Michael Brown: No, no, no. It’s — we’ve already got the beginning of the hyperbolic curve because when you think about it, we’ve got a new — we had a new technology that we released three years ago. Nobody on the planet had it. And so we had to get those early adopters in there. And we got the early adopters who are all in Asia because the Asian banks were more progressive and they were also threatened by the wallets at the time, okay? They wanted to stay relevant to their customers. So they were the early adopters. We then became — once you get a couple of those, then the next ones come and the next ones come. And the fact of the matter is their legacy platforms can’t support the kind of solutions that customers are acting.
In other words, their legacy platforms don’t talk wallet. And so once we established ourselves in Asia, then we took that same product, and we went to South America, and we’ve been going now to North America as well. And finally, things are happening. I mean you just last July, as you know, FedNow was launched. It was an RTP network in the United States. It’s running roughly 10 years behind India. But finally, we’re getting our act together. So more and more people are going to be wanting to do account-based real-time payments. And this idea of just card-based payments is going to be very fast day and 10 years from now.
Operator: Our next question will come from the line of Charles Nabhan from Stephens. Your line is open.
Charles Nabhan: Good morning, and thank you for taking my question. I wanted to double-click on the non-ATM piece of EFT. If I look at one of your disclosures, it looks like 13% of EBITDA is driven by that non-ATM piece. And if I recall, roughly 20% to 25% of revenue within that segment is generated through those sources. So I guess, first, my question is if you could speak to any trends you’re seeing within Piraeus. I know you talked about some expansion last quarter. And then secondly, if my math is correct, I’m coming up with a margin somewhere north of 30 and I wanted to confirm my math is at least somewhat in the ballpark because if I’m thinking about it correctly, that could be a nice tailwind to margins with an EFT going forward?
Michael Brown: Okay. So we’ve got several things that are happening. So within EFT, so the components are, of course, ATM and that would be mostly our independent ATM deployment. Second would be the outsourcing deals that we have, and that’s all in that ATM piece. And then the other part of EFT is going to be REN and acquiring. Acquiring got roughly 25% margins, when we install REN, that’s probably got 60% to 80% margins depending on when how that works. And then the ATMs themselves are probably — they have been as high as a 30% margin, a 33% margin there, a little bit lower now because we don’t have quite the productivity that we had in 2019 before the travel crisis, but that’s coming back. So when you blend it all together, I think we could approach 30%, but depending on how fast our business grows and acquiring, a 25% it might hold it down a little bit. Rick just looked at all his numbers, so he’ll give you — he’ll give you three significant digits on that answer.
Rick Weller: Yes. And yes, your number is roughly right there. It is approaching 30% for the year. Our best margin years were back in 2019. So I think as we see the travel recovery, continue into ’24. And as Mike said in his comments that we’ve seen some pricing opportunities on the interchange and possible surcharge front, we’ve seen some actual — some results, some announcements in ’23. We anticipate maybe some more in ’24. So all of that will just further support continued margin expansion in that business. .
Charles Nabhan: Got it. If I could sneak in a quick follow-up. It’s nice to see the margin expansion within money transfer, especially considering your — the way you’re expanding the network. I wanted to drill into that a little bit and just get a better understanding of what specifically is driving that expansion? Is it a mix shift within the business? Or is it just simply scale on your existing network? Any commentary around that would be helpful?
Michael Brown: So remember, as we grow, we have about a 35% incremental EBITDA margin on that next transaction. So obviously, as you have more volume, it’s going to average you up. And we’re just doing, as we mentioned, too, on the digital side, we’re being — we’ve got kind of a new approach to our digital marketing that’s making it more effective. So kind of everything added together, I would say.
Operator: Our next question will come from the line of Mike Grondahl from Northland Cpital Securities. Your line is open.
Mike Grondahl: Hey, guys. Hey, good morning. Hey, first thing, the 1,300 ATMs redeployed in 4Q and then 1,500 roughly at your midpoint in 2024. Could you give us a little bit of color like — are they all unprofitable? Or is this like what you just call it the bottom 5%, — just looking for a little color kind of what the cut-off is there? And then second, maybe for Rick, what was the benefit from FX and tax rate kind of compared to your $1.75 guidance in the quarter?
Rick Weller: Well, let’s see for the ATMs, which essentially what we’re seeing is these are ATMs that are not meeting our return expectations, okay? And they range from nearly breakeven to losing money. So at the end of the day, if we’ve got an ATM that’s already on site and it’s producing an incremental profit, we’re not going to be motivated to want to take it out. But if it’s not producing profit, then it makes sense for us to remove it. And as Mike said, over the period that we’ve kind of been looking to see the recovery of travel from COVID, we were a little less aggressive on taking out a machine because we didn’t really have a good visibility as to what that exact traffic would look like. So we think that we’re approaching that, and it just makes good management sense.
But net-net, these are nonperforming machines as opposed to let’s call them light performing machines. . And then with respect to the benefit from tax or FX, we exceeded our earnings guidance by about, what, $0.13 a share. I would tell you, roughly half of that was from tax and then the other half was kind of split evenly between FX and operations.
Operator: Our next question will come from the line of Ken Suchoski from Autonomous Research. Your line is open.
Kenneth Suchoski: Hey, good morning. Thanks for taking the question. I just wanted to ask about the incremental EBIT margins in the EFT segment. I mean, how should we think about those just given the mix of business and how that’s changing, 2023, I think, had a kind of a mid-teens incremental EBIT margin versus something much higher historically, you have the non-ATM bucket scaling in EFT. So some moving parts there. So any way to think about sort of the incremental margins in that segment moving forward would be very helpful?
Rick Weller: Yes. Well, as I mentioned earlier though, we anticipate that they will continue to improve. As we said last quarter, we’re going to hold off in giving a whole series of exact details. I think, hopefully, you can appreciate that producing an earnings growth in the quarter that was a 30-plus percent year-over-year number and our full year number of 15% is that we’re going to have ebb and flows throughout the segments. But we consistently produce these very strong double-digit growth numbers. But more specifically in that EFT segment, we will continue to see those margins expand. Again, as I said earlier, because of travel recovery, which is going to bring those more high-margin transactions. As Mike said earlier, as we go outside of the European markets where we’ve seen very good response — very good returns on these ATMs. That should be very helpful.
And then again, we’re seeing some rate increases on the interchange and surcharge front. So — and all that together with just good expense management. So we’ll improve the profits because of ATM profit management pairing out the lesser performer one, some rate increases, some geographical expansion, some travel recovery, all signs point to improving margins. We will refrain on telling you what that number is. Again, we want to focus on the earnings of the consolidation as opposed to any one particular part.
Kenneth Suchoski: Yes. Okay. That’s helpful, Rick. And for my follow-up, I just want to ask about money transfer. You mentioned an increase in marketing efforts in certain geographies. I was just wondering if you could talk about what you’re seeing from a competitive standpoint because some of your competitors are being aggressive with promotional activity in the market. And I was hoping you could talk about how retention rates and customer acquisition costs are trending. I think you mentioned some strong digital customer acquisition in recent months. So any thoughts on customer acquisition cost trends for new customers would be helpful.
Michael Brown: Okay. So with respect to money transfer, I mean, you got to understand, there are probably 10,000 money transfer companies in the world, okay? And you know the names of a handful, okay? So as an industry, this is a bare knuckle street bite every single day, maybe a nice side. okay? So competition really hasn’t changed. There are some of our competitors are saying they’re going to be more aggressive here or there. We’ve seen little instances of that in one market or another for shorter periods of time. We don’t see, in general, it’s much more competitive than it ever was. We do see, as I mentioned in previous calls, that just the inflationary pressures that we’ve seen in the United States and we see abroad have actually brought down the average amount sent per transaction.
And remember, we make an FX spread on this. And so if maybe our average FX spread is 0.6%. And instead of — and on average, our spend amount is down, call it, $20. That cost us $0.12 a transaction, which is pure margin. . So that’s where we’ve seen the pressure, not necessarily because of competitiveness, but just because the reality is these immigrates who have got mostly blue-collar jobs working hard, gas on their truck costs more than it did a year ago. Groceries cost more. They just spent a little bit less back to their mom, but they still send it every month. So that’s kind of what we’ve seen. We’ve got one more question, operator, and then we’re going to be at the top of the hour. So we’re already there, but…
Operator: And our next question comes from the line of Andrew Schmidt from Citi Global Market. The floor is open.
Unidentified Analyst: Hey, good morning. Thanks for squeezing me in. This is David Wielizinski on for Andrew Schmidt. What drove the reaccelerating money transfer transaction trends quarter-to-quarter in APAC and Middle East originated transfers?
