Euronet Worldwide Inc

NASDAQ:EEFT

Earnings Call Transcript 2018-Q4

[Operator]

Greetings and welcome to the Euronet Worldwide Fourth Quarter 2018 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] As a reminder, this conference call is being recorded.

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.

[Jeff Newman, Executive Vice President and General Counsel]

Thank you, Lauren. Good morning, and welcome everyone to Euronet’s quarterly results conference call. We will present our results for the fourth quarter and full year 2018 on this call. We have Mike Brown, our Chairman and CEO; Rick Weller, our CFO; and Kevin Caponecchi, 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 made 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. In addition, the PowerPoint presentation includes a reconciliation of the non-GAAP financial measures that we will use during this call to their most comparable GAAP measures.

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

[Rick Weller, Chief Financial Officer]

Thanks, Jeff. Good morning and welcome to all who have joined us here today. For your benefit, I will start my comments on Slide 5.

Euronet delivered fourth quarter revenue of $649 million, adjusted operating income of $84.8 million and adjusted EBITDA of $116.3 million. Our adjusted EPS for the fourth quarter was $1.37 per share, a 21% year-over-year increase and $0.10 ahead of our guidance we provided in October. These strong EPS results were driven by the performance of all three segments and the amount we exceeded guidance by, was largely attributable to favorable tax, less share dilution and improvements in foreign currency exchange rates with the lion share coming from taxes. The tax benefits largely stemmed from the additional tax deductions we got upon exercise of nearly expiring options and some benefits resulting from certain clarified IRS positions related to the December 2017 Tax Act.

Slide 6, here we show our three year transactions by segment. EFT transactions grew 13% from expansion of our ATM and point-of-sale processing networks in Europe and India. Epay transactions grew 21% with significant contributions from India and Germany. Money transfers grew 15% with growth across virtually all areas of the money transfer business. Next slide please.

On Slide 7 we present our financial results on an as-reported basis for the segment. On a year-over-year basis, there were significant swings in the foreign currency in where we operate. For the most part, the major currency declined between 3% and 6% with some of the minor currencies changing as much as three times that. To normalize the impacts of these currency fluctuations, we have presented our results adjusted for currency on the next slide.

Here on Slide 8, I’ll review with you the segment results for the fourth quarter. EFT concluded its outstanding year with fourth quarter constant currency revenue growth of 15% and adjusted operating income and adjusted EBITDA growth of 14% each. These strong growth rates were the result of a 9% increase in our ATM network and a 13% increase in transactions, primarily from Europe and India. The transaction growth includes an increase of our core domestic 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.

As noted in our press release, operating income includes a one-time expense of $6.6 million related to a post acquisition charge, which has been excluded from adjusted operating income, adjusted EBITDA and adjusted EPS. Revenue and gross profit per transaction and operating margins remained relatively consistent year-over-year, while at the same time we added nearly 300 more ATMs and winterized 900 more ATMs in the fourth quarter compared to the same time last year.

Epay, in Epay, it delivered a very strong fourth quarter. Adjusted for the new 606 revenue standard, constant currency, pro forma revenue grew 17%. Adjusted operating income grew 19% and adjusted EBITDA grew 16%. These excellent results were driven by strong fourth quarter sales of non-mobile content. Gross profit per transaction came in a bit due to a stronger mix of India transactions, but operating margins expanded year-over-year due to a continued growth of our high margin non-mobile products.

Money Transfer finished the year with fourth quarter constant currency revenue growth of 17%, adjusted operating income growth of 26% and adjusted EBITDA growth of 23%. These very strong double-digit growth rates were the result of a 16% increase in money transfers, which included contributions from virtually all areas of the money transfer business. Leverage of transaction growth together with the improved revenue and gross profits per transaction contributed nicely to an expansion of operating margins in Money Transfer by more than 100 basis points. This was a very strong finish to 2018, where all three segments posted double-digit growth across all metrics. With the double-digit Epay contributions this quarter, together with the double-digit performance of EFT and Money Transfer, it's easy to see that EFT is firing on all cylinders. Now, let’s move to Slide 10 to discuss the full year.

Here no Slide 10, we present a summary of our results for the full year 2018 compared to 2017. Since we have talked with you every quarter about the results, I won’t go through all the details again. But I would like to highlight that all of our consolidated constant currency results grew at strong double-digit rates, including revenue, adjusted for 606 revenue recognition standard, which grew at 14%, adjusted operating income, which grew at 18%; and adjusted EBITDA which grew at 16%. Full year EPS was $5.53, a 21% year-over-year increase. This is the sixth consecutive year we have delivered double-digit growth in adjusted EPS, highlighting our success of delivering more products and services across more markets and channels, both physical and digital, again, just an outstanding year for Euronet, highlighted by contributions from all three segments. Now let’s go to Slide 14, and briefly review the balance sheet.

On a year-over-year basis, our balance sheet continued to strengthen. The increase in cash is the result of cash flows generated from operations and borrowings on the revolver to fund additional ATM cash needs, partially offset by share repurchases, capital expenditures and cash paid for a couple of small acquisitions. You may recall that in the third quarter we announced the expansion of our credit facility to $1 billion. And as you can see here, we have a relatively light leverage ratio. And that together with the billion dollar revolver, it gives us a great deal of capital flexibility to drive the business for future growth. The strength of our balance sheet is just another factor that allows us to be successful in the competitive environment in which we operate.

As I close, I think it bears repeating that this was another exceptional year for Euronet. And we’re quite well positioned to continue that success going forward.

With that, I will turn it over to Mike.

[Mike Brown, Chairman and CEO]

Thank you, Rick, and thank you, everyone, for joining us today. I will start my comment on Slide #16.

Well to start, I got to say, ladies and gentlemen, don't you just love this chart. As I speak with investors, one point they continued to make is the strength of our business and our ability to deliver consistent double-digit year-over-year growth. We certainly are well aware of the consistency of our growth, and we’re glad to see more and more investors are tuned into our sustained long-run double-digit growth. With the close of the final quarter of 2018, you can see from the graph on Slide 16, for six consecutive years we have grown our business at strong double-digit growth rate. We have achieved a strong growth by adding more emerging payment products, made possible by continued investments and advanced technology infrastructure to serve our needs and to meet the needs of the fast growing digitally driven payment space. This advanced technology will allow us to grow in bigger and bigger ways by focusing on the evolving payments infrastructure while leveraging the significant strength of our core markets. All of this strengthened our confident that this time next year we will be talking to you about our seventh year of double-digit year-over-year growth. So let me share with you a little more about the significance of our global assets and a bit of our secret sauce leading-edge technology supporting our growth as we go on to the next slide, Slide #17.

Our growth is powered by our unique our powerful portfolio of physical and digital assets, which allows us to achieve success in our more traditional areas and has also lead to success in the next generation digital landscape. As you study this slide, you can see that the foundation of our business is in these global assets that we have accumulated and integrated. Our physical network now includes 43,711 ATMs, 973,000 POS terminals, 369,000 physical money transfer locations while our digital assets include 74 million apps downloads, Euronet websites that attract more than 265 million digital users per year and cloud-based transaction technology that allows us to integrate with the world's biggest digital players out there, including PayPal, Alipay, Amazon, Google, iTunes, Netflix, Microsoft, Paytm and more.

All of these assets have allowed us to process more than 4 billion transactions and more than $115 billion in payment value. Despite the seemingly independent nature of these assets, we have worked to leverage the technology to support all three of our business segments, including to allow for money transfers to be collected from our ATMs with or without cards, to power gift code sales one on an Amazon website, to integrate Alipay with banks and retailers, just to name a few. All of these common technologies that support our business have contributed to our development of a digitally integrated private cloud payments hub. Not only does the digital integrated payments cloud process transaction, it is supported by a wide ray of other digital elements, including card issuing physical and virtual, loyalty, KYC compliance, real time settlement, inventory, risk and fraud management and so many more.

So we will continue to process cash-based transactions, but we do well more than that. If you look at our business, you can see that we process an increasing number of digital transactions. And this new digital integrated payment cloud allows us to process all types of digital payments using technology beyond the standard and data card - card data element. It is not enough to have a transaction processing platform. You have to have support - a supporting cap with all these other features. And that is why our new solution is unique. We expect that the traditional and digital payments landscape will continue to coexist for quite some time. And we positioned ourselves to participate in both universes through our unique digital payments cloud architecture.

Next slide please, Slide #18. That’s a heart of our new digital integrated payments cloud is a solution we call with. It has a state-of-the art agnostic design that runs on commodity hardware is opened at any operating system is cloud-ready and easily scalable. It has opened APIs. And because we used it actively in our production, there is a focus on industry standard and an attention to detail that you don’t get from third-party to just develop and sell software. Remember we have $115 billion in payment providing on our systems.

RAN [ph] also has near 100% availability. This is possible because of RAN [ph] creates a logical datacenter using private cloud technology that allows us to be simultaneously deployed across multiple physical location. Due to its fault-tolerant cloud architecture, it is superior to standard active-passive and active-active design, has any micro service and any datacenter can be replaced by different resources across the physical boundaries in real time. This allows us to perform maintenance or patch management without impact to our transaction processing or the need to reroute traffic. And RAN is packed with linear performance, scale-out ability and low cost for hardware, it allows for real-time settlement. And to top it our loss all this throughput was clogged by a third-party at 15,000 transactions per second with even more upside, simply amazing. And you can look at that little graph in the corner and you can see our linear progression of performance. This software is also design to process any data, not just a payment transaction, eliminating the need to run multiple platforms in the back office. Our digital integrated payments cloud is a powerful tool that allows us to utilize our assets in a more efficient manner for our internal use, but also allows us to quickly deliver unique and creative solution for our business partners through the use of our feature-rich open API capability.

With all of that, you can see that our double-digit growth rates are a result of intentional and strategic investments over the prior years that allow us to take advantage of every opportunity the market present. With that background, I would like to spend some time giving you a better, more informed view of the market opportunities that we see in each of our segments. So preceding our comments on each segment, I will give you an overview of the significance of the markets in which we operate.

Let’s start with Slide #22 and EFT. I’m always talking about the enormity of the ATM deployment opportunities we see. So we thought we give you some data that supports these numbers. Currently based on available data from the World Bank, we estimate that every country in the world were to reach the ATM saturation levels of the United States, total ATMs deployed around the world would reach approximately 13 million ATM machines. We estimate that of those 13 million machines, only 35% of them are currently installed leaving a market opportunity more than double what exist today. We understand that some developing countries may never read the full saturation of the U.S., but even if half the ATMs are installed, the global installed ATM base could double from what it is today. Currently of the total market potential of 13 million ATMs, a little over three million devices are currently on the ground in markets where Euronet has a presence or that maybe in our expansion pipeline and more than five million ATMs could be installed in the same market to reach full saturation. Given that right now, we only own and operate a little more than 43,000 machines, you can see that there is more than enough room for us to continue to deploy 3,500 to 4,000 ATMs per year. And as a reminder, the world ATM market is not static. And in markets bank branches and ATMs at those branches are closing due to the financial condition of many banks leaving even more opportunity for an independent deployer like Euronet. We've also been talking to you about the outsourcing opportunities we are seeing around the world. We estimate that about 60% of the ATMs in the U.S. are currently outsourced, while well less than 5% of the ATMs outsized the U.S. were outsourced. If the average outsourced ATMs uses $200 and $400 profit per month, the annual world outsourcing opportunity for Euronet cloud reach close to $11 billion annually. So as you can see, we are confident in our ability to continue to grow our EFT business through both additional ATM deployment and new outsourcing opportunities.

Now let’s move on to Slide #23 and we can talk about the specific highlights of this quarter. Our EFT team -- Slide 23, our EFT teams can understand the tremendous market opportunities and they continued to deliver new agreement. During the quarter we launched ATM outsourcing for Piraeus bank in Romania. We signed new ATM deployment agreements with 10 airports across five countries. And finally, we renewed our agreements with TESCO and Ireland as well as several key agreements, including our ground-level agreement with HDFC bank in India.

Next slide, please, Slide 24. While the market -- to add more ATMs its huge, it is also important that we continue to add more products and services to keep the ATMs in the POS terminals well ahead with the ever changing technology. This quarter we launched cardless deposits using BLIK cardless schemes on ATM recyclers and deposit machines of PKL Bank, the second largest bank in Poland. This agreement was complement the eight million cardless BLIK transactions we're currently processing in Poland. It is also interesting to note that approximately 90% of our Euronet ATMs deployed in Europe are equipped with cardless transaction capability, which allows for faster and more convenient transactions for customers who want to use their contactless cards or mobile phones for their withdrawal or deposits. We also launched Mastercard contactless POS acquiring, EMV acquiring for China Union Pay and Visa Paywave issuing per sale on bank in Sri Lanka. Finally, we signed an agreement with the Central Bank of Mozambique. You might have seen a press release on that here recently. It connects their 11 banks to a new national payments network solution using our digitally integrated payments cloud. Euronet solution will support transaction processing services, connect us to major card organizations' ATM and POS sales, device driving card issuing and an extensive collection of services including mobile recharge, bill payments and digital wallets using either historical methods or the new emerging alternative payment technology.

Next slide please, Slide 25. Before we wrap-up the quarter, I'd like to provide you with an update on the new DCC Regulations in Europe. The final version of the proposed regulation was approved in the trilogue meeting on December 11, 2018, meaning the EU Commission, the EU Council and the rapid tour of the EU Parliament have all agreed on the final text of the proposed legislation. The next step is for full EU Parliament to approve the final text in a plenary session, which is expected to occur in February or March of this year. Following this approval, the final text must be approved by the finance ministers of each country, which is expected in March or April of 2019. Once approved by the finance minister, the new regulation will be translated into all official EU languages and published in the official journal, which is expected in May or June of 2019. The legislation will become effective 12 months after the publication in the official journal. The focus of the new regulation is on transparency of foreign exchange margins over the European Central Bank rates and does not include any cap on DCC charges. The final text also includes the following terms. Both DCC providers and card issuers will be required to disclose their currency conversion charges as a percent markup over the latest available euro foreign exchange reference rate issued by the ECB, although the issuer will be required to make the disclosure after the transaction not there at the ATM, and will not be require to provide dual presentation on the ATM. This is a new requirement and we will implement this on our ATMs.

As we do today, DCC providers must disclose to the cardholders the amount to be paid in local currency and the amounts to be paid in the currency of the cardholders' account. No change there. DCC providers and card issuers will be required to make their currency conversion charges publically available in an easily acceptable electronic platform to facilitate the development of the -- of price comparison websites for customers when traveling or shopping within two years from that made date. Within two years after the legislation is effective, card issuers will be required to notify their cardholders about applicable currency conversion charges when their card is used to make a payment in another currency through the use of electronic communication channels. While predicting the future is difficult, we don’t anticipate that this new regulation will have a material impact on Euronet earnings when it comes into effect in 2020. And it's important note that we continue to see positive development within the EFT business. You may remember that in mid-April 2019 this year and a couple of months, Visa will allow DCC globally. We're also beginning to see more and more regulators around the world allow for international and domestic surcharge. Recently three Euronet markets have begun to allow all domestic surcharges, and we think there could be several more coming although we have no information on timing. So all-in-all, we’re happy with the outcome of the new DCC regulations and are excited about the opportunities that lay ahead both in Europe and around the world.

Now let’s talk about ATM deployments for the quarter. We finished the quarter with 40,354 active ATMs, a 9% increase over the prior year, and during the quarter we added nearly 1,400 high-value ATMs, while we winterize almost 3,000 ATMs following the peak season. Low-margin ATMs remained relatively consistent.

For the full year, we deployed more than 3,800 ATMs plus the 400 that we acquired with EasyCash in Ireland, well ahead of our goal to deploy 3,500 ATMs in 2018. Given the market opportunity we mentioned earlier, we clearly believe we can deploy between 3,500 and 4,000 high-value machines in 2019. With double-digit growth across all metrics, it was another outstanding year for the EFT team, and with 3,800 new ATMs already in our portfolio and many new global market opportunities, 2019 is set up to be another great year.

So let's move now to Slide #29, and we'll talk about Epay. When trying to define the addressable market for Epay, it is hard to find supportable statistics that show how much of total spend is on non-mobile is from customers that are buying directly from the brands versus those purchasing content and retail store or through an online merchant. However, what we know is that the total market for non mobile content is huge reaching more than $1 trillion and growing at a rapid pace. Additionally, many products are still undergoing a shift from physical distribution -- as a physical product like CD ROM to a digital product through -- to a physical retail point to a digital product to a digital channel. For those of you that have been with us for a while, you may recall the significant opportunities that we were afforded by shifts in the mobile top-up market from scratch cards to point-of-sale activation. Essentially we’re seeing the same type of shift to digital with these historically physical products. As this digital transformation continues, Epay is perfectly positioned to capture market share as customers seek the convenience of these alternative form factors over new channels. As you may remember, several years ago, Epay’s business was 100% mobile top-up. We had zero non-mobile content. Today non-mobile or digital content accounts for more than two thirds of Epay's total gross profit.

On a 606 equivalent pro forma basis, Epay grew by 11%. We are confident that we can continue to capture market share over our existing connections using our superior technology to create a competitive advantage for our brand and retail partners. So let's move on to Slide 30, and we will talk about Epay's specific highlights for the quarter.

Slide 30. Epay continued to execute its strategy to add more non-mobile content, more retailers and more markets across more channels. And the success of this continued focus is evident in the double-digit growth rate in the seasonally strongest fourth quarter. In the fourth quarter, Epay launched digital content and alternative payments across both physical and digital retail outlets. In particular, we launched several new products across Europe, including Nintendo's Switch gift cards, EA Origin Access Pass subscription gift cards and Adidas gift cards. In Germany, we launched a digital gift card mall on the Amazon.de website, including iTunes, Google, Netflix and Spotify content. In Germany, we also expanded our Netflix gift card distribution to Media Markt, the largest electronics retailer in Germany.

Finally, in Australia, we expanded our partnership with Alipay, and launched Alipay alternative payments with Louis Vuitton luxury brand retailers and Commonwealth Bank.

Next Slide. Slide 31. So in addition to these launches, we also signed several new agreements. In Europe, we signed an agreement to distribute Nintendo's digital codes through Amazon in France, Germany, Italy and UK. In Saudi Arabia we signed an agreement to distribute Google Play. Finally, we renewed our agreement with REWE Group, the second largest grocery retailer with 8,800 locations across Germany. This agreement secures our partnership with REWE for another 3.5 additional years and includes expanded product distribution. It bears repeating that this was a great fourth quarter for Epay, where we achieved double-digit growth rates across all metrics. Now, let's move on to Slide#35, and we'll talk about Money Transfer for a bit.

Okay. Slide 35. Last quarter, we gave you a detailed overview of the money remittance market and why Ria has been so successful in growing their market share. As you may remember, the big three global players Western Union, MoneyGram and Ria, only account for approximately 25% of the total market. UAE Exchange, which is largely a Middle East regional player accounts for another 6%. And all of the digital-only players account for in total approximately 5%. That leads two thirds of the total market addressed by small, independent players or completely unaddressed. And as we explained last quarter, Ria is perfectly positioned to grow in its under addressed space because that is where we started. And we have developed the sales and compliance infrastructure to effectively meet the needs of the customers in this space.

The other growing area in Money Transfer includes digital. By using available data and some testament, we estimate that the digitally initiated transfers only account for approximately 7% of the total money sent annually. So the line share is acquired at a physical agent location. We do recognize that the industry will likely go through shift although we believe at a slower pace than within the rest of the payment space due to the nature of the customers. These standards are largely immigrants coming from lesser developed economies, who have always managed their finances and cash. So while we have made large investments in our digital products and we have seen great customer adoption, we believe it is still important to recognize the significance of the opportunities within the physical money transfer channels. Now let’ move on to Slide #36 and we will discuss the quarter's specific highlight.

Slide 36. Our Money Transfer segment continues to hit on all cylinders, very proud of them delivering exceptional results across all regions of the business. Our Money Transfer network now reaches 369,000 locations across 150 countries. During the quarter, we launched 18 new correspondents in 15 countries, including outbound service with Sikhona Forex in South Africa. This is a new country in Ria [indiscernible] as Sikhona's customers in South Africa can pay for their transactions at a number of local retailers, including Massmart, which is a subsidiary of Walmart. We also signed agreements with 22 correspondents across 19 countries. In the fourth quarter, we expanded our network into Argentina by opening the first Ria store in that country. We also signed a new partnership agreement with Bimedia in France to introduce live and staged transactions in over 700 locations that used Bimedia’s POS solutions. And we partnered with Banca5 in Italy to offer Money Transfer services through this distribution channel.

Next slide please. Our success -- 37 -- our success did not end with the physical network. Digital transactions accounted for 58% of our total international outbound volumes for the year defined by using standard industry definition of a transfer initiated or terminated in a digital fashion. On riamoneytransfer.com, transactions grew 55% in the fourth quarter and 47% for the full year. During the quarter, we successfully launched a new redesign XE money transfer app and have successfully completed the rebranding of our international payments business under the XE brand. This was an outstanding year for the Money Transfer business.

Now let's move on to Slide #38 and we will wrap-up for the quarter. Well, we finished the year strong with an adjusted EPS of $1.37 for the fourth quarter, a 21% year-over-year increase. EFT's outstanding 20% year-over-year adjusted operating income growth was a result of continued network and value added transaction across our market. Epay's double-digit full-year pro forma revenue and adjusted operating income growth is a result of their continued focus on non-mobile content expansion. Money Transfer had an exceptional year where all areas of the business contributed to a strong double-digit growth across all metrics. Technology investments focused on digital-based commerce and transactions is playing a leading role in the growth across Euronet’s product portfolio to address huge addressable markets for all three segments. Our balance sheet continues to strengthen as we continue to produce strong cash flows from operations. And finally, we expect first quarter adjusted EPS to be approximately $0.83 assuming consistent foreign exchange rates and share price.

With that, we’ll happy to take questions. Operator, will you please assist.

[Operator]

Thank you. [Operator instructions] Our first question comes from Mike Grondahl with Northland Securities. Your line is open.

[Mike Grondahl, Northland Securities]

When you think about Visa in some of this new surcharge opportunity, is there any high-level way to kind of say what that adds to the TAM for ATM deployment?

[Mike Brown, Chairman and CEO]

Well, I mean the reality is -- in Europe, we’ve already going to near that term. We think this year across our state; it's probably worth an additional $0.60 to $0.65. But what’s exciting is -- at this I'm talking about the Visa. But what's exciting is Visa also opens up the rest of the world to it. And that TAM is huge. So we’ll just kind of leave in it that. We’ll be making an announcement as we go into more and more new countries. On surcharge side, as everyone might remember, I have been preaching this for five years. There is no logical reason for banks to continue to not allow surcharge in their countries because if they find them sells especially to bricks and motor banks, the biggest issuers. They find their sales competing with internet banks and given away their ATM transactions for less than a cost them to produce. So finally, common sense has started to permeate a number of these countries. We have seen this happened. It was Germany first. We have got Spain second, Austria was third, and that looks like Greece is going that way. So I would imagine that at some point out in the future surcharge would be allowed across most every European country, which offers both more money that you could make of the domestic -- our domestic customers as well as international customers. So it's just interesting because that -- I don’t know because if TAM gets bigger, but the money you can make off, this TAM gets bigger.

[Rick Weller, Chief Financial Officer]

And Mike, I would say, if you look at some of the graphs, the charts that we provided in there, and you think of it in contest of the United States, where surcharge is available, you can see that consumers clearly are willing to pay for convenience. And when that opportunity then presents itself, you’ll see more ATMs deploy so in doing some of this kind of market sizing math if you reach penetration levels similar to the United States. It essentially increases by two-fold what that addressable market is out there. And again as Mike said earlier in his comments, we have only got 43,000 out of these millions and millions of ATMs. So a very rich set of opportunities for us even before you get to surcharge, but then you put that on top of it and it makes it that much more.

[Mike Grondahl, Northland Securities]

Yes. Like a double tail …

[Rick Weller, Chief Financial Officer]

It is a very long runway

[Mike Grondahl, Northland Securities]

And then real quick, U.S. to Latin America for Money Transfer, how was that -- can you just talk a little bit about that big channel for you?

[Rick Weller, Chief Financial Officer]

Well, I mean, you saw that Money Transfer -- I mean, U.S. to Latin America it about 40% some of our business. And you saw that Money Transfer just basically knocked it out in the part. So obviously, that wouldn’t have happened if half of your business wasn’t doing well. We’re doing really well from America’s southbound. We’re doing really well from Europe, every direction bound.

[Operator]

Our next question comes from Chris Shutler with William Blair. Your line is open.

[Chris Shutler, William Blair]

So an update, Mike, on outsourcing and network participation agreements in the pipeline that you are providing that and -- maybe give us a sense of how much revenue is in the pipeline that has been size and not installed?

[Mike Brown, Chairman and CEO]

Okay. So with respect to outsourcing agreement, we are still in discussion phases with several pretty large opportunities and many little ones as well. As far as how much revenue, we really -- historically these are binary deals. So we're either going to get them or not. And -- so we don’t really project until we get the deal. We probably have about 500 or so ATMs in the pipeline to be installed, but that's all right now. As we get these deals, we will announce some and these are very high margin deals. So they almost chase our earnings with a step function. And the cool part is -- this is not just where we originally dispatched these outsourcing deals, mainly in Europe, a little bit in Asia. The reality is these outsourcing deals are coming up from everywhere now. These banks are taking a hard look at their expenses. They have all technology run in these banks, very high cost of ownership, very high cost for run them, and we’re the perfect logical solution for them to be. And on top of that, our outsourcing -- if we outsource, we can connect those ATMs to the digital channel, and that’s something that current technology has a real problem. And let’s not forget too that we wouldn't call it exactly an outsourcing deal is kind of a software/outsourcing deal, but there is deal in Mozambique is huge. So that another deal we got to light up this year. We got to connect 11 banks. And so lots of good stuff in the pipe.

[Operator]

Our next question comes from Andrew Jeffrey with SunTrust. Your line is now open.

[Andrew Jeffrey, SunTrust]

Mike, appreciate you're laying out the size of the global EFT opportunity. Can you talk a little bit about sort of how you balance the source requirements of expansion against that TAM? I mean, adding 3,800 to 4,000 machines a year is great, but you've got this huge market ….

[Mike Brown, Chairman and CEO]

We love that number to be bigger. Yes, I know its freaking huge isn't it. Okay, but at the end of the day to go after that market, the easiest way, of course, is outsourcing just, because you don't have to do any site selection. But it took us five years to get a step-up to the point where we can put in almost 4,000 ATMs handpicked one by one in a year. So as we go around the rest of the world, it'll take us some time to build up those steps. But boy, we know how to do it. And that's the thing. So what we're just doing is taking what we've learned in Europe and we're going to export that to other markets. So you're right. In a couple of years of, all we're doing is 4,000. I’m going to be disappointed. But I don't want to overcommit at this point in time. It's all about location, location, location. You've got to picked up really good site because at least ATMs are causing you $1,000 a month to have implanted in this particular spot, and you don't want to miss too often.

[Rick Weller, Chief Financial Officer]

As we've said for years, this is just plain old hard work. I mean every location is a separately selected site, an agreement that bias, an agreement that has to be negotiated, a box that has to be bolted down and cash put into it. And so it's a huge market opportunity. But that's what we have historically done well in across all of these countries. Remember there are always -- this is not just like one team goes across all these different cultures, its separate team, its day-to-day plain old hand-to-hand the hard work.

[Andrew Jeffrey, SunTrust]

Does that show maybe the emphasis a little bit toward these bigger outsourcing or interbank switch yields?

[Mike Brown, Chairman and CEO]

Now -- yes, the nice thing is we can do both at the same time. It's a different -- you've got to build up basically a feet on the boots on the ground kind of stuff to go find these locations one-by-one. And that's a different - it’s a different kind of sales guy and the guy who's going to go into a bank, and say, hey, trust me with your ATM distribution channel, look at all that we've did and what we can do for you. It's a different group. It's not an either or at all.

[Andrew Jeffrey, SunTrust]

Got it. And if I may on Epay, how do we think about that business? Obviously, the accounting change muted the reported growth. I mean is this a double-digit revenue growth business?

[Mike Brown, Chairman and CEO]

Okay. Look at that, those double-digits baby. We are excited. I mean Epay has been working really hard just one little product at a time, one channel, one product, one market, one at a time. And it's been adding these things up. And we've been announced that quarter after quarter after quarter. And the nice thing is that non-mobile content is a trillion dollar industry. And so we keep lightening up more of it and it's making up for the fact that the other nice thing, I guess you could say is that mobile has finally began to decline less than double digits. So you've got that two of them working in tandem to give us that very good result for Epay.

[Rick Weller, Chief Financial Officer]

I would add to that that as you take a look at the brands that we are helping facilitate essentially ecommerce for, okay, that these brands are demanding partners. And they have found that we have technology solutions that help them, and help them to get into more and more of these markets that we have the expertise in. And so this is a combination of both a) the market, but b) the tech technological advantages that we bring to it. So whether we’re talking about guys like Amazon or Netflix, these are really high-class brands that are demanding in the delivery of their product, the protection of their brand, the execution, et cetera. And so it's a combination, again, of both the market as well as our technology, and these brands interest to get closer and closer to what I might call the cash-based customer that wants to do e-commerce transaction. So we’re right in the middle of a perfect amount of energy generating around this space.

[Operator]

Our next question comes from Jim Schneider with Goldman Sachs. Your line is now open.

[Jim Schneider, Goldman Sachs]

Just on the DCC regulation. It seems like the risk there is pretty diminimus at this point. But could you may be just do two things. First of all, clarify that there is no requirement likely to for the rate to be displayed relative to the local exchange rate at the time or prior to the transaction? And number two, can you maybe just kind of talk about your confidence in the timing for the DCC enablement by these -- in April, you talked about before?

[Mike Brown, Chairman and CEO]

Okay. So you got the first -- with respect to your first question, you got that little bit wrong. What the regulation says is that we would have to show -- this is probably being mid-2020, we have to show an ECB rate and our rate. So people could see it. But the nice thing is people know that they never going to get the ECB rate. So that's what changed. And there is no cap on it.

[Rick Weller, Chief Financial Officer]

And we’ve done testing in the market where we have presented two customers, a range of spread that go from mid single-digit to low double-digit spreads and we have not seen meaningful decreases in the consumers opting into that when we've done our testing. So we will show an ECB reference rate and then what our rate would be? What that percentage is. And as we said in our notes, we don't think that that's going to drive a material difference in the market.

[Mike Brown, Chairman and CEO]

What you maybe have got confused on is that the customer will have -- still have no idea what is bank will charge it.

[Rick Weller, Chief Financial Officer]

Yes. The local fees is issuing bank will not be presented side-by-side with us.

[Mike Brown, Chairman and CEO]

Yes. Okay. The only way to elaborate how much you get charge and what the rate was is when you get home and look at your statement.

[Jim Schneider, Goldman Sachs]

Got it. That's clear. And then -- about your certainly around Visa-enabling DCC in April?

[Mike Brown, Chairman and CEO]

So far, so good. It's actually a very simple theory for us in Europe, because we actually do visit DCC in Europe. And so we're -- we'll just say so far, so good.

[Rick Weller, Chief Financial Officer]

Yes. I mean, our level of work is simply the addition of a few more wins to the table that we've referenced in our system. And Visa has represented to us that they wouldn't have made the announcement if they weren't ready to deliver. And let's not forget, Visa makes a lot of money on these transactions so they've got a financial incentive to be on time.

[Jim Schneider, Goldman Sachs]

And then maybe as a follow-up, I wanted to ask you, I mean, clearly Epay execution is very, very good as you mentioned with the new products from the non-mobile momentum you have there. Is kind of a double-digit 10% growth rate a new normal that we could expect to you to sustain in 2019? And if it not, a reason why not?

[Mike Brown, Chairman and CEO]

Well, we did -- for prior years we've been in that kind of 7ish, 7 to 8 range, and now it's great that we popped over into double digits. We would hope that this is the new normal. But I can't tell you for sure that. Let those go a little bit longer and then I'll -- maybe I have a little bit more confidence. But all the factors are pointing the right way.

[Operator]

Our next question is a follow-up from Chris Shutler with William Blair. Your line is reopened.

[Chris Shutler, William Blair]

Hey, sorry for dropping off there earlier. Rick, just one quick follow-up on the tax rate and the cash tax rate in Q1 guide, and if you could talk about the tax rate that you're expecting for full year 2019, and then anything one-time in the first quarter guidance?

[Rick Weller, Chief Financial Officer]

Nothing one-time in the first quarter. As we said in there, the more and more ATMs that we put in puts a little bit more pressure on that EFT segment. So, but that's -- that's all baked into the math, so no one-timers in there. Our tax rate, for both the quarter and the full year, we would put in the mid-20s range. Last year we started out with a little higher rate in the first quarter because of the new Tax Act, and then some of those positions were clarified in technical interpretations, et cetera. So we expect to see a little more consistency as we go throughout this year in about that mid 20s range. That's what we have in the first quarter as well.

[Mike Brown, Chairman and CEO]

Yes. And I may also -- and I may also add to that, Chris, you've been following us for awhile, but some people are a little bit newer. I mean, obviously we have seasonality and you see the big kick-up in revenues and profits in the EFT division in the second and third quarters. But what people might forget is that we have to pay for those ATMs in the first quarter. So yes, we can winterize them, but we still have depreciation, we still have rent, we still have a lot of other costs associated with them. So what that means is the bigger we grow our estate kind of that uglier Q1 gets with respect to the drag of those ATMs that are very profitable for the year, but not the problem maybe even losing a little bit of money in the first quarter. So it's kind of an FYI.

[Chris Shutler, William Blair]

And then lastly, Mike, can you give us an update on -- you talked about folding high FX into the XE brand. Just how -- what kind of trends you're seeing underneath the covers in that business number of state visitors, conversion rates to do a transfer, et cetera? Thank you.

[Mike Brown, Chairman and CEO]

So since we've released -- okay, so we rebranded. And since we've now rebranded and released a brand new app for doing transactions under the XE brand for high FX -- you might say high FX customer, we've seen higher conversion rates, we've seen really good adoption -- still more work to be done, but the first -- new customers converting and all that -- all the numbers kind of the metrics that you look at on digital acquisition of customers and transaction have all been played in the right direction. I mean the reality is high FX. A lot of people knew that who were spending money, but the XE brand know by hundreds of millions of people, so it just help.

[Operator]

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

[Rayna Kumar, Evercore ISI]

Could you help us better understand your 2019 outlook for constant currency revenue growth across EFT Money Transfer. And I know you addressed Epay, but at least the other two segments would be helpful.

[Mike Brown, Chairman and CEO]

Rayna, it seems like this question comes up about every year there. But if we take a look at our business here, we continue to feel confident and the ability to grow the EFT and deploy ATMs. That business grew in the 20s and has grown that way for the last several years. So we would again believe that we’re going to have strong double-digit growth out of that business. Clearly, the addition to the Visa DCC gives us yet more momentum. And as Mike said, a little bit more activity on the surcharge front. That hopefully manifests itself into some stronger numbers for us, and some more ATM locations to deploy. So we would continue to feel pretty good about strong double-digit growth rates out of that business. Then as we go to the Money Transfer business, we’ve consistently performed in that, let's call it mid-to-upper team level. And we don't see any reason that we won’t continue to do that. As Mike said rebranding high FX into the XE gives us a more momentum on those customer conversions. That's a big huge market. And the market is also growing. The World Bank just reported that 18 over 17 grew something like 10%. And so those numbers are good growth. We continue to have a lot of additional network expansion that’s available out there to us. So again, we would feel pretty comfortable that we will be in that, let’s call it a mid-teens kind of rate there for Money Transfer. And then finally, with Epay, it's probably a little bit more of the potential wildcard, I think on the upside. We continue to see the confidence as this non-mobile product come into our portfolio. We've got more markets. We're taking it at two out there. We got more technical solutions that we're providing. We’re helping brands do things like scheduled payments or advance payments on annual subscriptions and things like that. Those are all just kind of like baked in recurring run rate transactions for us. So I want to say that that we would expect to be in the double-digit range there. But I probably push this to the upper side as the singles to the lower-sided doubles there. And we might see breakout this year of that. So you kind of put all that tighter. As Mike said, all of our businesses are doing well. And we don't see any particular matter on the horizon that should cause us to think differently at this point.

[Rayna Kumar, Evercore ISI]

Just as a follow-up, how much of that strong Money Transfer top line growth? Is that - how much of that is coming from shared gains from MoneyGram given they're more stringent compliance in place? And then secondly, what are you seeing out there for cross-border Money Transfer pricing in your outlook for 2019?

[Mike Brown, Chairman and CEO]

Well, we haven't seen much difference in the pricing numbers there, as I said. Actually, we saw a little bit of increase in our average revenue per transaction. So we always see areas within the Money Transfer that can be more and more competitive on pricing and things like that. Our team does a great job at being able to focus its business on transactions that make good money. And it's proven in the numbers. As it relates to taking share from the competitors, it's hard for us to tell exactly where the numbers come from there. But as we said last quarter, and we reviewed, and even in this Pie-Chart here, where you can see the part that's really that kind of unaddressed independent channel, we have a lot more of our business focused on that part of the market. And I'd say that's where we've probably seeing most of our successes. I'm sure that we picked up some benefits from the challenges that some of our competitors have, but I think that our success has more to do with our story and less to do with their story.

[Jeff Newman, Executive Vice President and General Counsel]

Okay. I think -- with that, I think we're going to end. Is that correct, operator?

[Operator]

Yes, sir. That does conclude today's question-and-answer session.

[Jeff Newman, Executive Vice President and General Counsel]

All right. Well, thank you everyone for joining us today. We look forward to talking to you at the end of the first quarter. Mike, Rick and Kevin, signing out.

[Operator]

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