Euronet Worldwide Inc (EEFT) 2003 Q3 法說會逐字稿

Good morning ladies and gentlemen and welcome to the Euronet Worldwide Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the teleconference, please press star "0" on your telephone keypad. As a reminder, this teleconference is being recorded. It is now my pleasure to introduce your host for today's conference, Mr. Jeff Newman, Executive Vice President and General Counsel of Euronet Worldwide.

Good morning and welcome everyone to Euronet Worlwide's quarterly results conference call. We will be presenting our results for the third quarter 2003 on this call. We have Rick Weller, our Chief Financial Officer and Mike Brown, our Chief Executive Officer with us today. Before we begin, I need to make a statement concerning forward-looking statements on this call. During this conference call representatives of Euronet Worldwide will make statements concerning Company's or management's intentions, expectations, or predictions of future performance, including selected financial guidance concerning the Company's results. These statements are forward-looking statements. Euronet's actual results may vary materially from those predicted or anticipated in such forward-looking statements as a result of number of factors including competition in technological developments affecting the market for the Company's products and services, foreign exchange fluctuations and changes in laws and regulations affecting Euronet's business. Additional explanation of these factors and other factors affecting the Company's results are set forth from time to time in Euronet's periodic reports filed with the U.S. Securities and Exchange Commission including but not limited to its Form 10-K for the period ended December 31, 2002 and its Form 10-Q for the period ending March 31, 2003 and June 30, 2003. Copies of these filings may be obtained by contacting the Company or the SEC. Now I'll turn the call over to Rick. Rick.

Thank you Jeff and good morning to all of you who have joined us. For your benefit, in the back of the slide [that] "Presentation," we have included some supplemental data labeled as "Supplemental Data Of Certain GAAP to non-GAAP Measures." We provide that for purposes of complying with our SEC reporting responsibilities. We put it in here for the readers' benefit to reconcile between those GAAP and non-GAAP measures, but we do not intend to discuss those slides during the call this morning.

If you turn to slide 4, we can get started, and I'll proceed through them. Euronet reported revenues of $53.1m, operating income of $30.7m, EBITDA of $6.8m, and earnings per share of 5 cents. Each of these reportings reflected an improvement over both the sequential and the year-over-year quarters. Euronet revenue of $53.1m was a 10% increase over the second quarter and almost a doubling over the prior year's quarter. $3.7m in operating income represents a 32% increase over the second quarter and an improvement of more than $4m over last year's loss of approximately $600,000. EBITDA of almost $7m reflects a 15% increase over the second quarter and a 2.5-fold improvement over the prior year's quarter. Regarding earnings per share, the 5 cents would have been 6 cents if you excluded the effects of FX and discontinued [OP] losses. This 6 cents compares to the penny a share in 2Q. We will continue to address the details of Euronet business along the same three primary segments of EFT Processing, Prepaid Processing, and software. As you may recall us observing in the past, more than 90% of our revenues are recurring.

On slide 6, we report what our transactional growth has been over the last four sequential quarters. You can see on this slide that our transaction volume has improved from just over 20m to now almost 60m transactions on a quarterly basis. That 90% recurring revenue stream is the product of consistent consumer transactions processed through our systems. On this slide, you can see the continued improvement in total transactions. We exited the second quarter with approximately 50m quarterly transactions, and we are now approaching 60m as we leave the third quarter.

On our seventh slide, it illustrates our quarterly processing revenue growth, where in the fourth quarter we were approximately [15m] in processing revenue; this is for the EFT and the Prepaid segments whereas at the end of the third quarter, we posted almost 50m with those two segments combined. EFT and Prepaid segments' sequential quarterly improvements reflect that same transactional growth, period over period.

On slide 8, here again, you can see the consistent improvement in our consolidated revenues of 53.1m for the third quarter. Note that in this slide, we adjusted 4Q of '02 to reflect the effects of the U.K. ATM network sale and bear in mind that the first quarter did not include e-pay January revenue because the acquisition was completed in February.

On slide 9, Euronet's operating income and EBITDA bear out the results of improving transactions and revenue streams I previously discussed. Each sequential quarter this year has seen both operating income and EBITDA improvement. In one year, our EBITDA has improved from less than 1m to now almost $7m. At this EBITDA level, our annualized EBITDA would be approximately $27m, giving us a respectable EBITDA-to-debt coverage ratio of about 2.3 times.

On slide 10, we provide an overview of the three segments -- sequential quarterly revenues, operating income and EBITDA. Here you can see that both the EFT and pre paid segments posted nice improvement over the second quarter, and as planned, software maintained its contribution. Also of note, EFT's operating income benefited by approximately $800,000 from the sale of the Hungarian ATM. This benefit is reflected in operating income, not revenue. Even if this benefit were excluded, the EFT segment posted sequential improvements and ultimately the Hungarian ATM sale will benefit the EFT business in several other key ways that Mike will share with you in just a few minutes.

Finally you will note that corporate expenses increased approximately $400,000; this was due to professional fees and the write-off of certain prior deferred costs. We expect that only one-fourth to one-third of these costs will be recurring.

On slide 11, we provide a brief overview of the Balance Sheet You can see that cash has gone down a bit, largely as a result of the flow of funds through the Prepaid restricted accounts. Accounts receivable and current liabilities increased by approximately $7-9m, again due to the timing of Prepaid processing transaction clearing. Finally, debt has decreased by approximately $3m consistent with what we expected.

On slide 12, I will walk you through the details with bad debt. Here on slide 12, you can see our debt has improved to $68.7m at quarter end, and subsequent to quarter end we paid $4m on the e-pay deferred cash note, which fully pays the original $8.5m piece of debt. There are no other e-pay acquisition debt due until February of 2005. As I mentioned earlier, our EBITDA to debt coverage ratio stands at approximately 2.3 times on a run rate basis, a respectable coverage. As I close, I will also mention that in prior quarters we noted that we were evaluating alternatives to refinancing our [12 and 38] high yield borrowings. When evaluating opportunities, we found unacceptable terms. We will continue to look at opportunities and believe vendors will advance more realistic terms as we continue to pose strong and improving result. With that, I will turn it over to Mike.

Thank you Rick. In my portion -- as if my ground -- in my portion of this presentation, I will cover our three separate business lines independently. I will start with our ESP traditional processing line and if though you could just move on to slide number 15. Here the numbers of both operating income and EBITDA over the last three quarters or the first three quarters of this year, I wanted to show you the general growth trends of this division. In those -- that we have strong quarter-on-quarter increases in operating income and in EBITDA this year in our ESP processing segment. Our operating income was $2.3m and EBITDA was $4.1m for this quarter.

To look on the next slide number 16, in this slide, what we have done as we've broke out our processing by our two major geographic subcomponents, one is the EMEA, which is Europe, Mideast, and Africa where we generate the line share of our business and also our investment area of the Asia Pacific region, most notably India. If we will start with the EMEA, you will notice that our numbers are steadily increasing and improving quarter-to-quarter with that strong margin improvement in our EMEA operating income, up 23% this quarter over 14% last quarter and up income margin. As I mentioned before in prior conversations, we are investing in our Asia Pacific business, most notably India. You can see the investment amount here, which got a run rate of around $2m a year. Investment in this segment of our business, up until this point in time, it was primarily an expense driven subdivision of our processing segment. But we are beginning to experience revenues from this market now. And by next year and some point next year, we hope that this -- that our Asia Pacific region with India and Pacific should be approaching a breakeven point.

We'll move on then to slide number 17. I have got lot of things to talk you about today. First of all we'll start here with EMEA, we've had three very significant transactions. We have signed contracts, two outsourcing contracts in EMEA over this quarter, both -- actually all three of these significant transactions in the last 40 days or so. We have -- two of these are large outsourcing contracts. They are the largest outsourcing contracts we've signed in the history of this company. We also had the sale of our ATMs in Hungry to one of the country's largest bank which is set -- our Hungarian office to be solidly in the black. This sale is part of a significant deal with Hungary, which included a 5 plus year ATM outsourcing agreement and new MasterCard, Visa sponsorship and the first deal that we've had in quite sometime with the market leader in Hungary.

Now let's look at these highlights kind of in specific. First deal, Raiffeisen Romania, this is a multiyear agreement to provide end-to-end ATM and POS transaction gateway and outsourcing services for Raiffeisen Bank. Raiffeisen Bank SA is the third largest retail bank in Romania and the largest Raiffeisen subsidiary outside of Austria. Euronet will provide end-to-end ATM and POS services and electronic recharges bill payment for the banks currently deployed approximately 600 ATMs and 2700 POS terminals. Raiffeisen does have expansion plans. They intend to take on their Romanian market with board. They want to deploy an additional 300 ATMs and an additional 3300 POS terminals in the first 24 months of this partnership that we have with them. These additional POS terminals and ATMs that would fall under our contract and we would service those as well. So the total now is expected to grow at about 900 ATM and 6000 POS terminals if Raiffeisen bank meets their objective. And the nice thing is they've got two-thirds of these ATMs party currently installed which will be taking over, so there is really no risk of those and almost half of those POS terminals. So they are starting with a good base and they expect to grow larger. These will be category ATM once that we do traditional outsourcing for and I might add if you'll notice that theme in the lot of the slide shows that I have given in the past, we have partnerships with a number of banks throughout the region where we process for them in multiple countries. This is the fifth time, the fifth bank partner of this country that we have signed a contract with Raiffeisen bank and across Central Europe -- Central and Eastern Europe. The next deal this is HypoVereinsbank in Holland. It is the fourth HypoVereinsbank that HVB bank that we have signed a contract with. We like [working] these multinational companies as these improve your worth in the foreign country. The sales process in the [inaudible] country obviously is easier and by the time you've gotten a two to three time it makes our sales process all the much easier. This is another multi-year agreement to provide end-to-end ATM outsourcing services to HVB's existing network of 717 ATM, HVB [inaudible] BPH and PBK. They are combined now as HVB Poland as it's called BPH PBK SA. It's third largest bank in Poland which is owned by HypoVereinsbank, which as you might know, is the second largest bank in Germany. HVB Poland has 2.8m customers. This is another comprehensive deal for ATM operation management in addition to providing value-added services, such as electronic recharge across these terminal. These will be classified as Category Two ATM. The last one is the deal that we did with a very large Hungarian bank, contractually right now we can't disclose that name, but overtime we will be able to. We have sold our 272 Hungarian category One ATM to this bank, turning them into category Three. Again this sale is part of a significant strategic deal at Hungary, which includes a 5 plus year ATM outsourcing agreement for these ATMs. And agreement and a purchase leaseback program in a new Visa MasterCard sponsorship agreement with the bank. This deal helps us as we mentioned, find a new sponsor bank. It will free up cash for the Company, it eliminates the responsibility for ATM maintenance and up keep. And as you know, we've started in Hungary nine years ago, so our Hungarian ATMs are actually the oldest that we have on the book. And it enables our Hungarian office to be firmly in the [inaudible] as far as operating profits.

When all three of these contracts are fully implemented, we will have the 717 HVB ATMs, the 600 [re-fi] in ATM's and we have the completed implementation of the Hungarian high contract, which is anticipated to be mid 2004. We would estimate that our incremental annualized operating income will increase by approximately $4m per year.

Now, let's talk about India, just briefly. There is a lot of action in India as well. CashNet, which is our clearing -- ATM clearing organization between member banks, now has 1460 ATMs interconnected. These are ATMs of three large banks -- retail banks in India; Citibank, IDBI Bank, and UTI Bank. We have a total contracted of 2320. We have also -- the rest of those -- that will be approximately 800-850 ATM live, get into the network, were in the process of billing networks the other banks that have signed up with us. IDBI Bank, which is our first outsourcing client bank has 26 ATM live and is now projected to have 200 ATMs to go live by the end of 2003. We, however, had originally expected this would be about 400 ATMs there towards December. But due to us taking our time and a brand new bank taking their time with this rollout, we have kind of -- we slow down our expectations for how fast who will bring over all of their ATMs. We were now projecting about 200 ATMs by the end of 2003. I think the last time I was on the call, I was expecting about 400 by the end of 2003, knowing most -- all of them would have been basically brought live in this quarter in Q4.

We also have signed a new outsourcing agreement for an additional 75 ATMs in India, which we've already began to implement. We will not name this Bank name yet; we are in the process of getting clearance from the client for a press release. I just -- the contract is signed, we are implementing CoC, for the news on that here shortly. So as you can see, we have had a very busy, busy quarter in this division. We have privately signed more ATM equivalent deals in this quarter than we have in any quarter in our history and probably in any year of our history, so I am pretty excited.

If you will move on to slide number 18, you can see what these contracts do to our ATM numbers. We have seen -- you have seen this table before, we kind of show you prior quarters and current quarters, in addition we will show you what's under the contract and then what the numbers will be after implementation of these contracts. So number one, you will notice that the 272 ATMs have changed in classification, this is from the Hungry ATM sales on category one and category three, as I discussed in prior comments. Also, you will notice that our network is increased -- will increase by about 51% over the current count today as we had in these additional ATMs under contract. When you look at our mix now, you will see the difference from January when category one ATMs represented about 60% of our mix. And where right now they represent only about 17% of our mix going forward, what that means is 83% of all our ATMs now will be category two and three. This shift, the outsourced ATMs towards our stated objective of owning [last] ATMs and CAPEX and CAPEX risk and outsourcing more ATMs that are owned by other people.

On the next two slides, slide number 19 and 20, you can see a geographically breakdown of these numbers. I won't go into them at this time, but they are pretty, [I will call it] horrible.

We'll then move on to Slide number 21 or 22 where we'll begin talking about our Prepaid Processing Segment in that division. Again, you can see in this segment, we've got strong growth in both operating income and EBITDA for this division. Notice that we've also added VARS to represent January in the very first quarter because as you know we purchased e-pay and really started this division up at the beginning of February of this year.

Move on then to slide number 23. The highlights are revenue of $36.5m, operating income of $3m, and EBITDA of $3.9m. Revenue of $36.5m, is up 13% over last quarter. Our op income of $3m, is up 11% over last quarter. But I would like to make a couple of notes. First of all, when we purchased e-pay, we set some significant achievement goals out for the management team and employees of that division, is that that if you could hit these numbers, we'll give you a nice little bonus at the end of a year. Through Q1 and Q2 we weren't sure at all if this division was going to hit these bonuses, but based upon the stellar performance of Q3, and you add that to -- for one and two, we now believe there is a high line we heard that we will be paying some bonuses to these individuals who made this division successful and so we have accrued extra spend in this quarter really to cover the prior quarter, the next quarter. If you would exclude that bonus accrual, we would have had a 25% increase in op income, if equalized for incentive compensation. Also note that even though the op income was $3.4m. From the cash basis you should understand that we amortized about $150,000 per month or $450,000 per quarter as our purchase price intangible amortization for the purchase of the e-pay assets. On EBITDA side, we were up 6% over Q4 and 17 -- we were actually up 17% if equalized for incentive compensation. So we have been pretty happy with that -- those performances.

Now, we will talk about the kind of business highlights if you move on to slide number 24. As you know, the Prepaid Processing Business is a consumer business to acquire the EFT business. People have to go and buy more at a time at one of our retailers. The independent retailers are certainly are large segment of what we do. We added of about 500 retailers in the UK in this quarter and about 300 in Poland in this quarter. You might remember on the last quarter we had just online with our first 10 ATM, our [inaudible], maybe it was 50 or 100. And at the end of Q2, when I had our Q2 conference call we've added 300 across this quarter. Iceland, we also added Iceland convenience stores and I have done that for rollout. I did it announce that we had [find] Iceland -- Iceland is a frozen food kind of convenience store with 600 locations. It's now been fully implemented and has approximately 2300 points of sale across the UK, so that's across 600 doors or 600 locations. We had announced in our prior calls, but now we have fully rolled it out, but we have those benefits, though top of that occurring at those locations. With respect to the net [goal] point Tesco, Tesco Supermarket is, as you know the largest retailers in the UK. They have stores in both the UK and Ireland and it recently acquired a smaller chain of convenient stores in the UK. We have been converting these convenient stores -- this convenient stores chain and adding those integrated POS terminals through our operations, which added about 1000 points to sale, thanks to the Tesco's acquisition over the last quarter. We also leverage the Tesco relationship to launch services in all 79 Tesco stores in Ireland, opening up our Ireland business. As far as these big deals closing, we can't forget that this division -- Prepaid Processing Division has been building [Duplex Area] C Division. They've signed Sainsburys, which is the third largest supermarket chain in the UK to have the launch for an upcoming press release on that now -- upcoming press release on that shortly. But we now support Top-Up and all six major supermarket chains in the UK. In every country it is a little bit it different when it comes to prepaid Top-Up Processing and rare people do it. In the UK, the bulk of the processing having been grocery stores. And we own 6 of the top 6 grocery stores as conduit for our Top-Up sale. Also, converging to Top-Up continue, various mobile operator incentives continue to push people away from scratch-on cards, which are more expensive and more [inaudible] to electronic. And in fact, T-mobile, the third largest mobile provider in the U.K. has probably removed its low denomination 10-pound scratch-off cards. So if there is somebody who needs pop-up in the U.K. in any other T-mobile phone and you have got 10 pounds to spend you can only spend it at a retailers that offers pop-up electronically. These kinds of incentives that the mobile operators are doing are making that conversion from scratch-off cards to electronic and that helps fuel our growth.

If you then move on the slide number 25. This gives you how the market summary, a geographic labor of our prepaid business. We are up to now about 62,000 different points of sale in the U.K. So, now that's doesn't mean 62,000 different stores, but if you are in Tesco store and they have 10 lines and then you have 10 POS terminals there where as the small retailers like the 500 that we just signed this quarter helps the kind of one-to-one relationship. U.K.'s e-pay market was as I mentioned, it is live with 62,000 POS terminals, Australia has about 4700, New Zealand is already up to 700 POS devices. And I think we had about none at the beginning of Q2 of this year. So we have basically put in those 700 over the -- for the last couple of quarters. In Poland, which is a brand new market for us, where we have just gone live here recently with, we have all three mobile operators now to sell our -- sell airtime at across our locations. We are about to launch 900 plus POS terminals lines with the [Geon hyper market] store and that will give us all three mobile operators for that launch. As you know we had a kind of Polish eyes our product, we do customer service in Poland and that it shows you the versatility of the prepaid transaction process in engine within four months basically when we concluded our deal with, [inaudible] say, we are live with the new language version and a new consumer -- customer service model within Poland. So we are real proud of that.

As I mentioned to you we are live in Ireland with 70 Tesco stores, which is Ireland's largest retailer. We have contracts with three Irish mobile networks both on Ireland -- two Ireland in [inaudible]. In the United States, we are growing our recent -- our business with our recent AIM acquisition. AIM is the network of more than 140 independent sales agents that represent over 3,500 retail locations in 36 states. Of those we have more than 1,700 locations have a lifetime distribution of prepaid services via the POS terminals that we have put in there. Actually I think the number is 1,900.

In Malaysia, this is our joint-venture partner. We have 3,700 POS terminals in Malaysia and a same joint-venture partner now has entered Indonesia with 700 POS terminal -- 600-700 POS terminals. Current prepaid POS count when you add up all these numbers is approximately 75,000 POS terminals across all of these markets.

We'll now move please to slide number 26, or actually make it 27; our software solutions segment, here we have our financial highlights. We have been targeting around $15-16m in sales. We are just well on our course for that. Our operating income is right where we want it, and our EBITDA is right where we want it. So it looks like this division continues to sell software to bank around the world, which for us in the future may become future outsourcing customers; and if not, it's a nice little business in itself that certainly is able -- we are able to leverage with our large processing centers in Budapest and in India. Our software backlog stands right now at about $5.5m worth of software to be installed.

We move on then to slide number 28; this is just a few of the highlights we have done on site implementations in 17 different countries year to date. Splitska Banka is another HypoVereinsbank and it signed a large software contract with us this quarter. We have continued to put Internet banking, we do upgrade projects and we are just been busy here in the software. If you would like to -- in the software segment -- if you want to move then to slide number 29, I will give a quick wrap-up for the quarter. In Q3, we had positive earnings per share for the second quarter in a row excluding FX in discontinued operations at 6 cents a share. We are very happy with that. Our year-to-date EPS is 4 cents per share excluding FX and the gain -- and also excluding the gain on the U.K. ATM network, which was completed in January. Our three business lines are all showing strong quarter-on-quarter improvements particularly our two processing segments. With the latest contracts that we have covered with our EFT processing segment, we've added more than 1,400 new outsourced ATMs that are under contract. And that we hope to install a little bit at the end of this year, but basically of course the beginning of next year.

In our prepaid processing segment, we've added new retailers, we added the third largest gross restore chain in the U.K. Sainsbury, and we have increased the 75,000 our point-to-sale across eight different countries. Also, as Rick mentioned, we've reduced our debt. We have reduced -- and that's going to help our interest payments as we move forward, so we reduced our debt in Q3 and then also early in Q4 was finalization of the e-pay loan notes. We completed our -- and those loan notes were about $8.5m note that we've now paid off completely. We are affirming our 2003 guidance that we issued last quarter. We expect our earnings for the full year of 2003 to be in the range of 10 to 12 to13 cents excluding the effects of foreign exchange gains or losses and also excluding the larger gain that we had on the Company's U.K. network -- our Company's U.K. network in January of 2003. So, all in all, I am in a pretty good mood around here. We have been [closing] business and we have been posting gains. So we are prepared for the future as well as what [Mike and Rick] described here in current. I would now like to open the door for questions. Operator, could you may be take over please.

Thank you gentlemen. At this time, if any participants are having difficulties with the slide presentation for the conference, please close out and re-login. Ladies and gentlemen, it is time for the question-and-answer session. If you would like to ask a question, please press star "1" on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star "2" if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. So, we ask that you please hold while we poll for question. Our first question is coming from Robert Dodd of Morgan Keegan.

How are you guys? I have got a couple of questions on the ATM business festival, I mean, can you give us an idea what the after-tax impact was on the sale of the Hungarian ATM's the 272?

Yeah, it was -- that 800,000 is reflected in the P&L that we recorded Robert in Poland. I mean, in Hungary we were in a NOL carry-forward position, so we didn't have any kind of attacks hit on it.

Okay and then how much did the HVB outsourcing contracts type II contracts, so can you give us an idea how much it's going to -- what your excellent expense is going to be to take those ATMs on to your books?

Well there will be obviously some expense. I can't say that there will be nothing. It wouldn't fall into the category of a substantial amount meaning it's not going to be, you know, in the million of dollars range. It's probably more in the hundreds of thousands dollars range. But probably the more significant piece of that may be Robert from your perspective is that, because they are Category Two Type II ATMs, we will do a purchase [lead] back transaction with HVB and that will be in the range of $70m when we finalize the particular net book value that's carried on their books that we'll purchase from them.

Okay. And then on the e-pay, I saw the business for the [to-pay] processing, whatever you want to call it. What's the impact of Sainsbury is going to be in terms of margins and mix of large, small [merger] -- so, when does this Sainsbury actually then come online?

The Sainsbury will start coming online in the fourth quarter. We've done some test to make sure that all the things work here. And you know as we traditionally do, we do not disclose, you know, what kind of particular margins etcetera we make on a customer. But you do know that in our large retailer category, we benefit more from volume than we do margin. But I will say that it is not an aggressively priced transaction. And so we will see good benefit from it. It will start in the fourth quarter and it will not be the most aggressively priced agreement.

And Robert it's much like all of those big shopping supermarket chains in the U.K. where we have a deal with [inaudible], well really their transaction process.

Yeah.

Or in their distributor. And so we look at these things. These are great deals because once you do the connection it's all new found money. You know whatever the transaction processing fees are, none of then are extraordinary and, like you can't make or break your differences on any one of them, but the fact of the matter is they give you volume, they give you muscle with the mobile operators, and it's all new found money once you've made that connection.

Yeah, I mean just one quick, how many point of sales [inaudible] you are going to add when it's fully implemented?

No, gosh, you know what I don't have that number Robert but I can get that for you.

Okay.

That number is three [inaudible]; number one is the Tesco; number two is as the Wal-Mart [inaudible], they are number three.

Okay.

And we can get you those numbers but I just don't have them off the [double-mind] yet.

That will be great. Excellent quarter guys. Thanks.

Thank you very much.

Our next question is coming from Nick Fisken of Stephens Incorporated.

Hi, good morning everybody.

Good morning Nick.

The tax rate was down sequentially, can you give us some reasoning why and what the go forward rates going to be?

Yeah, Nick it went down a bit because there was a favorable ruling in the Netherlands with regard to deductibility on the local returns of inter-company interest. And so we benefited a bit from that in the second quarter and we will -- I mean, third quarter and we would expect that the effective rate will return, you know, back up to levels that, you know, that you probably saw more consistent with the second quarter as we finish out the year.

Okay. And then the salaries and the benefits, [Weller] on absolute basis was up 11% sequentially and SG&A was up 26% sequentially. You said part of that was the increasing corporate expenses, is the other part that [inaudible] [accrual] to repay?

Exactly.

Okay. So on a go forward basis, should we use the same type of percentage of total revenue or try and give us some guidance their?

Well, the salary expectation number I would believe will remain relatively consistent because we have to finish this year. As Mike said, we saw a strengthened confidence on hearing that sudden numbers and so we book that in the third quarter so fourth quarter you'll see, you know, a similar number. So that salary number should be in that same kind of the category. But like I said, we will see a bit of a relaxation after that corporate expense, you know, like I said about a fourth to a third of that 400,000 would be recurring. So, I think you could probably take the flip side of that number and back it off for that that.

Okay, [same as] the Hungarian sale was about -- was 3 cents positive to earnings?

Would be little less than that.

Little less. Okay did you guys know about this sale when you guided EPS to 10-13 cents by work order?

Yeah, what we did is -- and you can look at it as the sale or however the Hungarian transaction turns into what we would think of as a major restructuring of that Hungarian business. And the alignment was a very important significant bank in that country. And so, you know, we were in the process of that. We don't view it necessarily as new ATM deals because our revenue numbers won't increase, our ATM numbers won't increase; and so we'll benefit from some bottom-line benefit because of the structuring of the deal but our top line won't change and our ATM numbers won't change

Last question for Mike. You've done three big deals in the last 60 days. Can you give us an idea of the pipeline? And should we expect future deals like this Hungarian deal?

There's no rest for the [inaudible] is there Nick. Actually, you know, there would -- as far as there are other kind of Hungarian deal, they were [inaudible] a kind of, run out of countries where we could do that in, you know or down the whatever percent like that. But totally, I think 17% or so of the total ATMs they have under [managed] with [inaudible]. There is a possibility. This is kind of a unique deal and probably we wouldn't have done this deal if we hadn't hit kind of write-down all the [centers] was the right financial deal. Save a lot of expenses and put it -- and that was one of the very largest banks in that marketplace. So you kind of have to have your stars lined up to do one of those deals. I would say that there are -- there is a possibility, I guess, that we could do those. I would never say no, but we don't have any, you might say in the oven. We did have this one in the oven when we spoke about our guidance last time though.

How about the [inaudible] group other outsourcing ATM deal?

There is still a pipeline there and you know, [grant] to these two big deals, you know on -- and we have been working on one of them for nine months and one of them for 18 months. So you just never know how long it will take to close them, but they are big, strong, you know recurring revenue multiyear kinds of deals. So I will say that we sell the pipeline and have more prospects, but I can't tell you for sure when these will close. We are going to have our hands full over the next six months to get all these implemented and basically growing our ATM count by almost 30% so.

Great. Thanks so much.

But there is more outsourcing deals and actually it answered your question. Take a look at what we have just done. We've just signed two very large deals in our region. Every single bank in the region is looking at these deals. I mean these are kind of [bell weather] banks that are large market shareholders. So, this is the kind of stuff that we like to [inaudible] as we're -- and put under peoples' noses as we are out there trying to close new deals.

Thank you sir. Our next question is coming from Pete Heckmann of Stifel Nicolaus.

Good morning guys. Nice quarter.

Thank you.

You're welcome. In terms of, let me go back to the Hungary, and the sale of the 272 ATMs, what was the total cash consideration for that transaction? And then I think you had commented on this but perhaps I missed it. What would -- what should we expect as the relative revenue that was generated from these units and are we kind of decreasing it on the same magnitude in terms of going from [Ireland] to outsourced that we saw with the U.K. contract?

I said the revenue won't change at all. It's just really an expense reduction.

Okay.

So, it's kind of a complex deal, which this bank wants to make a better money off this network. So for the first two years of our agreement, they will still be brand -- they still be branded as Euronet ATMs. [inaudible] are another their property. And then the following years after that we'll be branded by what's the name of the bank and then we'll be the outsourcing provider for them. So for that reason what you find is they've taken overall responsibility of the expenses, so expenses go down rather, let's say, you know, approximately equal, you know, that's what we would have done otherwise.

Okay, I guess, I am not completely understanding. So they paid you for the ATMs and they're assuming the expenses and what's the benefit to them?

The benefit to them is they are able to make a lot of money off their own customers' use of these ATMs where they actually have them branded different and charges are more. And they also have the best off range network in the country as they're able to leverage either with our brand or they're brand, basically of their choice.

Okay.

So I mean from a strategic point of view it's excellent for them.

Okay.

From our point of view it's great to strike up this deal with this very large bank.

Right. Any other -- the total consideration, is that not a very large number because of the--?

The total consideration for the sale of the ATMs was approximately $3m.

Okay, then my follow-up question -- you did about 3-4 cents in the third quarter adjusted for the one-time gain. So it sounds like you're guiding the fourth quarter to about 6-9 cents or 100% sequential increase. Is that primarily attributable to just very seasonally strong transaction volume?

First of all, it was not 100% increase, which is basically to meet our objectives of 10-12 cents this year, we have to have basically equal this quarter, correct?

Well, 6-9 cents.

Yeah. Okay so that will be -- event though we have 50% growth, right?

Right, you exclude -- you are not to have another one-time gain in the fourth quarter.

Excuse me. And you know Q4 traditionally is a strong one for us. We probably get -- I am not sure of the numbers exactly but I virtually get 45% of our German traffic in the last three months of the year as an example. And that's very great market for us run by really strong guys and we are able to extract a lot of money out of the German market. So you know, the holiday traffic is usually stronger for us.

And the other thing, Peter (ph.), you know, bear in mind that while on a percentage basis, that may sound more substantial, but on a EPS basis when you look at it, each penny per share is about $280,000, $290,000. So you know, that's you know fairly more than $0.5m in bottom line profit to hit that 50% kind of mark, and you know we've got growth that we see obviously and in both of our major segment drivers here being the Prepaid and the EFT. So you know we see that being enable to produce that amount of absolute dollars, while it may sound you know rather significant just on a percentage calculation, the absolute dollar amount you can hopefully see is more realistically obtainable.

Right, I completely agree. Thanks.

Our next question is coming from Tony Wible of Smith Barney.

Good Morning. I have a couple of questions. One, I was hoping you would help me out, which is quantifying the accrual expense that you guys had for the first and second quarters and gave it out in percentage terms but if you can just put that in dollar terms. And also what is the U.K. tax rate?

The U.K. tax rate is 30% and with respect to your first question, quantification in the first and second quarters, as Mike said, we did not accrue any expenditure in the first and second quarter because we -- at that time it appeared that maybe we weren't going to be on target to get those bonus levels.

Right. And looking towards the [catch-up] for this quarter.

Let's say approximately couple of hundred thousand dollars.

Okay. And can you talk a little bit about the pricing trend you are seeing. You have entered a lot of new markets. Is the pricing in those markets different than what we typically see in the U.K. on a percentage basis?

Absolutely. The U.K. is the smallest percent market that we have, okay? So it is the most material, the most advanced, and the highest volume. As you know, we get 7-7.5% [inaudible] that range in the U.K. per mobile operator. In Poland we're around 10 or 11%. I [think] in Ireland it's somewhere between there, closer to 10 I think because we've got a unique scheme. What's your [fine, Tony], is there is no sweeping generalization you can do. These mobile operators have kind of grown up and evolved with their retailers along a slightly different path in every single country. But we would say that the range will fall between say 7 and 12% or so.

And have you seen any indication that some of these other mobile operators might actually drop a little nomination physical cards and--?

Well, actually this was the third mobile operator to do so. Both [Orange and Relecon] -- number one and number two -- did last year, Orange did about mid last year and [Relecon] did -- if I remember correctly, I think [inaudible] they said it will happen in like fourth quarter of last year.

Okay

This is a trend; this is not a unique occurrence. They intend to eliminate [inaudible] virtually 100%.

And as you've indicated on the call, you've obviously have a lot of announcements very recently and I know that one of the your competitors is also -- in the past did take down a lot of business. At this stage, are you gonna be focusing more on the existing markets that you are in and building up those operations that you continue to want to look out to new verticals and I think new business?

Well I think we are looking at both, but I don't have a clue to my competitor might be but I mean, we see geographic expansion, opportunistically and also if we can dream up new products to first do our channels and that's opportunistic. As an example, we are about to launch a mass record these basically [pured] process in across the terminals in Australia across the same kind of terminals. So this is the way to kind of leverage up what we have got right now.

Okay. Thank you very much. The one last question would be, what was the operating cash flow number for the quarter?

I don't have that number at the top of my head, but our cash flow, if you look at it on unrestricted basis that only went down by couple of hundred thousand dollars and like we said we paid off $4.1m in debt, so we had strong operating cash flow which enabled us to make that for so million of debt payment, bringing us just only a couple of hundred thousand dollars reduction in our unrestricted cash so what I see that's -- that final number, it's obviously got to be approaching our EBITDA kind of number.

Great thanks a lot.

Well, I think we need to -- maybe one last question.

Our last question is coming from Franco Turrinelli of William Blair & Company.

Hi Mike and Rick, just squeeze them on the mobile?

Yes sir.

In the new markets that you are moving in to with the prepaid mobile and what if you seeing that kind of support from the mobile phone operators that you have experienced in the UK and that you are starting season consumer behavior changes, but -- I mean it's not just that point of sell roll out, we also need the consumers to change their habits, thanks.

This is -- just maybe two parts to that. The UK was the first real significant player to go -- to move forward from [inaudible] right to electronic, they did it -- it was imagined as $32m prepaid phones and so [many] did it, everybody kind of start to paying attention. Sometime we have to go like we were in the Poland. We had -- have a lot of meetings -- what they have all operated there to show them asset, I mean even though a kind of kneel, we had a kind of push them along. Australia they have been a lot more open minded, we are kind of the first guys there to help them along. So I think you've got a continual of the mobile operators, the continual of what they had mentally and [while] the education process needs to be. But I think it is a consensus among them all that will get to electronic at some point, and why that is not sure, how aggressive they need to be in the mean time. There is a little bit of a chicken in the egg. You would not -- being the mobile operator in England as an example, they only had 10,000 electronic POS terminals to be Top-Up, you would start eliminating scratch up parts because you just don't have enough of distribution coverage. What they got to be around 100,000 points of presence in the UK than the mobile operators started pulling the cards. So if - when you can build up your point of presence to the point where they can feel comfortable doing that, they will do it. But I can promise you [inaudible], they never do it, nobody would do ahead of that comp.

I was wondering if, you know, actively promoting or pushing --

Was just five there -- their connection to us -- lot of these guys have to go to the effort of making their backend available to us, so that we can have online connections, I mean these are all active things they do and they have -- we have seen sometimes where they have done promotion, with our promotion in New Zealand. I think in beginning of this quarter we see promotions in other countries as people has those mobile operators try to get people to have it. But so they help us a little and we help them a bit, when you get coverage where they fill comfortable and not they kind of hold the card.

Have they announced was there any get on to this question, so that what level of consumer activity, you know, do you [called of] it having comfortable operations in these new countries?

In these a Top-Up countries?

Yes.

You know you could make good money if you just have 10% of the Top-Up, so you don't have that -- you don't have to make -- you don't -- and depending on where the margins are. As an example, you know, when in the UK, in other words some 12.5% from the map range, but it took a lot less in some of these other markets, I think we went into the zero and there was same like three months of us operating in that market, which otherwise kind of a satellite market for us, we were profitable. Same kind of thing going through Tesco, it took all 50 to rollout but once the rollout was available we became profitable in Ireland. So [inaudible] to one, it will take a little bit longer because they are the very first people to do much of this in an emerging market. But we would expect profitability in, you know, a timeframe that measured in years, months around that rather than near to nearest. So it is going to take near to have [that electronic] ATM network.

Okay. Thanks Rick.

Thank you. And thank you everybody for taking the time to spend with us this morning.

Thank you ladies and gentlemen. This does conclude today's teleconference. Please disconnect your lines at this time and have a wonderful day.