selling Ren allows a customer to create their own financial transaction ecosystem, our digital integrated payments cloud allows us to connect third parties to our environment to offer them any of our products or microservices, which we have created. Here on Slide 12, I'll call out a few of our successes.

For example, in our epay segment, we have a longstanding relationship and partnership, to provide epay content to DM a leading European drugstore with more than 3,500 locations in 13 countries. Think of it as a CVS of Europe.

Because DM had this connection to our ecosystem, when they wanted to add alternative payment options to their POS terminals, we were able to add Alipay acceptance to their POS terminals in Germany in just three days. That's right, in three days we were able to send the first transaction.

In the first few weeks since they have gone live they're already processing a significant number of Alipay transactions per day without any marketing. Now, let that sink in for a moment and I'll turn you to payment integrations that happened in three days.

Can you think of any card-based, let alone QR code based integrations that can happen so quickly. That's the power of our technology. We also have an agreement with Muller, another leading European drugstore chain with 852 stores in seven countries.

Through just one connection we're providing epay content to their stores, payment processing in both physical and online retail, DCC and we have recently brought live QR code processing Alipay payment acceptance and even our Innova tax free tax refund solution.

This is a great example of our technology delivering a true omni-channel approach to our retailers. And the flexibility of our technology is not limited to merchants where we have an existing connection.

We have helped a European start-up food delivery service called Just Eat, think of it as Uber Eats, launch a closed-loop card and we have helped them establish and are driving both their B2B and B2C webshops. This is another example of how our technology is a FinTech enabler and assets putting Just Eat into business.

Next, we created a unique solution for mobile operators in Italy. I really like this one who were struggling with the demand of the new GDPR privacy compliance regulation in Europe.

Traditionally in Italy, when a customer wanted to top-up their phone, they would provide their phone number to the retailer and that phone number would be shared with the mobile operator and epay to complete the transaction.

The sharing of this personal information became a very large problem for mobile operators under the new strict information sharing rules imposed under GDPR. In a matter of weeks, we were able to deliver a solution, whereby a customer goes to the mobile operator app on their mobile phone and selects the amount of top-up they would like to purchase.

Our cloud-based technology generates a random single-use tokenized barcode that the retailer can then scan to collect the money and deliver the top-up. With this solution, the phone number is no longer shared with several parties, solving a real problem in the new GDPR compliant world.

This is a great example, excuse me, where we were able to combine several of our microservices, tokenization, top-up, compliance, settlement and bar code presentation to create a unique GDPR privacy compliance solution that will spare mobile operators from the scrutiny of the EU and keep consumers safe.

We were also able to utilize several new microservices to create a first of its kind product offering money transfer sends from our ATMs in Poland, which I will expand more upon when we get to the Money Transfer highlights. Finally, we continue to utilize our technology to fuel our growth.

We were able to launch a new independent ATM network in a new Asia-Pacific market within weeks of signing a cash sponsorship agreement because of the flexibility of our technology makes it very easy for us to add new markets. I hope that these examples give you a better understanding of just how advanced our technology is.

And how customers can connect to our cloud or install it in their own environment to, number one, expand their product platform.

Number two, extend capacity for customers to provide more products and more reach around the world and three, to enable central banks, financial institutions or FinTech companies to use our technology or software to meet their needs. Now let's move on to Slide 15 and we will talk about EFT.

Okay, so with double-digit growth across all metrics, EFT delivered another exceptional quarter of earnings growth. We continue to be excited about the prospects of ATM deployment in Asia-Pacific. In this quarter, we were able to launch a new independent ATM network in one of those new markets marking the 28th country where Euronet ATMs are available.

We have been telling you for the last several quarters that banks around the world are under pressure in closing branches, which also means that they are more willing to listen to our ATM outsourcing value proposition.

This quarter, we launched a couple of new outsourcing agreements in Asia, which cover about 1,000 ATMs in two different markets, one of which was new. These are great new agreements and support our hypothesis that the opportunities in Asia are plentiful. We also signed a new network participation agreement with AstroBank in Cyprus.

And finally, you may remember that we launched a deposit service in Poland about six or seven years ago to accept – which today accepts billions of dollars in deposits each year at our ATMs.

We continue to expand this offering and during the quarter, we signed a traditional card-based deposit agreement with BNP Paribas and a BLIK cardless deposit agreement with Getin Bank in Poland.

These BLIK deposits are a cardless, direct to account transaction, allowing customers to put funds in their account without using plastic and compliment the more than 10 million BLIK cardless withdrawals we processed annually.

Cash isn't going away, but the form factor of how one accesses his or her account is changing and this is another example of our ability to bridge the gap between the physical and digital worlds without plastics. Slide number 16, please. During the quarter, we launched Euronet branded mobile ATMs in Poland.

You can see the little picture up there of the van with an ATM on the side of it. These specially outfitted vans will carry Euronet ATMs to the most popular summer music and cultural events making access to cash more convenient for customers. Creative, I think so. We also launched QR code-based alternative payments for commercial bank in Sri Lanka.

And finally, we finished the quarter with 46,636 active ATMs, a 13% year-over-year increase. We have mentioned in the past that if we signed a large outsourcing agreement we would break out those ATMs to make the addition of high value ATMs more transparent.

With the addition of a thousand new outsourced ATMs this quarter, we have updated these ATM roll forward so you can easily see our deployment numbers. During the quarter, we deployed about 1,500 new ATMs and we added more than 1,000 new outsourced ATMs. We reactivated more than 2,200 ATMs that were seasonally inactive.

And we added 142 new ATMs under our low margin agreements in India. Finally, as a result of the LINK rate decrease in the UK, we have started to rationalize some of our loss producing ATMs in the UK. In this quarter, we removed about 280 of them. We expect to remove about 1,000 of these ATMs by the end of the year.

As you can see with the addition of almost 2,100 new independent ATMs, we are well positioned to hit the 3,500 to 4,000 mark by the end of the year. With strong ATM deployments in both Europe and Asia, new outsourcing agreement and the introduction of worldwide Visa DCC to our ATMs, EFT is really hitting on all cylinders.

Now let's move onto Slide number 19 and we'll talk about epay. Well, as it turns out, EFT is not the only one hitting on all cylinders. epay continues to deliver more digital media products to our portfolio, which continued to account for approximately 70% of our epay gross profit.

During the quarter, we worked closely with Microsoft to launch their new flagship store in London.

Our connection to Microsoft for the distribution of their digital media products allowed us to quickly bring live content in their store and the closed-loop technology we developed for other purposes allowed us to quickly resolve a problem they faced for returns and rebates inside the store.

We also expanded distribution of Alipay to new David Jones stores locations in Australia. We added Sony products to point-of-sale terminals in Greece and with Coop, a large grocery retailer in Norway. We continued to expand our antivirus distribution this quarter, launching McAfee in Hungary and Norton in India. Please move to Slide 20.

As you can see on this slide, we have more digital media content in the pipeline. We have signed agreements to expand Alipay to more than 500 retailer locations in Australia.

Again, we are winning these agreements because of the ease of integration with Alipay and the retailers and that makes possible – that it's made possible by our flexible technology.

In France, we want a competitive process to take over the gift card malls in the huge retailer Carrefour and Casino retailers and we signed an agreement to distribute iTunes and Google Play in FNAC, a leading electronics retailer in France.

In India, we signed a new agreement with our leading online mobile retail partner, PhonePe to provide utility and bill payment services under the national bill payment system. And before I wrap up, I'd like to mention that for the first quarter in a while, our core mobile business has shown some slowing of decline.

And for the first time since we have owned epay, we saw one mobile operator actually increased their rates. So while it is too early to declare that the mobile times have changed, as you can see in the epay numbers, slowing mobile declines gives us more ability to post better growth rates that deliver improved profits.

Our epay business has reinvented itself as a leading provider of digital media content, but also as the leading technology provider for our retailer and content provider. Our success in both of these areas is evident by our third consecutive quarter of double-digit operating income and adjusted EBITDA growth, an outstanding quarter for epay.

Now let's go on to Slide number 23 and we'll talk about Money Transfer. Okay, so our Money Transfer network now reaches 385,000 locations across 160 countries, an 8% year-over-year increase. We keep growing here. During the quarter, we launched 20 new correspondents in 18 countries.

This includes cash pickup service through 2,800 Bulgarian Post Office locations, bank deposit service to South Korea with our partner. E9Pay, a bank deposit service with Casa de Cambios Insular in Venezuela, a new market for us by the way, as well as other network additions in Latvia, Bangladesh, Laos, Cambodia and Myanmar among others.

In addition, we also activated the transfer of funds into and out of mobile wallet accounts for MTN, AirtelTigo and Vodafone money transfer accounts through a partnership with GTBank in Ghana and ZPay. And we launched pay-to-wallet service with Upay in Bangladesh through our correspondent United Commercial Bank.

Also in the quarter, we signed 18 additional correspondent agreements in 16 countries which we'll launch in coming quarters. We continue to expand our digital remittance business through the launch of riamoneytransfer.com service in Canada. And last but certainly not least, we launched ATM to Ria money transfer service in Poland.

Customers in Poland can now stage a money transfer on their MyRia app and pay for the transfer with a card as an ATM or by depositing cash at one of our deposit machines in Poland. Their beneficiaries in the Ukraine can collect their money at any of our 20,000 payout locations in Ukraine.

As I mentioned earlier, this project is a perfect example of the utilization of our digital integrated payments cloud to make new products available using technologies from across our different businesses. We were able to utilize our microservice products including our app, compliance, Ria payout network, and our ATM network.

Now I'd like to comment on our growth this quarter. As Rick mentioned, we continued to see some softness in the XE business pending the final outcome of Brexit and our domestic business from the additional ID requirements, both of which are transient in nature.

Despite these temporary headwinds, we remain extremely optimistic about the future growth prospects for the money transfer business. So let me tell you why – let's not forget why we are so excited about this business.

Approximately two-thirds of the $689 billion cross-border money remittance market is made up of transfers in the independent channel and research suggests that the market will continue to grow at nice rates into the foreseeable future.

We have a history of being the leading player in the independent channel as evidenced by our continued double-digit growth rates in our international remittance business since Ria joined Euronet. We continued to be the best position player to gain share in this enormous market.

In fact, we are growing at double to triple, the average industry growth rates. And based on the strength of the market dynamics and based on the momentum we see in our business, we remain confident that we can continue to grow at double-digit rates in the future just as we have for the last decade.

In addition, we have demonstrated we can serve the largest agents just as well as we can serve small independent partners as evidenced by our expansion with Walmart into domestic payout of inbound transactions and our continued partnership with a variety of Walmart subsidiaries.

I'd be remiss if I didn't highlight our ability to continue to attract business because of our flexible technology, which is enabling other FinTech players to utilize our technology and assets to serve their customers such as Remitly and PayPal Xoom.

And let me pause here for a minute to reflect on the additional ID requirements we're doing at Walmart. I want to emphasize that this is not an additional industry compliance requirement.

Rather, this is the result of us working proactively with Walmart to operate under non-regulatorily imposed requirements as per them due to their legacy money transfer provider. We highly value our relationship with Walmart and accordingly have been proactive in working through this matter. If it's important to Walmart, it's important to us.

That being said, we know this is an isolated matter like others we've faced. We will effectively work through it while all other very robust parts of our business give us the ability to post the impressive growth results like our 28% year-over-year Q2 adjusted EPS.

So in summary, we are pleased with the double-digit earnings contribution from our Money Transfer segment this quarter. We're the only large money transfer company with a continued track record of growth and continue to capitalize on opportunities and attack that $689 billion cross-border remittance market.

Now let's move on to Slide number 24 and we'll wrap up for the quarter. To summarize, we delivered EPS of $1.69, a 28% year-over-year increase. We continue to utilize our technology to expand our own business.

We offer our customers direct access to our broad portfolio and we sell our technology to allow customers to create or modernize their own payment ecosystems. EFT delivered exceptional double-digit growth rates while continuing to invest in new market launches and ATM network expansion.

epay’s double-digit earnings growth resulted from continued digital media growth and network expansion. Money Transfer continued to deliver earnings growth from expansion of both the international remittance and payments businesses.

We successfully issued €600 million in long-term low coupon senior notes that continued generation of free cash contributes to our strong balance sheet. And finally, we expect third quarter adjusted EPS to be approximately $2.80, assuming consistent foreign exchange rate. With that, I'll be happy to answer any questions.

Operator, will you please assist?.

Certainly. [Operator Instructions] Our first question comes from the line of Mike Grondahl with Northland Securities. Your line is now open..

Yes, thanks Mike and Rick.

Any high level comments on how Visa DCC did kind of compare to our expectations?.

Yes, pretty much right down the fairway, Mike..

Got it.

And do you think there's a little bit of a ramp-up to this Visa DCC just kind of like educating the consumer? Or how do you think that plays out in kind of 3Q, 4Q?.

Okay. So there won't be any ramp-up because basically we've targeted lot of our consumers are tourists, and so they don't – they're just in our country for a short while, so they just walk up and then it's right down the screen just like MasterCard has been for many years.

But with – there is still a little bit more ramp-up in the third quarter for some of the pass-through agreements that we have. So we'll get a little bit more of that. The ones – these are banks who are outside of Europe, who had never done DCC on Visa needed to get recertified, so that just takes a little bit of time.

But the bulk of it is coming through in Q2 starting on April 30..

Okay, great. Thanks a lot, guys..

Thank you. Our next question comes from the line of Rayna Kumar with Evercore ISI. Your line is now open..

Hi, Mike and Rick..

Good morning..

Good morning..

You mentioned a double-digit growth sustainable in Money Transfer.

When can you return to the double-digit revenue growth that we've seen in the past? And how should we think about Money Transfer growth for the next few quarters?.

Well, I mean, the nice thing is the bulk of our business in Money Transfer are the international remittances, both from the U.S. and from – from North America and from Europe and Asia. And that continues very, very strong.

We do have a challenge here with – primarily with the additional ID requirements, but we think that will subside at some point in time. And the nice thing is the other parts of our business are growing so quickly and robustly that I think we can pass that up.

I'm not sure which quarter that will happen in, but for medium to long-term, we're just looking really good because this huge, almost $690 billion market is still out there for us, and we are so well positioned for that. That's what we're really good at. That's really how Ria was born.

It was attacking the independent channel around the world, and we continued to do that..

But, Rayna, we started implementing this in the latter half of last year. And so I think that it would be fair to say that we've got just a little bit more time just to get through the annualization, if you will, of that.

And when we do that, I think it's fair to say we'll continue to see the robustness that we've seen in – as Mike said, in all the other parts of our business because we had – we just had absolutely impressive growth coming out of our European operations.

That, as I mentioned, gave us the ability to produce a little better revenue and profit per transaction. That's what, obviously, helped give us double-digit operating income kind of growth numbers. So the strength that we're seeing out of the other parts of our business give us the ability to kind of get through this thing here.

But I think it will probably – we'll probably feel a little bit of this pressure for the next couple of quarters, we'll get through that annualization, and I'd like to think that, as Mike said, on an intermediate term basis there, we'll be back into the same kind of nice double-digit numbers that you've seen in the past..

That's extremely helpful. You had a very strong epay quarter. Help us understand what the sustainable revenue growth and EBITDA growth rate is for that business. .

Go ahead..

Rayna, we've been probably a little bit more cautious on epay over the last number of quarters because it's really kind of hard to exactly predict when the mobile operators will decide to stop lowering their prices.

And as you know, the biggest – most of our revenue there is earned on a commission basis, which is a percentage of the top-up value of those transactions.

So as Mike said, we don't want to say that we've seen the last of it, but we have seen at least one sign where a mobile operator has raised their rates and is that kind of foretelling for the future.

Now – so I think that certainly we feel better about it, but we also want to continue to be mindful of the fact that there's a really competitive mobile operator market out there. Now that being said, we continue to add more and more digital content into our portfolio.

And even as we point out these high volume of low-value transactions in India, we are signing up with more and more wallets that are out there. That will drive more and more value into our business. So we're feeling pretty good about the – as we said, kind of epay reinventing itself.

So I don't want to go out on limb and say, hey, look, I think that we've got a good sight line to a nice double-digit growth number, but on an adjusted – once you take out those India transactions, we saw transactions grow by 9% and revenues by double-digit, and it was just this last quarter.

So I think we feel pretty good about it, but I probably wouldn't throw that number into the double-digit range. We certainly have the ability to perform on the upper side of the single-digit range. And I think we'll have additional chances and opportunities to break into double-digit category. But Kevin, you may want to make other observations..

Yes, Rayna, this is Kevin. So the – probably the – as Rick said, the couple of exciting components of epay are the continued expansion of products that we carry and then the geographic expansion, specifically geographic expansion into developing markets through digital channels.

And those geographic expansions typically start with one of the leading brands like a Google or an iTunes to break into the market and then other content quickly follows. And so I'm cautiously optimistic that we'll be able to sustain the current growth and, hopefully, accelerate it..

That's great detail. And just one final question from me.

If you can just give us an update on your capital allocation plan, specifically your strategy in M&A?.

Well, I don't think anything has changed from maybe the last quarter. We're looking at acquisitions all the time. We must be looking at five different ones right now. So that would be an opportunity. But by the time we look at these things, a lot of times they turn out to be not what they have been purported.

So we don't do too many transactions, but that would be one place to use capital. If you saw some kind of dislocation in the market with respect to our stock, we could buy back our stock, but those are the two areas that we see – the two big areas that we see large uses of our cash..

Thank you..

Thank you. Our next question comes from the line of James Schneider with Goldman Sachs. Your line is now open..

Good morning and thanks for taking my question. I was wondering if you can maybe comment, Mike, on the EFT segment and, specifically, your target for ATM additions of high value. You talked about 3,500 or 4,000 this year.

So maybe talk about what is the rate limiting step in that? Is it still site flexion? And whether the Visa DCC opportunity and expansion there has actually kind of widened the range of potential available ATM additions that might be profitable because of just the overall higher profitability at some marginal locations?.

That's exactly true, James. So you're – when we're able to add the Visa DCC, then maybe a B-plus site becomes an A site or maybe a C-plus site becomes a B site. And so it kind of lowers the fruit of all the trees and so that's good. So that opens up more sites for us.

And – but we're also seeing, as we mentioned here, we see opportunity even outside of Europe, and we've actually begun now to deploy ATMs in brand new Asian countries. So that's exciting. And I think at the end of the day, if we don't hit our 4,000 ATMs for the year, that will be surprising. It's up to our site selectors to do so.

They are the gating factor between site selection and municipal approvals, et cetera, et cetera, just install kinds of things. That is always a little bit of a modulator on us, a governor. So – but we're after it and you can see we've added more in the first half of this year than we did last year. Last year, we did 3,800 ATMs total.

So like I said, it would surprise me if we can't hit at least 4,000 but we'll just have to see what happens..

That’s helpful. Thanks.

And then maybe on the money transfer market overall, can you maybe make any observations about what you're seeing in the overall market for international remittance? Whether that's kind of accelerating or slowing down? Any regional factors where you're seeing some changes in the margin relative to last couple of quarters? And then could you also separately address the reasons for the Brexit's impact on the XE business? And how long do you expect that to last?.

I mean, the big shining part for money transfer is the international remittance market. I mean it is just screaming for us. I mean we are growing two, three, in some quarters four times faster than the markets growing depending on the corridors. We find that we were really good at this when we were little.

Now that we're big and we can offer all these payout countries, you see that we've now got almost 400,000 locations to pay out. It just – you get that network effect, and that makes it even more possible for you to get to accelerate the growth of this business. So this is really exciting. This is really the Big Kahuna 2.

This is $690 billion worth of remittances here. So we're accelerating, I would say, and we've been doing quite well up to this point. So that's really good. And then you asked about Brexit.

You know what the deal is? There's a lot of people just been in Britain, which is about now, call it, 50%, 60% of our business in XE are sends that are originated in Britain. Everybody is being really pensive now. Nobody knows exactly where the pound is going to go. They're being conservative. We're just seeing less transactions.

It’s not just with us because if you want to look at the results of our competitors, you'll see a very similar thing. So I think all this is going to get put to bed on how lean, then we'll know from that point forward how it goes. I think it's just the uncertainty that's causing people to pause..

Very good. Thank you very much..

Thank you. Our next question comes from the line of Andrew Jeffrey with SunTrust. Your line is now open..

Hey guys, good morning. Thanks for taking the question. Mike, I appreciate the detail on Ren and the digital payments cloud because I think you're right. I think investors are kind of grappling with the capabilities and exactly what it means. I wonder if you could expand a little bit on your comments. Mozambique seems like a terrific opportunity.

Are there other similar markets out there where you can provide sort of all bank connectivity and infrastructure or are we going to look for deals that are maybe a little more incremental? How do you frame-up the TAM and, how should we expect that business to grow and contribute to your overall growth?.

Well, if you really look at it, when we are complete with our Mozambique installation, it probably will be the most advanced financial ecosystem on the planet. So you say, well, are there, what's the TAM? Well every damn country out there is really what it comes down to. But more than that, it's the banks and it's others.

I mean, we see, all the big processors are still laden with 30-year old technology and how slow it is for them to implement new things like alternative payments. And so we're getting leads from kind of all over the place, because the reality is plastic is kind of on its way out. It's not cash is on its way out.

I mean plastic is on its way out faster than cash is on its way out. And so people are trying to grapple with how did we get this legacy old 30-year old technology based on ISO8583, one kilobit kind of records. How are we going to get those things connected up to all these new wallets and stuff. And we've got exactly the technology to do that.

You can see that by the fast transition that we're doing and the fast implementations that are just amazing for people. So I'd say TAMs, aren’t big, I'm not quite sure how big, but I would say there isn't a financial institution or a national switch on the planet that couldn't use what we have. .

And I assume, I mean that all sort of makes intuitive sense. I assume that the sales cycles are going to be probably pretty long. I just wonder how we can think about that business. .

Yes. The sales cycles are long, but guess what, they accelerate as we install, as you put more and more things out there for people to go see, nobody, with financial institutions, they're conservative. Nobody really wants to be the first guy, but for sure you don't want to be the last guy. Yes.

And Kevin do you have any, Kevin's actually been in the middle of a lot of these things. I'll let him speak..

Today we have about 12 of these type installations today using our legacy technology. So, one opportunity is to try to convert one of those 12 to Ren that's probably the quickest path. And then in parallel, as Mike said, nothing like having a incredible reference that generate new leads, with new markets.

And there's a lot of inbound interest, into us regarding the Mozambique installation. And I think we'll start to see an acceleration of the interest as we motor through that delivering of that product..

I mean another point just in terms of timing and people will see this more and more in the future Andrew is that – is that like Mike said, in one of our rollouts, we enabled transactions, QR code based transactions within three days. We will essentially do a complete forklift change on the payment infrastructure for Mozambique in a year or less. Okay.

And try to tell me what kind of a world out there can do that type of infrastructure change in that kind of period. I mean, you see people take three to five years to do this kind of stuff.

So I think that, when we, when we really, put this one on more squarely on the map, people will really notice and it will make a difference in changing that cycle time..

Mainly U.S., where there's all this legacy point-of-sale terminals and card-based payments, that's one thing. But outside of the U.S. and outside of developed markets, that infrastructure doesn't exist. They're going to skip the traditional payment methods and go to all these new payment methods.

And the existing infrastructure in many cases does not support, that consumer desire. So, I think we see the timings, the question in terms of when all this will happen, but the demand and the interest is there..

Okay. That helps a lot. Thank you..

And kind of our top secret plan here is the rest of our business is really motoring along, on really strong double-digit bottom line growth rate and that gives us a lot of air cover as we continue to develop this brand new segment of our business..

It's encouraging. Sure..

Thank you. Our next question comes from the line of Andrew Schmidt with Citi. Your line is now open..

Hey guys, thank you for taking my question and thank you for the comments on the technology. It just wanted to ask questions about the third quarter EPS outlook. Seems like you have a lot of momentum in the EFT processing segment, solid ATM unit additions.

Could you talk about what – and it seems like that might be driving some upside there relative to initial expectations for full benefits from the Visa DCC rule change.

So, maybe just talk through any potential offsets to the EFT processing segment or to the ATM growth, whether it's the UK rationalization, incremental investments, any below the line items. Just curious if you could just talk through the outlook for the third quarter, help us get a better sense for that. That'd be great..

Yes, really there is – we've actually been living through the offset because ever since LINK changed its domestic interchange fees. Then we've received less revenue on those ATMs, so we're really, we're just removing loss-making or breakeven ATMs as opposed - so that in essence that helps our P&L. So we really don't have any offsets.

We – it's really, it's all upside. We're not worried about anything in the third quarter on EFT..

Okay. Is there anything, I guess Money Transfer or below the line that might be, it seems like you guys have some favorable expense and refinancing debt.

Anything that you can talk through in third quarter that it might be sort of holding back the EPS outlook?.

I don't think anything per se is. I think we try not to miss our numbers so we've put a number on there that we think is based upon our roll-up that we believe is achievable and we'll try to deliver that..

Understood. Yes, that's helpful. And, I wonder if you'd give us an update on just the surcharge opportunity? I know recently, Greece recently permitted surcharging. It seems like it will be a big win if Poland went that way. Any updates as to that opportunity, that would be great..

So, no new updates. We've mentioned this before, surcharges will come to every single market in Europe at some point in time.

It’s just a question of when, and we don't quite know when that happens, but it's interesting just over the last six or eight months, I think, the banks really woke up in Greece and so now they allow surcharging there because they're basically, the big banks with all this expensive infrastructure and all these employees and all these branches, they said, why should people use our infrastructure for less than it cost us to produce that.

So they kind of woke up. I would imagine everybody will wake up at some point. I can't tell you when, but anytime it does, it just layers on that much more profit on our installed base and it opens up also new locations for us that might be primarily domestic focus.

So, we've been a beneficiary of that and I think we will continue to be, I just Greece has only got 10 million people for the locals, so, I'd love a bigger country to go to surcharge now. That'd be really wonderful..

Understood. And then, I think you mentioned you're entering one new market in Asia.

Could you talk about, just the timeline for other new markets in terms of entrance and then just remind us, what the timeline is in terms of, how many ATMs you can add in your one year to the maturity curve with new markets that would be helpful?.

Well, I mean, typically, what we do is we put about 25 to 50 ATMs into a market and double check all our assumptions and then we hire a whole bunch of sites like theirs to kind of blow that out as fast as we can. If all our assumptions are correct.

With respect to other new potential markets, I'll let Kevin talk to that because he's kind of responsible..

Yes. So currently we've entered the one that we reported on this quarter, we have about three more that we’re in the process of working and I would expect us to be in a position to talk about that over the next, subsequent two to three quarters..

All right. Thank you very much guys. Appreciate it..

I think operator, we can take one more question because we're kind of over time. Thank you..

You're welcome. Our next question comes from the line of Chris Shutler from William Blair. Your line is now open..

Hey guys, good morning. Thanks for taking the question. So maybe just two. As we think about the Q3 guidance, given this is your first time with the incremental Visa DCC transactions in a Q3.

Can you give us a sense of how you modeled that into Q3? Not looking for specific numbers obviously, but just wondering how you, if you layered any conservatism and given this is the first Q3 that you've gone through with Visa, DCC. And then Rick, if you'd give the tax rate that’s in the Q3 guide. Thanks..

Yes. We didn't, try to provide too much body English to the numbers, Chris because as Mike said, these aren't new transactions. These are simply transactions that previously were not eligible for DCC. So, we had visibility to the transactions that were coming to our ATMs. And so we could calculate our numbers off of that.

So I think that's why we were, let's say right on top of our numbers here for the second quarter, because we had that visibility of what happened last year. So, we didn't try to over do or let's call it handicap the numbers too much because we had a pretty good perspective of what was there.

So we expect, it to be again pretty much down the fairway and coming up with our numbers for the third quarter. So I think that's probably yes. And on the tax rate, again, we've got the mid-twenties numbers in there. And not a lot different than what we had for the second quarter..

Okay. Thank you..

Yes. And I guess we'll wrap up now. I want to thank everybody for their time on the call and I'll look forward to speaking with you again in about 90 days. Thank you..

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone have a great day..