Euronet Worldwide Inc 2026 Q3 Earnings Call

Thank you. Good morning and welcome to Euronet's third quarter 2026 earnings conference call. On the call, we have Mike Brown, our Chairman and CEO, and Rick Weller, our CFO. Before we begin, I need to call your attention to the forward-looking statements disclaimer on the second slide of the PowerPoint presentation we will be making today. Statements made on this call that concern Euronet 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 these forward-looking statements as a result of a number of factors that are listed on the second slide of our presentation. In addition, the PowerPoint presentation includes a reconciliation of the non-GAAP financial measures we will be using during the call to the most comparable GAAP measures. Now I'll turn the call over to our Chairman and CEO, Mike Brown.

Thank you, Steph, and good morning, and thank you all for joining us. I'll begin my comments on slide number 4. Before discussing the quarter, I want to acknowledge that 2026 has been a more challenging year than we anticipated. We continue to experience significant pressure in our cross-border payments business, driven primarily by U.S. immigration policy changes, along with pockets of broader macroeconomic uncertainty that have impacted all three segments to varying degrees. As reflected in our earnings release this morning, these headwinds have been more persistent than we expected when we gave our outlook earlier this year, leading us to revise our full-year guidance. While the current environment is challenging, it's important to keep it in perspective. Throughout our more than 30-year history, Euronet has successfully navigated periods of external disruption, including the global financial crisis, India's demonetization, and the COVID pandemic.

Those events were outside of our control, just as today's immigration and macroeconomic factors are. What remains within our control is how we execute, and we remain focused on serving our customers, investing in our strategic priorities, and positioning the business for sustainable long-term growth. We remain confident in the direction of the business. Our global network, loyal customer base, and geographic diversity represent valuable assets that are difficult and very costly to replicate, providing a strong foundation for long-term growth. The strategic framework we outlined in our investor day in May has not changed. We continue to see meaningful opportunities to expand our digital capabilities, grow our participation in key payment flows, and leverage our global network. While current market conditions have created pressure, they do not alter our confidence in the long-term growth opportunities ahead of us.

While the earnings results for the third quarter did not meet our expectations, the progress we are making across the business is evident in both our operating performance and strategic initiatives as we continue to bring them to market. To that end, our digital accelerator revenue grew 30% in the quarter and 33% year-to-date, underscoring the momentum of these initiatives. They are further expanded by several recent announcements, including our white label stablecoin-funded card program, our partnership with Diebold, and the introduction of OLON. It is important to highlight that Euronet remains a highly profitable and cash-generative business. Although performance is below the levels we have historically produced, we continue to expect full-year revenue and earnings growth and strong free cash flow generation. Our strong financial position allows us to continue investing in our growth initiatives while returning capital to shareholders through disciplined share repurchases.

During the quarter, we repurchased approximately 690,000 shares for $50 million. These repurchases reflect our confidence in the long-term value of the business and our commitment to shareholders. With that, I will turn the call over to Rick, who will provide more details on our third quarter results.

Thanks, Mike. Good morning, everyone. I will begin my comments on slide seven. For the third quarter, we delivered revenue of $1.2 billion, operating income of $171.6 million, adjusted operating income of $169.9 million, and adjusted EBITDA of $226.1 million. I think it is important to understand the components that drive this quarter's operating results, so I will provide more additional context in the segment discussions on the coming slides. Adjusted EPS was $3.55, a 2% decline year-over-year. The third quarter share repurchases had a minimal impact on this quarter's adjusted EPS but will benefit future quarters.

As Mike mentioned, the pressure on cross-border payments from the U.S. immigration policy has been more persistent than we anticipated and further compounded by macro uncertainty and weakening of most foreign currencies compared to the USD. As such, we are revising our 2026 outlook we provided in our Investor Day in May. We now expect approximately $4,375,000,000 of revenue, $725 million of adjusted EBITDA, and adjusted EPS growth of approximately 10%. Slide seven presents our results on a reported basis. Most of the major currencies we operate in weakened compared to the dollar. To normalize the impact of the currency fluctuations, we have presented our results adjusted for currency on the next slide. On slide eight now. Payments infrastructure revenue grew 9%, primarily driven by growth in our merchant acquiring business and contribution from the acquisition of CoreCard, partially offset by continued economic pressures on discretionary travel spend, which pressures international ATM cash withdrawals.

Adjusted operating income was flat and adjusted EBITDA grew 4%, reflecting the ongoing impacts of global cost inflation. Adjusted operating income includes a $1.7 million reduction in the third quarter of 2026 due to a timing difference between the estimated annual cash rebate payment associated with a previous acquisition and the expense recognized under U.S. GAAP. Adjusted operating income also includes a $4.7 million increase in purchase price amortization associated with the CoreCard acquisition. Excluding this non-cash charge, adjusted operating income would have grown 4%, consistent with adjusted EBITDA. epay revenue and operating income each grew 5%, and adjusted EBITDA grew 6%.

This growth is the result of continued demand for higher-value digital content, merchant acquiring growth, and from B2B promotional campaigns executed during the quarter. Cross-border payments revenue declined 4%. Operating income declined 35%, and adjusted EBITDA declined 32%. These results were impacted by immigration-related pressures in several key corridors and broader global economic uncertainty, partially offset by a 34% increase in digital transactions and continued momentum in the Dandelion business. Operating income and adjusted EBITDA declined more than revenue from the flow-through of the revenue declines and approximately $6 million in incremental advertising spend to accelerate digital transaction growth. On a sequential basis, third quarter constant currency revenue declined 4%, a slight improvement from the 5% decline we reported in the second quarter. During the quarter, we saw stabilizing trends in many of our international markets.

There was continued pressure in the U.S. outbound market from U.S. immigration policy, but the last few months have shown stabilizing to subtle improvement. While these trends are positive, we remain cautious given the ongoing geopolitical uncertainty and continue to view the operating environment as fragile. Now let's go to slide nine for a few comments on the balance sheet. We ended the quarter with approximately $1 billion in unrestricted cash and 913 million of cash deployed in our ATM network. Total debt was $2.2 billion at quarter end. Changes in both cash and debt primarily reflect the benefit of $139 million in cash generated from operations, the intentional upstreaming of cash to reduce debt, and seasonal cash return following the peak ATM season, partially offset by $50 million in share repurchases.

As we look forward, we will remain disciplined in our capital allocations, managing our leverage ratios to maintain our investment-grade rating while also continuing to repurchase shares, which we believe is an important tool to drive shareholder value. With that, I will hand it back to Mike.

Thanks, Rick, and I will continue with slide number 11. One of the key messages we shared at our Investor Day was that Euronet's long-term growth profile would increasingly be driven by our digital businesses and other higher-growth payment channels. What we are seeing this year reinforces that strategy and gives us confidence that we are investing in the right areas of the business. Despite the pressures we have experienced in certain portions of our cross-border payments business, our digital accelerators continue to outperform expectations. Through the first nine months of the year, digital accelerators grew approximately 33%, well ahead of the growth rate we outlined for 2026 during our investor day. Growth was broad-based across Ria Digital, Dandelion, Merchant Services, Payment Processing, and CoreCard. I would note that this growth number will begin to moderate over the next couple of quarters as we anniversary the fourth quarter 2025 acquisition of CoreCard.

As you can see, these businesses are becoming an increasingly important part of Euronet's revenue mix and growth profile. In 2025, digital accelerators represented approximately 21%, that is last year, of the payment channel revenue. Today, they account for approximately 26%, demonstrating a continued evolution towards higher growth, more scalable, and increasingly digital revenue streams. As we look at the components of the revenue on this slide, the trends we are seeing within cross-border payments also highlight this transformation. Card-paid transactions continue to significantly outperform cash-paid transactions, reflecting both ongoing customer migration towards digital channels and changes in remittance behavior following the immigration-related enforcement activity in the U.S. and the implementation of the remittance tax earlier this year. At the same time, activity within the IAD network has seen pressure from broader macroeconomic uncertainty.