Euronet Worldwide Inc (EEFT) 2004 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Euronet Worldwide fourth-quarter earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Jeff Newman, Executive Vice President and General Counsel of Euronet Worldwide. Thank you, Mr. Newman. You may begin.

Good morning everyone and welcome to Euronet Worldwide's quarterly results conference call. We will be presenting our results for the fourth-quarter and full-year 2004 on this call. We have Mike Brown, our Chief Executive Officer; Dan Henry, our Chief Operating Officer; and Rick Weller, our Chief Financial Officer, with us on the call today. Before we begin, I'd like to make a disclaimer concerning forward-looking statements. During this conference call, representatives of Euronet Worldwide will make statements concerning the 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. Our actual results may vary materially from those predicted or anticipated in such forward-looking statements as a result of a number of factors, including competition, 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 our results are set forth from time to time in Euronet's periodic report filed with the U.S. Securities and Exchange Commission including, but not limited to, our Form 10-K for the period ended December 31, 2003, and our Forms 10-Q for the periods ended March 31st, June 30th and September 30, 2004. Copies of these filings and our other public filings with the SEC may be obtained by contacting the Company or the SEC.

Now I'll turn the call over to Rick Weller, our Chief Financial Officer. Rick.

Thank you, Jeff, and welcome to all who have joined us for this review of the 2004 fourth-quarter and full-year results. We'll get started on slide number 4. Euronet's fourth-quarter revenues were 113.1 million, operating income was 11.5 million, EBITDA of 16.1 million, and 20 cents per share in earnings, excluding the effects of FX and loss on early retirement of debt. As you may know, the fourth quarter is our seasonally strongest quarter. The revenue of 113 million represents a 13 percent increase over the third quarter of 2004, and a 61 percent increase over the 70 million reported last year in the fourth quarter. The 11.5 million in operating income reflects a 15 percent increase over 10 million for the third quarter of 2004, and a 102 percent increase over the 5.7 million produced in the fourth quarter last year.

16.1 million in EBITDA is a 13 percent increase over the 14.2 million of the third quarter of 2004, and an 83 percent increase over the 8.8 million posted in the fourth quarter of last year. And in the fourth quarter, Euronet produced 20 cents per share as compared to 16 cents a share reported in the third quarter, all again excluding the effects of FX, disc ops or debt retirement losses. This 20 cents represents a 25 percent increase over our last quarter and a 150 percent increase over the fourth quarter of last year. I'll also observe that the 20 cents exceeded our expectations of 18 cents. This was the result of better-than-expected results across both the EFT and prepaid segments, together with some lift driven by the exchange effects of the euro and the pound strengthening against the U.S. dollar.

These great fourth-quarter results bring to the close an even better year that I'll review with you as we turn to the next slide, slide number 5. For the full year, you can see that we nearly doubled or more than doubled all of our key P&L line items. Revenues were 381 million, up 86 percent over '03. Operating income was 35 million, up 165 percent over last year. EBITDA 51 million, a 101 percent increase over 2003's EBITDA of $25 million. Full-year earnings per share came in at 59 cents, almost 5 times 2003's EPS, again excluding the effects of FX, loss retirement -- losses on retirement of debt, and the gain we had last year on the sale of the UK ATM network. With respect to the full-year earnings per share, you may notice the 59 cents is greater than the sum of our quarterly earnings. That's the result of the rounding benefit throughout the year of all of our previous quarters rounded down to the nearest penny. So for the full year, the 59 cents reflects cumulative benefits of those fractional pennies. And as I said a minute ago, the fourth quarter was a great closing quarter to a great year.

Now let's move to the next slide. Here on slide 6, you can see that Euronet continues its sequential revenue growth with the fourth-quarter growth of 13 percent. Rarely do you get a chance to present growth slides that are so consistent in their sequential improvements. On slide number 7, here we present our trended quarterly consolidated operating income and EBITDA. Again, consistent with prior quarters, Euronet continued to post improvements in both its operating income and EBITDA. And as you can see -- you can see the significance of the leverageability from the top line to the bottom line of our business. Finally, as we exit 2004 to enter 2005, our $16 million in EBITDA multiplies to an annualized EBITDA of more than $64 million.

Moving to slide number 8. The sequential quarterly growth in revenue reviewed earlier has obviously led to a substantial increase in 2004's revenues over 2003. And while you should not expect the recent historical trends to continue at these rates, you can see in the past two years Euronet has essentially doubled each year. On our next slide, you can see the profit performance of these growth rates. Here on slide 9, you can see through the yellow and blue bars in 2004's column represent the 35 million in operating income and the 51 million in EBITDA I referred to a few slide backs.

Also notice that in the year 2000, Euronet posted a $35 million operating loss. In 2004, that's a $35 million income. That four-year change represents a compounded annualized improvement in operating profits of about 35 percent. Furthermore, if you simply annualize the 11.5 million fourth-quarter operating income to approximately 46 million, you can see that this run rate would produce a 30 percent year-over-year improvement, which serves to reinforce our confidence of continued year-over-year operating income and improvements.

Now to make a few comments about the segment results, let's turn to the next slide. Here on slide 10, as you know, we operate and manage three primary business segments; EFT, prepaid and software. We will discuss each of these as we continue our discussion this morning. Moving to slide 11, you can see that in the fourth quarter we continued to post substantial improvements in transactional growth. This represents a 7 percent increase in transactions processed over the third quarter of 2004. This increase also reflects a 5 percent growth in EFT transactions, principally driven by a 6 percent increase in ATMs managed and operated, together with a 10 percent growth in prepaid transactions driven by increases across all markets.

From here, let's move to the segment operating results on slide 12. This schedule illustrates the segment makeup of the 113 million in revenue, 11 million in operating income and 16 million in EBITDA. Further you can see that all segments posted sequential improvements in revenues, operating income and EBITDA. The EFT processing segment improved fourth-quarter revenues over third-quarter revenues by 2.8 million. Operating income improved by 1.6 million, and EBITDA improved by 1.7 million. These improvements reflect the benefits of the installation of an additional 338 ATMs and approximately 4000 managed POS devices installed in the fourth quarter, together with the seasonal benefits we see in our business in the fourth quarter. The expanded operating income and EBITDA reflects the strong flowthrough from our EFT processing business.

In the Prepaid Processing segment, revenues improved 10.5 million, operating income 0.2 million, and EBITDA improved 0.5 million. As you may recall in the third quarter, we reported that the third-quarter's operating income and EBITDA benefited by approximately 700,000 as a result of higher than average terminal sales in the German market. If you normalize the third-quarter's operating income for that 700,000, you can see that the operating income would have improved by about 900,000, and EBITDA would have improved by 1.2 million.

Moreover, in the Prepaid segment, we were confident of the expansion of our top line and accordingly made some decisions to make additional market expansion commitments, amounting to approximately $0.5 million per quarter, to position ourselves to take advantage of market opportunities. These commitments were principally in the U.S. and Australian markets. In these markets, we have already produced results as demonstrated by the addition of more than 1000 terminals in the fourth quarter. And my final comment on the prepaid segment; our gross margins remain consistent with prior quarters.

To complete the slide, Software segment results were consistent with the third quarter as we expected. Corporate expenses increased by about 300,000, mostly to do with professional fees related to the Sarbanes compliance requirements. Overall, a significant improvement quarter over quarter. Now to slide 13 to review some key balance sheet items. Our unrestricted cash increased year-over-year from 19 million to 124 million, largely driven by the funds from our issuance in December of 140 million in convertible bonds, offset by approximately 50 million used to repay debt. You can see the results of the bond issuance in total debt increasing year-over-year from 65 million to 166. I'll cover more on our debt summary in the next slide.

Our total assets basically doubled year-over-year. This is the result of funds from the bond issuance, the purchase of the Spanish prepaid entity, the completion of the earnout for the German prepaid entity, and the balance from increases in our prepaid segment assets such as restricted cash, receivables and inventory, driven by the doubling of the prepaid business year-over-year. Total shareholders equity improved about 60 million as a result of about 18 million in net income, together with stock issuances in connection with option exercises, employee stock purchases and acquisitions. With regard to our key financial strength indicators, you can see that our debt to total capital increased from 44 to 54 percent. This is the result of replacing our acquisition and high- yield debt with convertible bonds.

As you know, while the bonds are convertible at 33.63 per share into common stock, we carry the bonds on our balance sheet as debt. We will continue to do so until they are repurchased or converted to common stock. However, if you were to assume the bonds converted to equity, the debt to total capital would decrease significantly from 54 percent to 8 percent. We believe this bond offering significantly strengthened our balance sheet at very favorable pricing terms, and positions us well with a substantial cash balance and significantly reduced interest costs.

On slide 14, a few more details on debt. Here you can see several reconciling items from the end of the prior quarter. In summary, the $140 million bond issuance enabled us to repay all of our high-yield 12 3/8 debt, as well as our acquisition-related debt and amounts outstanding under our $40 million line of credit. Aside from approximately 3 million used to cover standby letters of credit, we also have $37 million available in unused bank lines of credit.

Moving now to slide 15. Here you can see a recap of our debt position. It's fairly simple now; 140 million in 1.625 percent convertible bonds, approximately 21 million in capital leases, which largely support long-term Type II ATM outsourcing contracts, and 5 million in miscellaneous borrowings across operating units used generally to support seasonal needs. Overall, a more simplified and efficient structure.

If you turn now to slide 16, I'll wrap up my comments. Before the numbers, I want to comment briefly on the impact on earnings per share related to the convertible bonds. As you may know, the current accounting guidance requires contingently convertible bonds, like the ones we issued, to be included in the earnings per share calculation if they are dilutive, regardless of whether the conditions have been met that the bonds would convert.

When we made the calculations we found that, if treated as converted, the reported earnings per share would have increased; or said differently, they would have been accretive. Accordingly we did not treat the bonds as if they were converted in the EPS calculation and included the convertible shares in the diluted outstanding shares. However, the impact on earnings per share is expected to be dilutive in future periods, and accordingly the 4.2 million in shares would be included in the calculation of diluted earnings per share and shares outstanding. Remember, to do this calculation bond interest expense needs to be added back to net income.

I'll conclude this slide with a recap of per-share earnings. Note that all per-share amounts exclude the effects of FX and losses on early retirements of debt. In the first quarter we produced 8 cents a share; second quarter 12 cents; third quarter 16 cents; and now 20 cents a share in the fourth quarter. As I mentioned earlier our fourth-quarter results are a bit ahead of our expectations, driven by advances in all segments together with the exchange benefit of the euro and the pound sterling to the U.S. dollar. We are very pleased to close out the year with these strong and respectable results. I will now turn it over to Mike and Dan.

Thank you, Rick. This is Mike Brown. We will move on to slide number 18. Before we talk about these business segments, we wanted to recognize the fact that this year, 2004, that we just ended marked our tenth year anniversary. And I think that the results that we've already covered speak volumes about how far we've come since Dan and I started this business.

On slide number 18 here ahead of you, shows you how the Company has evolved over the last 10 years into 3 business line segments; and we will cover each in the next few slides. First we will start with slide number 19 that I'll hand over to Dan.

Thanks, Mike. We will start with the EFT Processing Segment, if you just please look to slide number 20. As Mike says our Company has grown quite a bit over the last 10 years, so I wanted to show you a snapshot of where we now stand.

We are the largest pan-European ATM processor. We're one of the only companies that process transactions in multiple European countries. That's why very large multinational banks like HVB, Raiffeisen, GE, and Citibank like working with us. We have the largest nationwide shared ATM network in India; 20 percent of all the ATMs in India are connected to this network. We have 2 state-of-the-art operation centers, one in Budapest and one in Mumbai. Combined they operate ATMs in 14 countries and process transactions in 12 different currencies. All the ATMs work in multiple languages and some even process in multiple currencies.

We have approximately 63 host to host connections with banks and international card organizations such as MasterCard and Visa, as well as connections to a number of national networks and switches. We are processing EFT payment transactions across more than 9,700 POS terminals for Raiffeisen Bank in Romania and Croatia. This is more than a threefold increase over the 3,000 terminals we operated just last year. With a network of more than 5,700 ATMs, this is a 71 percent increase over the ATMs we operated at the end of 2003. Additionally we have more than 900 ATMs under contract, which we expect to bring live over the next 12 to 18 months.

We averaged about 24 million transactions per month last quarter and continue to grow our transactions. If you like big numbers, here is one for you, US$16 billion. That's the current run rate of value of cash withdrawals we process on our ATMs each year. In a nutshell, the EFT division was on fire last year. We increased ATM count by 71 percent, tripled POS terminals under management, doubled transactions, and more than doubled operating income.

Next slide, please. Slide 21 graphically shows our consistent and improving quarterly operating income and EBITDA results for the past 2 years. In 2004 our operating income in the EFT division increased sequentially by more than $1 million each quarter. And in Q4 2004 our op income increased by 1.6 million over Q3 2004.

As our experience over the last 10 years has shown us, we see a strong fourth quarter due to holiday spending. Subsequently January transactions drop dramatically and start to come back in mid-February, which has historically resulted in a lighter first quarter.

The strong consistent improvement of op income results in 2004 has come from a combination of India going from negative to positive operating income during the year; EMEA bringing 2 large ATM outsourcing contracts live; good organic growth in a number of smaller outsourcing contracts in key markets; and continue cost control.

Slide 22, please. This slide talks about the EFT results with strong improvements across the board. We are again very pleased with our quarter on quarter gains. The revenues in the fourth quarter were up 13 percent from Q3 and provided a nice flowthrough to operating income, which is up 38 percent over Q3. The resulting 5.8 million op income and 8.2 million EBITDA are both more than double their respective 2003 results. So my compliments to our EFT teams in both EMEA and India for making such solid strides in 2004 in their businesses.

Next slide, slide 23, outlines some EFT business highlights in our Europe, Middle East, and Africa region. By year end we added more than 1,700 ATMs to our EMEA network and more than 5,000 POS devices. These accounts included the 2 large ATM outsourcing contracts in Romania and Poland as well as some smaller contracts. I think it's important to note that the 2 large contracts, which represented 1,300 ATMs, were simultaneously implemented and both were completed ahead of schedule.

We also have another 400 ATMs under contract in EMEA. We signed a number of deals, for example Lukas Bank in Poland, and we expanded into some new markets courtesy of our multinational bank clients, Raiffeisen and HVB. Finally we saw our annual billable transactions exceed 200 million. This is almost a 100 percent increase over the prior year and it helped drive the 150 percent increase in operating income. I would like to congratulate Miro Bergman (ph), John Romney (ph), Roger Heinz (ph), and the entire EMEA EFT team for all their efforts and having such an outstanding year.

Slide 24 outlines our business highlights in India. At the end of 2004 we had a total of 775 outsourced ATMs live with 6 member banks in India and an additional 544 ATMs under contract to be implemented over the next 12 to 18 months. Cashnet India is our branded shared ATM network where we support transactions between the banks who are members of Cashnet. We currently have 9 member banks, 8 of which have been brought live, with a combined total of more than 3,500 ATMs. This equals approximately 20 percent of all the ATMs in India. Together with the member banks we are busy building consumer awareness and transaction volumes on this network.

Our software team last year worked hard to implement the national financial switch for the Reserve Bank of India; and finally we generated positive operating income in September. Due to the recurring nature of our revenues, we expect India will be producing positive results from this point forward. So my congratulations and thanks to our team in India.

Finally on slide 25 we outline our ATMs by category. Since our last call we have added 338 ATMs to our EFT network. You can see that we have almost 3 times that number in our under contract column. This shows the number of ATMs our banks have committed to add to our network over the next 18 months. That is a backlog equal to 17 percent of our current base. In addition to a good backlog we have our sales teams out there working hard, continuing to fill the pipeline with more ATM agreements in all of our markets and some new markets as well. I will now hand the presentation over to Mike to cover our prepaid segment.

Thank you, Dan. This is Mike Brown. We will move to slide number 27. Just like we highlighted our strengths in the EFT segment, I'd like to take a moment here to highlight our prepaid position. Right now we are the largest international electronic prepaid processor, with the largest electronic prepaid market share in the UK and Germany and Australia, and substantial and growing market shares in 7 other markets -- Poland, Ireland, New Zealand, Malaysia, Indonesia, and the U.S., as well as our newest market, Spain. We have 4 processing centers that process transactions for our 10 prepaid countries.

We have direct partnerships with 32 mobile operators including recognizable names such as Vodafone, T-Mobile, Virgin Mobile, Orange, and Orange; and we offer top up for many more regional and national carriers throughout the U.S. and other locations. We process almost 22 million prepaid transactions per month across more than 175,000 POS devices at more than 85,000 locations. All in all we now process and collect more than $4.5 billion worth of annualized prepaid air time.

Next slide, please. You can see the Prepaid Processing Segment continued to post improvements in op income and EBITDA for Q4. You may recall from last quarter, and Rick mentioned this in his discussion today, that in Q3 we benefited from a stronger than average POS terminal sales in Germany, which resulted in $700,000 of additional operating profit and EBITDA back in Q3. If you normalize this result by excluding the $700,000, as shown in the chart on this slide number 28, then our Q4 sequential op income growth over Q3 was $900,000, and EBITDA quarterly growth was 1.2 million. Very nice quarter over quarter.

Next slide, please. On slide number 29 we see the Prepaid Processing financial highlights for this quarter and year which continued to show the strong improvements just as we discussed. We are pleased with the quarter-on-quarter and year-on-year gains in this segment. Our prepaid revenues of 85.9 million were up 14 percent this quarter and 71 percent over the same quarter last year.

Our operating income was up slightly at 3 percent; but if we account for that $700,000 relating to those terminal sales in Q3 as discussed the increase would have been 13 percent. We are proud of the fact that both our operating income and our EBITDA had more than 66 percent increases on same quarter basis year-over-year; so we extend our compliments to our prepaid teams around the globe for the improvements in their businesses.

Next slide, please. We are on to slide number 30. Our annual transaction growth was 127 percent, 229 million in 2004 compared with 101 million transactions in 2002. Every market posted transactional quarter-on-quarter and year-on-year gains this quarter. Adding more than 50,000 POS terminals, which came up to a total count of 175,000 POS terminals in 2004, is a great accomplishment.

Poland was one of the first countries that we leveraged our existing mobile recharge relationship and launched e-pay Poland. We actually even process those transactions out of London. We crossed over to positive operating income in Poland in less than a year. In 2004 we also implemented our first integrated cash register system for prepaid top-up in both Germany and Poland. We also expanded into the route (ph) and independent store market in Australia, in addition to adding contracts with 3 large retailers. In fact, I think that number is around 7 or 800 small stores due to that endeavor. We continually look for new types of transactions that we can generate and leverage across our existing terminal infrastructure; and in 2004 we've added new services such as merchant processing, prepaid long distance, and Napster in various divisions.

Next slide, please, slide number 31. Let me quickly recap our acquisitions in the prepaid segment this year. Most recently we entered the Spanish market, which is the fourth-largest European prepaid market, with our Movilcarga acquisition. This was the deal that we announced back in November and the integration process is going well. We also completed 3 U.S. acquisitions, Precept in January, EPS in May, and CPI in July, all of which are fully integrated and contributing to our U.S. based PaySpot subsidiary.

Finally in May we acquired -- of last year or 2004 -- we acquired 10 percent interest in ATX, which focuses on smaller distributor-based markets, currently in about 20 countries such as Belgium, Switzerland, Holland, a number of countries across Africa and Asia. This company enables us to take advantage of these smaller markets with a quick to market solution. All in all, our Prepaid Processing segment had a great year; and again I would like to thank our teams in that group for supporting the growing segment.

We will move on to Software Solutions segment, that is slide number 33. Our software group continued to provide results that were similar to last year; and they continued to help us implement projects for our large multinational banks. We intend to have them continue to do the same thing in 2005. You can see that we have a comfortable backlog of $4.3 million; and I'd like to thank our software team, mostly in Little Rock, for their great efforts this year as well.

Moving on to the last slide, in summary 2004 was a great year. Euronet is clearly the market leader in international ATM outsourcing and prepaid services. We nearly more than doubled our year-over-year results across all financial measures with this year including our revenue, operating income, and EBITDA. We have proven that we have substantial top to bottom line leverage. We produced consistent and reliable growth and profits each quarter in 2004; and we significantly restructured and strengthened our balance sheet. Thanks to our finance department for doing that. And we significantly reduced our interest expense on account of that restructuring. Our Q4 EPS of 20 cents and annual EPS of 59 cents, both excluding FX and discontinued op losses, reflect strong sequential and year-on-year improvement.

And finally looking ahead, on to Q1 2005, we're expecting our EPS to be between 19 and 20 cents, excluding foreign exchange and discontinued op losses, despite our seasonally strong Q4 results. That concludes our presentation portion of this call. We'd be more than happy to take some questions. Thank you very much.

(OPERATOR INSTRUCTIONS) Robert Dodd of Morgan, Keegan.

I have several questions, obviously. First of all just for India or Asia-Pac, depending on what we are calling it, can you give us the revenue, EBITDA, and op profit contributions which you've done over the last several quarters? Just for fourth quarter.

This is Rick. As we had mentioned in the prior period there, we've stopped disclosing some of that on a country by country basis. So, please respect that. But as Mike said and Dan, we're now clearly in the operating profit mode, and each ATM we add only serves to help our business.

Looking at SG&A, sequentially was up 1.6 million. Can you give us an idea how much of that was related to Sarbanes-Oxley compliance, and how that was allocated to the segments?

It feels like it was all of it; but unfortunately it wasn't. It was about 2 to 300,000 of that increase was Sarbanes-Oxley related. As I mentioned earlier, we put about a half a million of that increase into expanding in some of our prepaid markets.

Was that Sarb-Ox increase all allocated to the Corporate segment?

Yes, all Corporate.

Just looking forward, are you doing any work on getting into the Chinese market? Would that require another processing center if you did? And how much would that cost? I think India cost you about half a million a quarter just to be in the market; would that be the same, if you did it?

This is Mike, and maybe Dan can correct. We are looking at all kinds of markets, China included. But as we expand to any of these EFT or prepaid markets we've got to have the right kind of deal in hand before we can enter. So just as we went into India with a deal in hand, we would want to do the same thing in another market, certainly one as large as China.

As far as -- you are right; if we did enter China it would probably include an additional processing center. You really need to do that to please the political wills over there. As far as cost, probably on the line with India or maybe even a little bit less, because we've done it once, we have made the mistake once, and the second one is always going to go smoother.

My final question, on the last call you said 30, 35 percent of the prepaid contracts will be renewed this year. Have any of those happened yet? Can you give us an idea on what you get in terms of pricing or price compression there? If any.

As we said earlier that number hasn't changed much. We go through the contract changes with customers. There is nothing that we think that would fall into the material category in terms of our comments to you or otherwise in the market. So I think that we're seeing a reasonable consistency so far at this point through this part of the year.

Thanks.

Tony Wible of Smith Barney.

Good quarter. Quick question. I was wondering if you can comment more on the prospects for new product offerings. I think this is the first time we have heard about cross-selling of merchant processing. Could you give us some color about what geographies you're doing that in, generally speaking? And your thoughts on possibly adding electronic bill payment in some markets?

We are looking at both those. We are trying to see -- our goal is to put as many additional virtual products over this terminal base as we can. But a lot of times this really happens geocentrically, on a market by market basis.

In the UK we've been offering merchant processing now for about 7 or 8 months. We are starting to see some nice uptake with that. We don't do that yet in the U.S. but we're looking at it. As far as other products, we are looking at new products kind of across the board. Germany is a market where we have significant experience, not just in doing prepaid but actually doing merchant processing, or merchant processing switching; and we will continue to expand that endeavor as well.

So kind of watch for some announcements as we go. But our goal is to continue to make our terminals more profitable for the end-user than a competitor's terminal, and that is by adding a lot more products on there.

If you looked on the e-top-up side of the business, as far as new markets to look at, obviously you already got a question on China. But if you kind of had to characterize Asia-Pacific versus Latin America, which direction do you think you would prefer to head in?

Yes. I mean the reality is the 4 fastest-growing -- 3 or 4 fastest-growing markets for prepaid right now in the world are, and this is in reverse order, Russia, Brazil, and China. We're looking at -- all 3 of those are kind of markets that we are looking at. And Brazil just because it's so big; and Latin America would be kind of an extension. It's Brazil times 2, but it is split out in multiple countries.

So we are looking. Again, we've got to have the right deal, and it's got to make sense, it's got to be accretive, and we will continue to look.

The last question I had is just qualitatively how the pipeline for ATM contracts is continuing to build. Are we still seeing traditional demand in the same markets? Are we talking about new markets that you might see ATMs in?

Actually both, Tony. We are seeing the existing markets having good solid demand; and our multinationals are talking to us about some new markets as well.

The new markets that you might bring on board, they will leverage an existing data center? Or should we assume there will be new infrastructure costs?

We've got a number of new markets around Europe which would leverage our existing data center. Anything that would require a new data center would have to be significant in size. We would not go to a new market in Asia that requires a data center for 50 ATMs.

Thanks a lot.

Peter Heckmann, Stifel.

Great quarter and great year. Following up on the acquisitions in 2004, Rick, can you talk a little bit about what the revenue contribution was from acquisitions in the fourth quarter as well as '04? Or conversely what the internal growth was, excluding acquisitions of the businesses, for the quarter and the year?

Top of mind and looking at it on a year-over-year basis, Pete, more than 75 percent of our growth year over year came from organic efforts. So clearly we made some small acquisitions and things like that. But we've been fortunate in that each of our acquisitions have grown nicely. So on a year-over-year basis more than 75 percent of that was from organic after the acquisition.

As regards 2005, what should we be thinking about in terms of total shares outstanding for the year? I'm using a little bit more than 41 million, including the CoCos. Then what should we thinking about in terms of tax rate?

I think you are directionally correct on the shares outstanding. I just always point out that you need to make sure that you add back the interest expense to do that EPS. The interest expense on the bond. That being said then, on the effective tax rate, somewhere in that mid-30s kind of a range.

We wore benefited a bit in the fourth quarter by some good performance in some low to no tax rate countries. So as we see some strong performance out of low to no tax rate countries that could help us. We have also seen a couple countries that have lowered their tax rates for next year. So we would certainly expect that effective tax rate to be a bit down; let's say in that mid-30s range.

Super. If I could just follow-up with one more. Can you give us an update on Germany? We had talked about the win of the 3 large integrated cash register deals. I think 2 of those had been substantially by the end of 2004; and 1 was targeting this month. How are those implementations going? How are the volumes related to them? What do we look like in terms of new contracts in Germany for 2005?

Germany is a very robust market. Obviously our transactions grew at something like 59 percent last year, 60 percent. So that doesn't slow down to nothing overnight. We are still kicking in. We are I think about 9,000 terminals or so, 8.5 to 9,000 terminals through of the 11,000 that we were targeting. All the rest should go live by the end of this quarter. I think they were targeting something like week 7 or 8 to start flipping them on, week 7 or 8 in the year. So somewhere around now. So we will definitely have them on by the end of the year.

As far as -- the nice thing is once those terminals turn on there is just no logical reason for that retailer to stack scratch off cards anymore. So they will start to deplete those and you will see a ramp up for 2 or 3 months till they exhaust their supply; and then it will be at kind of steady-state after that. But so far results have been fine. We're still counting on Germany to do some big things for us this year.

Thanks.

Franco Turrinelli of William Blair & Company.

Mainly questions for Rick actually. First in the Prepaid segment, the revenue growth was higher than the transaction growth. Can you help me understand what's happening to the mix that's causing that?

Most of that is really be effects of FX, because we saw somewhere between 2 and 3 percent kind of -- or maybe just a little better than that -- average change in the FX rate year-over-year -- I mean q-over-q. So that is why a little stronger growth on the revenue side than on the transaction side. Like I said earlier, our margins in that business are remaining consistent.

Which is a perfect segue into my second question, which was you had mentioned and were careful to highlight the favorable impact of foreign exchange movement. Can you give us a sense of the magnitude of that? Or is your prior answer the right one?

Once it worked its way to the bottom line, it was less than a penny. A penny a share.

Great. Rick, I'm sorry; I think I am being dense here, so bear with me. The SG&A line, sequentially I have it moving up 3.1 million, right? I think it was 4.1 million in the third quarter of '04, 77.3 in the fourth quarter of '04. Can you help me understand what is in that? Is it some onetime things? It's the new level of SG&A as we move forward? What is going on there?

You're taking a look at our third quarter compared to the fourth quarter?

Right.

Those numbers are a little more significant movement than I have in my mind here. I would have to just check and make sure we're on the same page here. But what goes into that and what would be lifting some increase there would be any kind of acquisition SG&A that we put in there. So Spain came in there. Then we did some increase across the businesses for additional marketing developments and the professional fees for Sarbanes, things like that.

(multiple speakers) The largest single thing would be adding Spain in. You add that whole set of overhead.

That is the principal contributors. I'd have to take a look at the specifics of the numbers you were driving at to get a better detailed answer for you. But that is generally what is behind those increases.

That is fine, Rick. We can follow up off-line. Thanks.

(OPERATOR INSTRUCTIONS) Robert Dodd of Morgan, Keegan.

Just one follow-up. Looking at the EFT business, very strong fourth quarter. Can you give us an idea how much of that was on the op profit side (indiscernible)? With the seasonal strength in Germany in the fourth quarter, were those surcharges going into Christmas?

Rick and I are kind of chatting about that a little bit. But you said, Robert, you're asking how much of that 1.6 million of op income would be attributable the seasonal lift?

Yes, rather than just solid performance on the recurring outsourcing type business.

We would probably say about probably 4 to 500,000.

Typically, Robert, we see on normal years, we watch op profit drop about a million bucks from Q4 to Q1. That's because of the seasonal lift in Q4 and the seasonal lightness in Q1.

Thank you.

Tom O'Halloran of Lord Abbett.

Can you please tell me what cash flow from operations was in 2004, and what capital expenditures were in 2004?

Let's see, the cash flow number from operations I don't have on the top of my mind there. But if we take a look at it, we had 51 million in EBITDA, offset by our interest expense, and probably about 7 or 8 million in cash paid taxes. Then offsetting that would have been about $8 million in purchased fixed assets.

Would you expect, though, the cash flow from operations in '04 to exceed the net income that you reported?

Sure.

You do. And the capital expenditures for '04?

For '04? The total CapEx was in the roughly 18, $19 million category. But as we had reported previously about half of that related to a type 2 outsourcing agreement in the Poland piece of business, where we signed an outsourcing agreement and then a sale leaseback agreement with that bank's sister entity. It virtually wasn't real CapEx, but nevertheless reported in the CapEx number. And the bank sister entity basically did that lease transaction. So there was no capital requirement on our part.

For 2005 you have an estimate of cash flow capital expenditures?

Probably between 8 and $10 million.

That would be assuming we don't do anymore of the type 2 deals. Every time you do a type 2 deal it goes up; so that is pretty consistent with this year's numbers.

The 41 million in fully diluted shares outstanding at the end of '04, do have any thoughts on how much that might be expected to grow in '05?

Aside from if we had acquisition type transactions, where we may use stock as part of the transaction. But aside from that, there isn't anything that would necessarily make that number move up. Mathematically it could go up because the rise in the stock price would cause more options, let's say, to fall, become in the money. But then because they are treated on the treasury stock method it doesn't do a lot to that calculation. So it could move up a little bit, but I wouldn't expect it to be moving up materially.

I could probably check this by just looking at the Qs or the K, but what was the fixed assets at the end of 12/31/04?

Fixed assets at the end of 12/31/04 on a net basis was 20, $21 million. I am sorry, that is at the end of '03. End of '04 was $40 million.

What do those assets primarily consist of?

ATMs, point-of-sale POS devices, and that's principally it.

Can you just elaborate on the ATMs? How much, do you own the ATMs, or portions of them? Or what is the arrangement there?

As Dan disclosed on one of the slides, in slide 25 in the presentation, it illustrates ATMs on a basis of being category 1, 2, and 3. Category 1 of those ATMs that we own and our branded by us, those are the -- there's about 870 or so of those ATMs. I'm sorry, about 900 of those ATMs that we own.

Now there's an additional approaching 600 ATMs -- I'm sorry, 1,700 ATMs that we technically own but we really own them on the behalf of a bank. They fall in those capitalized lease things.

A real simple way to explain the difference is category 2 and category 3 ATMS are outsourced ATMs. Those are bank's machines; we operate them on behalf of that bank. The only difference between category 2 and category 3 is that we own the hard asset ATMs under the category 2 ATM count.

Thank you very much. Nice quarter.

Peter Swanson of Piper Jaffray.

Good results in the quarter. A question about the acquisition pipeline, are you seeing or what type of pricing environment are you seeing for potential acquisitions? Are you running into competitors taking a look at those same properties?

Pete, we've got a pretty full pipeline of potential acquisitions. They are kind of all over the place. We have both in EFT and in prepaid. The pricing of the ones in our pipeline are reasonable. But we have always run across occasional deals that are outside of commonsense pricing, and we pass on them; so I don't consider them part of our pipeline.

We're still excited about the possibility in the inorganic (ph) growth thing, in the integrated growth phase, but we are going to make sure we make good strong, strategic, and accretive transactions.

Are there any specific geographies where the pipeline might be more concentrated right now?

We'd prefer not to answer.

That's fair. Good quarter, guys.

Maybe one more question.

Pete Heckmann of Stifel.

I just wanted to follow-up on some of the disclosures that you had in your S3 that was filed last month. You talked a little bit about processing fees per transaction in the prepaid business have been declining in most markets. Is that a function of the price per minute for mobile airtime going down? Is it a function of the average top-up going down? Or is there a change in the underlying commission rate paid by the mobile operator?

Generally mix and the ability to leverage a greater number of transactions over some fixed infrastructures. Then to some extent as we continue to manage expenses, we are able to get better pricing on some of our larger agreements that we have that support the different business. It is generally not related to the purchase of airtime or stuff like that. Because as you may know, we don't actually purchase airtime. We may purchase PINs that ultimately are sold to customers; but we just get a commission revenue off of that. We are not really purchasing airtime there.

So the comment really relates to a combination of mix, leveraging the cost infrastructure, and being able to improve some of our vendor costs across both the EFT and the prepaid business, but more focused on the EFT side of the business.

Also, you have got to remember, Pete, there's two big -- two of our biggest markets are Germany and UK. In the UK, as more transactions come through the big box retailers there, we make less commissions; more like a transaction fee there. So the mix actually changes it, even though the mobile operator margins and our margin pressure really hasn't changed.

Secondarily, as Germany continues to grow, and it has been growing robustly, remember we just take a transaction fee there. So it's kind of like the net of what we receive in England or one of these other markets. There is about a fivefold revenue differential on same profit of Germany versus the UK. So it doesn't necessarily mean anything is going bad, just that your revenues are going to be impacted. Still your net contribution per terminal and net contribution per transaction still works out.

So that's more so a mix than --.

Yes. If you keep watching, if Germany keeps doing its job, you're going to watch that mix continue to change. It won't change our net any, but because we don't pay back commissions -- we don't get 7 percent and pay back all but 1.8 percent of that to a retailer in Germany. So we get fivefold a hit. Top line kind of equals pretax line in Germany.

And then have you seen in terms of the evolution from scratch card to electronic top-up, have you seen alternative methods to top-up? Either through the ATM, through the handset, through a credit card processor looking to add this service to their offering? Have you seen alternatives to your primary offering gaining any inroads in terms of transaction volume in your primary markets?

Just about every other methodology we actually do practice in some market. But the reality is the needle isn't moving from a growth perspective, a macro perspective enough in any market in these other methodologies. These are primarily cash based or cash collection based kinds of transactions.

Thanks.

Thank you, everybody. I think that was the last question. I want to thank everybody for sharing their time on this conference call. We are pretty happy with what happened in Q4 and look forward to seeing you in a couple months. Thank you very much.

This concludes today's conference. Thank you for your participation.