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Euronet Worldwide Inc (NASDAQ:EEFT)
Q2 2019 Earnings Call
Jul 24, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to the 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] As a reminder, this 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.

Jeffrey B. Newman -- Executive Vice President and General Counsel

Thank you, Sarah. Good morning, and welcome everyone to Euronet's quarterly results conference call. We will present our results for the second quarter 2019 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 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.

Rick L. Weller -- Chief Financial Officer

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 $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 3 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 principal 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 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 top-up transactions in India and digital code server transactions in the US, both of which are in 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 sense 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 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 40% . 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, 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 base value basis versus commission basis.

Gross profit per transaction came in slightly as we continued to see a stronger mix of mobile top-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 includes 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 few comments on the balance sheet. As you may recall, in mid-May, we successfully issued EUR600 million in 7-year senior notes with a 1% and 3.8% 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, 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 $600 million bond euro -- The 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 $1 billion 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.

Michael J. Brown -- Chief Executive Officer and President

Thank you, Rick, and thanks everyone for joining us today. I'll begin my comments on Slide number 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 continue 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 Bank in switch in the country.

What we are delivering here is a new financial ecosystem for the whole country, with the 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 SIMO's payment network. So when REN is fully implemented, all 22 banks, all 1,800 ATMs, 33,000 POS terminals, all mobile operators, billers, card associations and digital wallet will be connected to REN. REN will process and settle all transactions regardless of type that flow through the payment rails in Mozambique. With that, we're acquiring 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 payment. Further, one of REN's strength is to connect traditional payments to alternative payment schemes and digital wallet. When Mozambique wants to offer their customers alternative payment scheme, such as merchant-enabled acceptance of outside wallets, for example maybe Alipay or WeChat Pay rather than cards or leverage Euronet's 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 are glad to sign 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 number 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 long-standing relationship and partnership to provide Epay content to DM, a leading European drug store 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 and 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 are already processing a significant number of Alipay transactions per day without any marketing.

Now let that sink in for a moment, an alternative payment integration that happened in three days. Can you think of any card-based, let alone QR code-based integration that can happen so quickly. That's the power of our technology. We also have an agreement with Mueller, another leading European drugstore chain with 1,852 stores in 7 country. Through just one connection, we are 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 omnichannel approach to our retailers. And the flexibility of our technology is not limited to merchants, where we have exist and existing connections.

We have held a European start-up food delivery service called Just Eat. Think of it as UberEATS launch a closed loop card and we have helped them establish and are driving both their B2B and B2C web shops. 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. They 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 select 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 barcode presentation to create a unique GDPR privacy compliant solution that will spare mobile operators from the scrutiny of the EU and keep consumer safe. We are 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 highlight.

Finally, we continue to utilize our technology to fuel our growth. We were able to launch a new independent ATM network and 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 market.

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 1, expand their product platform, Number 2, expand capacity for customers to provide more products and more reach around the world, and 3, to enable Central Bank's 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, and one of those new markets marking the 28-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 a 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 Astro Bank in Cyprus. And finally, you may remember that we launched a deposit service in Poland about six or seven years ago to except, which today except 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 blick [Phonetic] cardless deposit agreement with Getin Bank in Poland. These blick deposits are a cardless direct-to-account transactions allowing customers to put funds in their account without using plastic, and complement the more than $10 million blick cardless withdrawals we process 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 plastic.

Slide number 16, please. During the quarter, we launched Euronet branded mobile ATMs in Polland, and 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 1,000 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 a 1,000 new outsourced ATM. We reactivated more than 200 ATMs that were seasonally inactive and we added a 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, and this quarter, we removed about 280 of them. We expect to remove about a 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 that 3,500 to 4,000 mark by the end of the year. With strong ATM deployment in both Europe and Asia, new outsourcing agreements and the introduction of Worldwide Visa DCC to our ATMs, EFT is really hitting on all cylinders.

Now let's move on to slide number 19, and we'll talk about effect. 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 continue to account for approximately 70% of our Epay gross profit. During the quarter, we weren't 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 in the closed-loop technology we developed for other purposes, allowed us to quickly resolve a problem they face 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 continue to expand our antivirus distribution this quarter launch in 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 -- that'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 and Fnac, the 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 increase their rates. So while it is too early to declare that the mobile tides 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 providers. 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. 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 partnered E-9 Pay, a bank deposit service, with cash in the Cambios Insular in Venezuela, a new market for us by the way, as well as other network conditions in Latvia, Bangladesh, Cambodia and many more among others.

In addition, we also activated the transfer of funds into an out-of-mobile wallet account for MTN, AirtelTigo, and Vodafone money transfer accounts through a partnership with GT Bank in Ghana and Zip Pay, 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 corresponded agreement in 16 countries, which will 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 money transfer on their My Ria app and pay for the transfer with a card and 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 product 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 continue 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-third 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 not 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 remittances business since Ria joined Euronet. We continue 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 Remotely and PayPal Xoom. And let me pause here for a minute to reflect on the additional ID requirements we are 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 asked of them due to their legacy money transfer provider.

We highly value our relationship with Walmart, and accordingly, have been proactive and working through this matter. If it's important to Walmart, it's important to us. That being said, we know this is an isolated manner, like others, we face, we will effectively work through it. Well, all other very robust parts of our business gives us the ability to post 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 are 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, however $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 double-digit earnings growth resulted from continued digital media growth and network expansion. Money transfer continue to deliver earnings growth from expansion of both the international remittance and payments businesses. We've successfully issued EUR600 million in long-term low coupon senior notes. The continued generation of free cash contributed 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.

Questions and Answers:

Operator

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

Mike Grondahl -- Northland Securities -- Analyst

Hi. Yes. Thanks, Mike and Rick. Hey, any high-level comment on how Visa DCC did kind of compared to your expectations?

Michael J. Brown -- Chief Executive Officer and President

Yes. Pretty much right down the fairway, Mike.

Mike Grondahl -- Northland Securities -- Analyst

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

Michael J. Brown -- Chief Executive Officer and President

No, OK. So there won't be any ramp-up, because basically we've targeted a lot of our consumers are tourist and so they don't, they're just in a country for a short while. So they just walk up and then it's right there on the screen just like MasterCard has been for many years. But 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 one -- 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, started on April 30.

Mike Grondahl -- Northland Securities -- Analyst

Okay. Great, thanks a lot guys.

Operator

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

Rayna Kumar -- Evercore ISI -- Analyst

Hi, Mike and Rick.

Michael J. Brown -- Chief Executive Officer and President

Good morning.

Rick L. Weller -- Chief Financial Officer

Good morning.

Rayna Kumar -- Evercore ISI -- Analyst

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?

Michael J. Brown -- Chief Executive Officer and President

Well, I mean the nice thing is the bulk of our business and Money Transfer are the international remittances both from the US and from from North America and from Europe and Asia, and that continues very, very strong. We do have a challenge here 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. I think we can -- we can pass that up. I'm not sure which quarter that will happen in, but for medium to long-term, we are 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 continue to do that.

Rick L. Weller -- Chief Financial Officer

And -- but Ryna, 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 [Technical Issues] 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. And 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 would obviously help 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 do that annualization and I'd like to think that, as Mike said on intermediate term basis there, there will be back into the same nice double-digit numbers that you've seen in the past.

Rayna Kumar -- Evercore ISI -- Analyst

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?

Michael J. Brown -- Chief Executive Officer and President

Go ahead.

Rick L. Weller -- Chief Financial Officer

Well, 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 is 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 a limb and say, Hey, look, I think that we've got a good site line to -- of 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 wasn't 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.

Kevin J. Caponecchi -- Vice President and Chief Executive Officer

Rayna, this is Kevin. So probably as Rick said that the couple of exciting components of EPay are the continued expansion of the product 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.

Rayna Kumar -- Evercore ISI -- Analyst

That's great detail. And just one final question from me, if you can just give us an update on your capital allocation plans specifically your strategy in M&A?

Rick L. Weller -- Chief Financial Officer

Well, I don't think anything's changed or 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 turned out to be not what they've been purported. So we don't do many transactions, but that would be one place to use capital. If you saw some kind of a 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.

Rayna Kumar -- Evercore ISI -- Analyst

Thank you.

Operator

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

James Schneider -- Goldman Sachs -- Analyst

Good morning, and thanks for taking my question. I was wondering if you could 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. Maybe talk about what is the rate limiting step in that? Is it still site selection 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?

Michael J. Brown -- Chief Executive Officer and President

That's exactly true, James. So when you were at -- when we're able to add the Visa DCC, then maybe a B plus site becomes an A side 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 and a 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, etc. etc. Just install kinds of things, that is always up a little bit of a modulator on us, a governor.

So, but we're out after, 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 at least 4,000, but we'll just have to see what happens.

James Schneider -- Goldman Sachs -- Analyst

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 remmitance whether that's kind of accelerating or slowing down any regional factors where you're seeing some changes in the margin relative to the last couple of quarters? And then, could you also separately address the reasons for the Brexit impact on the XE business and how long you expect that to last ?

Michael J. Brown -- Chief Executive Officer and President

Well, I mean the big shining part for Money Transfer is the international remittance market. I mean, it is just agreement for us. I mean, we're growing two ,three some, in some quarters four times faster than the markets growing depending on that 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 catridges, you see that we've now got almost 400,000 locations to pay out. It's 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 [Indecipherable] 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 are just been in Britain, which is about now, call it 50%, 60% of our business in XE are sense that are originated in Britain, everybody is been really pensive now, nobody knows exactly where the pound is going to go, there being conservative. We're just seeing less transactions and that's not just with us because of you want to look at the results of our competitors, you will see a very similar thing. So I think all this is going to get put to bed on Halloween, then we'll know from that point forward, how it goes. I think it's just -- it's just the uncertainty that's causing people to pause.

James Schneider -- Goldman Sachs -- Analyst

Very good, thank you very much.

Michael J. Brown -- Chief Executive Officer and President

Okay.

Operator

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

Andrew Jeffrey -- SunTrust Robinson Humphrey -- Analyst

Hey guys, good morning.

Unidentified Speaker

Good morning.

Andrew Jeffrey -- SunTrust Robinson Humphrey -- Analyst

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. It seems like a terrific opportunity. Are there other similar markets out there, where you can provide sort of all bank connectivity and infrastructure? Or 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?

Michael J. Brown -- Chief Executive Officer and President

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 will every damn country out there, is really what it comes down to. But more than that, It's the banks and its others. I mean, we see where 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 all over the place because the reality is plastic is 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 do we get this legacy, 30-year-old technology based on ISO 85, ISO 83, one kilobit records, how we're 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 in the fast implementations that are just amazing for people. So I'd say TAM darn 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.

Andrew Jeffrey -- SunTrust Robinson Humphrey -- Analyst

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

Michael J. Brown -- Chief Executive Officer and President

Yes. And 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... You know what? 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 has actually been in the middle of a lot of the things. I'll let him speak.

Kevin J. Caponecchi -- Vice President and Chief Executive Officer

Yes. Today, we have about 12 of these type of installations today using our legacy technology. So one opportunity is 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 to generate new leads with new markets, and there is a lot of inbound interest regarding the Mozambique installation, and I think we'll start to see an acceleration of the interest as we get -- as we motive through that delivering of that product.

Rick L. Weller -- Chief Financial Officer

I mean, another point just in terms of timing and people will see this more and more in the future, Andrew, 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 really put this not more squarely on the map, people will really notice and it will make a difference in changing that cycle time.

Kevin J. Caponecchi -- Vice President and Chief Executive Officer

I mean, in the US where there's all this legacy point of sale terminals and card-based payment, that's one thing, but outside of the US and outside of developed markets that infrastructure doesn't exist, they're going to skip the traditional payment methods and go to all of these new payment methods and the existing infrastructure in many cases does not support that consumer desire.

So I think we see the timing of the question in terms of when all this will happen, but the demand and the interest is there.

Andrew Jeffrey -- SunTrust Robinson Humphrey -- Analyst

Okay. That helps a lot. Thank you.

Michael J. Brown -- Chief Executive Officer and President

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

Andrew Jeffrey -- SunTrust Robinson Humphrey -- Analyst

Encouraging. Sure.

Operator

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

Andrew Smith -- Citi -- Analyst

Hey, guys. Thank you for taking my question and thank you for the comments in the technology. I just wanted to ask question about the third quarter EPS outlook. It seems like you have a lot of momentum in EFT Processing Segment, solid ATM additions. Could you talk about what -- it seems like that might be driving some upside there relative to initial expectations for benefits from the Visa DCC rule change.

So if you could just talk through any potential offsets to the EFT Processing Segment or to the ATM growth? Whether it's the UK rationalization incremental investments and the below the line items? Just curious if you could just talk to the outlook for the third quarter, help us get a better sense for that, that would be great.

Rick L. Weller -- Chief Financial Officer

Yes, really there is -- we've actually been living through the offsets, because ever since REN changed its domestic interchange fees, then we received less revenue on those ATMs. So we're really -- we're just removing loss making a 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.

Andrew Smith -- Citi -- Analyst

Okay. Is there anything, I guess Money Transfer below the line that might be... And it seems like you guys have some favorable interest expense and refinancing. Anything that you talk to in the third quarter than it might be holding back the EPS outlook?

Rick L. Weller -- Chief Financial Officer

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

Andrew Smith -- Citi -- Analyst

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

Michael J. Brown -- Chief Executive Officer and President

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 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 surcharge in there, because they're basically... The big banks with all this expense of 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 tell you when, but any time 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 would be really wonderful.

Andrew Smith -- Citi -- Analyst

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 entrants? And then just remind us what the timeline is in terms of how many ATMs you can add in year one, year two, the maturity curve of new markets, that would be helpful?

Rick L. Weller -- Chief Financial Officer

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 budget sides like there is a kind of below that out as fast as we can, if we -- if all our assumptions are correct. With respect to other new potential markets, I'll let Kevin talk to that because he's f responsible.

Kevin J. Caponecchi -- Vice President and Chief Executive Officer

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.

Andrew Smith -- Citi -- Analyst

All right, thank you very much, guys. Appreciate it.

Operator

Thank you.

Unidentified Speaker

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

Operator

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

Chris Shutler -- William Blair -- Analyst

Hey guys, good morning. Thanks for taking my question. So maybe just to as we think about the Q3 guidance, given this is your first time with the incremental Visa DCC transactions in our Q3, can you give us a sense of how you modeled that into Q3, not looking for a specific numbers obviously, but just wondering how you -- or if you lay of any conservatism in given this is the first Q3 you've gone through with Visa DCC? And then, Rick, if you give the tax rate, that's in the Q3 guide? Thanks.

Rick L. Weller -- Chief Financial Officer

Yes, we didn't try to provide too much body English to the numbers, Chris, because, as Mike said, these are 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 overdo 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 20s numbers in there and not a lot different than what we had for the second quarter.

Chris Shutler -- William Blair -- Analyst

Okay, thank you.

Jeffrey B. Newman -- Executive Vice President and General Counsel

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.

Operator

[Operator Closing Remarks]

Duration: 63 minutes

Call participants:

Jeffrey B. Newman -- Executive Vice President and General Counsel

Rick L. Weller -- Chief Financial Officer

Michael J. Brown -- Chief Executive Officer and President

Kevin J. Caponecchi -- Vice President and Chief Executive Officer

Unidentified Speaker

Mike Grondahl -- Northland Securities -- Analyst

Rayna Kumar -- Evercore ISI -- Analyst

James Schneider -- Goldman Sachs -- Analyst

Andrew Jeffrey -- SunTrust Robinson Humphrey -- Analyst

Andrew Smith -- Citi -- Analyst

Chris Shutler -- William Blair -- Analyst

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