Euronet Worldwide Inc (EEFT) 2005 Q1 法說會逐字稿

Greetings, ladies and gentlemen and welcome to the Euronet Worldwide first quarter earnings conference call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the final presentation. If anyone should require operator assistance during the conference please press star, 0 on your telephone keypad. 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 and welcome everyone to Euronet Worldwide's quarterly results conference call. We will present our results for the first quarter 2005 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 today.

Before we begin I need to make a statement concerning forward-looking statements on this conference call. During this call, representatives of Euronet Worldwide will make statements concerning the Company's or managements 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 number of factors including competition, technological developments effecting the market for the Company's products and services, foreign exchange fluctuations, and changes in laws and regulations effecting Euronet's business. Additional explanation of these factors and other factors effecting the Company's results are set forth from time to time in Euronet's periodic reports filed with the United States Securities and Exchange Commission including but not limited to its Form 10-K for the period ended December 31, 2004. Copies of that filing and 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.

Thank you Jeff, and I too welcome everyone who has joined us for this first quarter 2005 financial discussion. If you go to slide number four we'll get started. For the first quarter 2005, the Company delivered revenue of $117 million, operating income of 11.7 million, EBITDA of 16.7 million and earnings per share of $0.21 excluding FX. Each of these key P&L line items reflects significant year-over-year improvements. Revenues are up 45%, or 81 million year-over-year. Operating income improved year-over-year by 80%. EBITDA increased 16 point -- 6.6 million, or 65 % over the first quarter of 2004 and the Company's earnings per share, excluding FX, more than doubled, improving 133% from that posted last year in the first quarter. Overall, a little ahead of the upper end of our expectations.

If we now move to slide number five we'll look a little further into the results. Here on this slide, not only can you see the 2005 first quarter improvement over 2004, you can see that sequential yearly improvements continue when looking back to the first quarter of 2003, the initial quarter we launched the Prepaid segment.

Let's move to slide number six. Consistent with the revenue growth, we see that our profit indicators of operating income and EBITDA reflect the leverage of our revenue growth to the bottom line. Given our first quarter's $16.7 million in EBITDA, we are on a run-rate of almost 70 million annually compared to the 140 million annualized run-rate of last year in the first quarter. Given that our high-cost debt was repaid at the end of the fourth quarter we are in a good position to reinvest these free-cash flows into the business to further support our growth prospects. Reinvesting free-cash flow is truly another new era in the history of Euronet.

Let's move to slide number seven. On this slide we illustrate our quarter-over-quarter transaction growth. The 73% in transactions year-over-year has been instrumental in the revenue growth I reviewed with you just a couple slides earlier. On this slide, you will note, that we had a more significant increase in our EFT transactions year-over-year. The EFT transactional growth was principally driven by the installations throughout the first half of the large -- first half of last year of the large outsourcing agreements in Poland and Romania, together with more than 1,000 ATMs delivering transactions now in India. I'll also point out that you may have noticed in our press release we disclosed that we were up to approximate 205,000 terminals in the Prepaid segment. It is important to note that most of these terminal additions came in the late hours of the first quarter. Accordingly, the first quarter transaction volumes benefited only marginally from the terminal additions. Our second quarter transactions should benefit nicely from these adds.

Now, go to slide number eight to discuss our segment results. In slide eight here, we present the first quarter in 2005 as compared to the fourth quarter of 2004, similar to the sequential quarterly reviews of last year. This year, consistent with other publicly traded companies, we represent the current year's quarter as compared to the prior year's quarter. However, in this transition quarter, we will briefly review the sequential quarterly comparisons. Here you can see that revenue from our EFT segment was up slightly from the fourth quarter. Something we feel quite good about given the traditional seasonality we experience mo - moving from the fourth quarter to the first quarter. And in the EFT segment, we're beginning to see the top line benefits of the Indian operation in that it accounted for most of the revenue lift that offset the seasonality declines. Operating income in the EFT segment relaxed a bit, largely driven by the seasonal drop in transactions from machines that we own. As you may know, these transactions have very high incremental margins.

In our Prepaid Processing segment we saw 4% increase quarter-to-quarter. Again positive in light of the seasonality between the fourth and first quarters. And we only had marginal benefits from the acquisitions announced in late March. On the operating income side, you can see that it was down slightly, actually $84,000. Our gross margins remained relatively constant quarter to quarter. We did see a slightly higher shift in the mix from smaller retailers to larger retailers, but on balance margins remained virtually flat. The additional contribution from the 4% improvement in sales was almost entirely offset by increased sales and marketing efforts in the U.S. prepaid markets. As many of you may have noticed, the U.S. wireless mobile operators reported in the first quarter a continuation of subscriber additions, but at lower ARPUs, that's average revenue per user. And you continue to see improving postings coming from -- from the pure play prepaid operators such as Tractform (ph) and Virgin. All of which support our thesis that the U.S. mobile operators will see and go after the roughly 75 million potential prepaying subscribers. That is 75 million if measured against the penetration rates of Western Europe. We believe our sales and marketing investments will continue to position us as a leader in the U.S. prepaid top up market. We also saw some marginal gains in the software and corporate segments rounding out the improvement of $600,000 in consolidated operating profit.

Now let's move to the year-over-year segment review on slide nine. As you can see here, our year-over-year quarterly revenue growth was 45% and operating income improvements of 80% came from across almost all business segments. Starting with the EFT segment, revenues grew 60% with more than 180% improvement in operating income. These improvements year-over-year are the results of several key developments including, but not limited to, the Romanian and Poland outsourcing deals implemented in the first half of 2004, the ramp-up of ATMs under management in the Indian operation and general increases across every market within the EFT segment. And I don't want to overlook close attention paid to expense management by the EFT team.

On the Prepaid front revenues improved by 42% year-over-year while operating income improved by about 22%. This 22% improvement fully takes into account the continued investments we have purposely made in the segment to pursue certain markets where we have significant expansion opportunities. We continue to take -- we will continue to take a close look at these opportunities and invest where we believe the profits are worth the investments. I'll also point out that our gross margins in the Prepaid segment year-over-year have remained fairly stable at 20 to 21%. Year-over-year improvements were also realized in the software group while corporate costs reflected increases, largely to support a business that has grown rapidly over the past year and Run, which is now carrying the full cost of Sarbanes implementation and compliance. Overall, very significant improvements throughout all parts of the business compared to last year in the first quarter.

Now to slide 10 for a few comments on the balance sheet. Changes in the balance sheet were generally uneventful, but a couple noteworthy. Our unrestricted cash decreased by about 51 million due to several acquisition related payments including a $35 million earn-out payment to the former shareholders of Transact, about $10 million as a second installment on the fourth quarter purchase of the Spanish entity Movilcarga, about 11 million for the purchase of a second Spanish entity, Telerecarga, which was completed in late March and about 5 million for the increase in our ownership of ATX from 10% to 51% in late March. These payments were offset to some extent by about 6 million in free-cash flow generated from operations net of capital expenditures. Our total capitalization leverage ratios remain relatively the same to slightly improving as a result of improved operating results and slightly lower debt.

Now to slide 11 for a few comments on EPS. Our earnings per share of $0.21 a share slightly exceeded our expectation of the 19 to $0.20 we provided about three months back. We were pleased to see that better than expected results came in smaller amounts across almost every part of our business. Compared to last year we more than doubled our earnings per share and continue to improve nicely quarter-to-quarter. On balance, a good quarter to start the year. Thank you for your time, and now I'll turn it to Dan for a closer review of the EFT segment.

Thanks Rick. Turning to slide 12, I would like to reiterate in our business the fourth quarter in any given year is our strongest due to holiday spending while historically the first quarter transactions tend to drop due to seasonality resulting from consumers more conservative spending practices after the holidays. However, as Rick just demonstrated, we had a solid first quarter. We're pleased with the EFT segment posting strong same quarter year-on-year growth and delivering first quarter 2005 results comparable to fourth quarter 2004. On slide 13, before we get started on the segment review, I want to comment on some management changes that we announced on April 18th. John Romney has been named as Managing Director for our EMEA EFT processing segment and also as an Executive Vice President of Euronet Worldwide. John has been with Euronet since 1997 and previously was the Senior Vice President and Senior Regional Manager with the EFT processing segment. He is responsible for operations in Central Europe, Middle East and Africa. Over the years John has launched and brought a number of markets to profitability. John is up for this role and we're glad he accepted the challenge.

John takes over his current responsibilities from Miro Bergman. Miro held this position for five successful years. Under Miro's leadership EMEA EFT operations doubled to 16 countries, the ATM count increased by six-fold and the division achieved strong profitability. Miro has been appointed as Chief Operations Officer for our prepaid operations segment. Mike will talk more about Miro's role in detail when we discuss our prepaid results. Congratulations and thank you to John and Miro.

If you want to flip to the next slide. Slide 14 gives a snapshot of our EFT results. Our $23.9 million in revenue was up 60% over the same quarter last year, our resulting 5.6 million in op income, and 8 million EBITDA more than doubled over first quarter 2004 results. What is particularly gratifying to me is that while the EFT -- EFT team is delivering impressive year-over-year results this division is also exploring and opening new markets. These new markets will continue to drive growth in our business for years to come.

Flip to the next slide. Slide 15 graphically illustrates our quarterly operating income and EBITDA results for the first quarter 2005 and the past two years. You can see that this trend appears positive. We're very pleased with these year-on-year results. Our op income and EBITDA for the first quarter 2005 more than doubled over the same quarter prior year results. Op income increased by 180% and EBITDA increased by 111% over first quarter 2004.

Flip to the next slide. Slide 16 outlines some EFT business highlights in Europe, Middle East and Africa and India. Our EFT business processed a total of 77.3 million transactions in Q1 2005. This is a 121% increase over Q1 2004. Despite historical seasonality, our EFT segment maintained its pace with the fourth quarter results. Business highlights on EMEA, we signed an ATM network participation agreement with a credit bank in Poland and Raiffeisen Bank Hungary renewed their contract by signing a multi-year -- new multi-year [INAUDIBLE] outsourcing agreement with us. The Raiffeisen group is one of the multinational banks that we work with in Central Europe. In addition to Hungary, we have partnerships with Raiffeisen in five other countries.

On India, it was India that fueled our ATM growth in Q1 2005. As of the end of March we had a total of 1,117 outsourced ATMs live with seven banks in India, that's a 44% increase in outsourced ATMs over the 775 we had at the end of Q4 2004. We also have an additional 471 ATMs under contract to be implemented over the next 12 to 18 months. In mid-February we signed an ATM outsource agreement with Centurion Bank, a leading private bank in India. This agreement covers their existing 150 ATMs and calls for deployment of an additional 100 new ATMs for the bank. Our cash [INAUDIBLE] branded [INAUDIBLE] ATM network continues to grow. We currently have li -- nine live member banks with a combined total of 3,772 ATMs. This is approximately 20% of all the ATMs on the market in India. We're very excited with the progress in the Indian market. We've now crossed the 1,000 outsourced ATMs milestone. Our EFT business in India is now on solid positive out-profit territory. So, again congratulations to the team in India for hitting that milestone.

Final thought on EFT. Slide 16, we outline our combined ATM categories by quarter. Since our last call we've added 459 ATMs to our EFT network. These additions more than offset the seasonality impacts on revenue. We now have a total of 6,201 outsourced ATMs. That's an 8% growth over last quarter and a 60% growth over Q1 2004. This year-on-year growth has come from new contracts, yes, but also benefited from organic growth. There has been a year -on-year increase in our existing ATM base in every market that we are in. Every market we are in has and is experiencing organic growth.

You can see in the ATMs under contract category we have approximately 858 ATMs under contract not yet installed. This shows a number of ATMs our banks have committed to add to our network over the next 18 months. This backlog is equal to 14% of our current base. So in addition to a good backlog we have our sales teams working hard to add more ATM agreements in all of our markets and some new markets as well. I'd like to congratulate both our EMEA and EFT teams for keeping their businesses going in what is usually a tough quarter. I'll now hand the presentation over to Mike to cover our prepaid segments..

Thank you, Dan. So we'll talk about our Prepaid Processing segment, slide number 18. Let me start by saying that I'm happy with the management changes that Dan mentioned earlier. These changes will insure management stability, operational efficiencies and the sharing of brest -- best practices in our business segments and across multiple locations in the Prepaid Processing segment. Moreover, it speaks to the strength and breadth of our management team. Miro Bergman has been with Euronet since 1997, was with -- most recently the Managing Director of our EMEA EFT operations. In his new role as Chief Operating Officer of our Prepaid segment Miro takes on the challenge of providing leadership and direction for the growing and efficiently op -- and for growing and efficiently operating our Prepaid businesses worldwide. After his successful management of our many disparate operations across the EMEA EFT business this new challenge is a familiar task to Miro. I'm confident he will put his stamp on this important part of our business. Congratulations to Miro.

On to the next slide, slide number 19. We can see that the Prepaid Processing financial highlights were very good this quarter. We're pleased with the year-on-year gains in Prepaid. Our Prepaid revenues of 89.4 million increased by 42% over last year's revenue of 62.9 million in the first quarter. Based on the sequential quarter to quarter results, our revenues and EBITDA in the first quarter 2005 were up 4% and 3% respectively over the fourth quarter 2004 while our operating income decreased slightly.

As Rick mentioned earlier this slight decrease of 1% in operating income is largely due to a combination of events. Of course we'll get a bit of seasonality now in this business because it has grown so large. We also had a little bit of shift in retailer revenue mix, particularly in the U.K., our largest Prepaid market, but most notably in that -- in that area that I'll talk about here in a second is due to approximately 500,000 in incremental occurring quarterly investments that we're making in the U.S. market. Consistent with our expectations and first quarter earnings guidance you might remember on our last call that I pointed to the fact that we intended to make investments in the U.S. Prepaid market much like we did in the Australian Prepaid market in con -- in Q2 of last year. The results of which were a 40% growth in Australian terminals within six months.

Well, we're doing the same thing here in the U.S. market and we have already seen some early positive results. Q1 over Q4 in the U.S. saw a decrease in U.S. op profit, primarily due to the investments and head count necessary to acquire new merchants more quickly here in the U.S. In March alone we added 250 new retailers, which should be quite profitable within 90 to 120 days of going active. We couldn't have added these 250 new retailers had it not been for our investments in head count in this division in the first quarter.

You might all have seen the Wall Street Journal article a couple days ago supporting our contention that the U.S. will be an enormous market for Prepaid. We will continue to invest in growth markets such as the U.S., Spain, Germany and Poland which currently constitute approximately 50% of our revenue share, while the U.K. market contributes the remaining 50%. However, on a run-rate basis, after those acquisitions we announced a couple of weeks ago in the first quarter of 2005 the U.K. will be less than half our revenue for the Prepaid segment as we move into the second quarter of 2005.

Next slide, please. Slide number 20, on a year-over-year comparison you can see a strong growth in our Op income and EBITDA in the Prepaid Processing segment. Our operating income of 7.8 million shows a 22% increase while our EBITDA of 10 million shows a 29% increase over Q1 2004.

Next slide, please. This slide here, slide number 21, shows our Prepaid business highlights for Q1. We've been pretty busy. We increased our points of sale presence by approximately 30,000 terminals this quarter and we now have over 200,000 POS terminals across almost 100,000 retailers in Europe, Asia and the U.S. We saw a combined growth in our Prepaid market, both organically and via acquisitions. Specifically in a few markets I'll mention, in Australia we extended our contract with 7-11, a very important retailer for us in the -- in that market. The route in independent market expansion continued. We saw a 45% terminal growth in conjunction with banks over the last quarter. This only serves to reinforce our decision to add incremental sales and marketing costs to go after this market and others. In Germany we signed a contract with a leading drug store chain for approximately 2,000 electronic cash registers, currently approximately 200 of the 2,000 ECRs, that's electronic cash registers, are live today, with more being brought on every day.

We went live with the first 300 Tomine (ph) tobacco prepaid vending machines. And I'll give you a little update on the status of those 11,000 ECR's that we announced in Q3 last year, we've completed 8,000 and that's the same as we announced on the call a couple months ago, we've completed 8,000 terminal rollouts and the remaining 3,000 have been deferred to Q2 2005 at the client's request. The client is having some logistical challenges that we must be sensitive to, so we're looking forward to having this transition completed in the second quarter of this year and the ongoing revenues from that accruing to us beginning thereafter. In Spain, in our last call we mentioned our plans to further invest in Spain. You might have seen in late March that we required -- that we acquired Telerecarga, our second acquisition in that market, which tripled our presence and now gives us a leading share in Spain. In the U.K. we extended our multi-year contract until 2009 with the U.K. Post Office, one of our more profitable and largest retailers offering ETOP up in the U.K. This happens to be one of the longest term prepaid contracts we've signed with one of our very largest retailers. We also increased our equity stake in ATX from 10% to 51% based upon the impressive sales targets met by ATX over last year. In the U.S. we continue to see strong organic growth in our PaySpot brand. Towards the end of Q1 we acquired Dynamic Telecom which focuses on the U.S. convenience store chain market.

We are in the process of integrating our three new acquisitions around the world and saw only marginal benefits from them in Q1 2005. As stated in our press release on March 23rd, we would expect to see the full impact of these contributions from these acquisitions beginning in the second quarter of 2005.

You move on to the last slide, slide number 22, our summary, you can see that we exceeded our forecast on earnings per chair -- per share in the first quarter with an EPS of $0.21 despite strong seasonality in both of our segments. We saw significant improvements in our revenues and net income in Q1 2005 over the same quarter last year, we saw a 45% increase in revenues and a 80% increase in Op income, a 65% increase in EBITDA, which all contributed to the 133% increase in our earnings per share. We also saw a 73% increase in the total of -- total transactions from 83.4 million in Q1 2004 to 144.5 million in Q1 2005. We also achieved critical momentum in the Indian market. We've crossed that 1,000 ATMs milestone, a strong justification for two years worth of investments into that market. Onwards and upwards from here in India. Our key acquisitions in the Prepaid market continued with Telerecarga in Spain, Dynamic Telecom in the U.S. and our increased ownership in ATX from 10 to 51%. We continue to focus on our development efforts and potential EFT and Prepaid markets both from an organic and an acquisition point of view.

And finally, we expect our second quarter 2005 earnings per share to be between 22 and $0.23. This concludes the presentation portion of the call. Now, Rick, Dan and I will be happy to take questions. Operator, could you please organize that.

Ladies and gentlemen, at this time we will be conducting a question and answer session. (OPERATOR INSTRUCTIONS) One moment please while I pull up a question. Our first question is coming from Robert Dodd of Morgan Keegan. Please proceed with your question.

Hi, guys, congratulations on the quarter. Could you tell us -- give us some more color on the seasonality issue in the Prepaid side of the business? I mean this stock is not something we've seen because of the strong, just the growth in the market but now you've got a relatively mature U.K., mature Australia, what kind of Q4 to Q1 seasonality can we expect in future? I mean is it like 10% in the ATM business or something different?

Yes, Robert, this is Rick. Much like you see in the telecom market, because this is directly attributable to consumer usage of cellular service, but we've seen -- we've seen numbers that range from 5 to 10% across our businesses in terms of seasonal volume impacts. So I mean 10% on the upper side might be a little bit strong, but -- and -- and each market's got a little different pattern, but I think that kind of in that range is a reasonable approach.

Thank you. And then any adjustments to commissions from any operators, particularly the U.S., a year ago I think it was boost went from 20 to 15%, right? And then as you say with -- with those prepaid operators in the U.S. adding at lower ARPUs do you expect the U.S. commission rates to come down?

Well, the reason that those had lower ARPU is indicative of the fact that the U.S. mix of cellular providers is now starting to shift from mostly all post-paid to now post-paid plus a growing amount of prepaid. So this ARPU shift just basically points out the fact that prepaid is becoming more successful, which doesn't necessarily impact the commissions that they offer. But we've always maintained that as markets mature and there are more and more transaction volume and you have more electronic coverage the mobile operators will have the ability to reduce margin somewhat because they can still provide the average profit per month to the retailer that they did before, but save themselves a little bit of money. So -- and also note that much like in the U.K. as this happens we kind of pass this on to the -- to the retailer, so they -- as an example, if -- if it went from 15% to 13%, we would then might extract 2% out of the retailer's part, but he won't be complaining too much because his volume would have been going up significantly to offset that 2%.

Just quickly, on the post office contracts were there any material changes there, product additions?

No, we shouldn't -- we shouldn't see much change there at all, actually we are just thrilled with that excellent piece of sales work that our people did with the post office. And it's also been indicative of the fact that -- even though some of the -- sometimes I complain about the mix issue and how you've got these larger volume guides through ECRs and they tend to squeeze you a little bit on margins and so forth, the fact of the matter is we're connected to their ECRs and to unconnect us and connect to the next guy is a real challenge. And so, that does always bode well for us on a -- on a long-term perspective and I think this is indicative of that.

Great, thanks. And one final questions. On the additional marketing [INAUDIBLE - foreign accent] in the quarter, I mean, what can we expect looking forward? I mean what about Germany, what about Spain, are you looking to increase investment in those areas or can you give us any kind of idea whether there might be ramps -- ramp ups in other markets?

We'll let you know, kind of before, shortly thereafter. We don't see anything -- honestly the German market's doing quite well growing on its own and we've got pretty decent coverage. We're making some investments there, but not tremendous. The U.S. just looked like it was a market that we were basically serving with a handful of sales guys plus an ISO channel and we decided we wanted to at this -- this opportunity was just way too big and we wanted to go after this more aggressively with our own direct sales force, and so we ramped that up. I think we've got 15 to 17 more people just chasing down leads in the U.S. than we did a couple of months ago.

Thanks.

Uh huh.

Our next question is coming from Tony Wible of Smith Barney. Please proceed with your question.

Thanks, good quarter guys.

Thank you.

I've got a number of questions. For starters, when you guys had mentioned in your commentary that the gross margins were relatively stable in the Prepaid business, is that a pretty good reflection that pricing overall in that business is stable?

Yeah, I mean, Tony the-- the one thing that we've said before and we continue to see and believe is that one of the challenges in our business is that we've got prepaid operations in 10 countries. One of the benefits to our business is we got prepaid operations in 10 countries and so we don't necessarily see any kind of ripple effects that go from market to market. So, while we will always meet the needs of our customers as we deal with re -- renewing contracts and things like that, we continue to benefit from the continued mix within our business and the growth within our business, and so it's it's been relatively stable.

And -- and on those German ECR's that were delayed, the 2,000, can you give us some sense for what kind of profit contribution was delayed, is there a dollar amount that we could have estimated would have been generated by those terminals during the quarter?

No, I thi -- I mean because this is a single retailer and some of our German competitors know who that is, we -- we won't break it out by retailer for accounting.

Is there a way qualitatively just to say would it have been material?

Well, we -- there's a couple things. I mean, we -- we ultimately hope that it's material, but there's another thing that we -- we need to be careful about in Germany is because in Germany we are the first guy out leading the way with doing electronic integration. And as we bring on these -- these large scale stores that heretofore have not necessarily been distributors of prepaid product you've got a number of things that'll have to appropriately develop within that market, anywhere from consumer awareness, consumer habits and things like that. And so, as we've said before that may not go as bright as quick as for example in the U.K. where those customers were largely distributing scratch cards and other things. So there's a number of factors in there, Tony, certainly we're -- we're optimistic with that volume of ECRs. On the other hand we're -- we're also cautiously appropriate in what we think will go into our results.

Right.

And-- and -- and every point counts in Germany, because it's about at that inflection point, kind of like the U.K. was about three or four years ago, when it started to take off and the mobile operators realized they had ubiquitous coverage and they started to, incentivise the electronic distribution channel monetarily over the physical one. So basically every point counts to the -- until you get to the point where they realize, hey, we're covered.

And in the U.S., I think you had mentioned that you were working with one ISO, but what is your broad willingness to work with ISOs in the U.S.? Given their --

We don't have one ISO we've got about 100 different ISOs.

Okay.

But the one acquisition that we started the U.S. market was Aim, these guys who run Aim do it -- just a really good job working the ISO channel and we've got 100 or 150 ISO's that are out there putting in thousands of terminals. SO -- but we were doing it -- we did less of it directly, we did most of it through ISOs before, now we are doing it directly plus with ISOs, its an a big market. It's just -- it's hard to cover this baby.

Got you. Last question is -- I think Dan had mentioned that he was seeing good organic growth in the EFT business and I was wondering if that's coming on a -- are you referring to actual -- the -- the banks issuing more ATMs on a organic basis or are you referring to transactions per ATM increasing organically or is it both?

Both.

[INAUDIBLE] it's a combination of both.

Okay, great. Thank you.

Other next question is coming from Peter Swanson of Piper Jaffray. Please proceed with your question.

Hi, good morning guys, congrats on the good results.

Thank you. We enjoyed them.

I have a question about the Prepaid margins with -- with stable gross margins in pricing, how should we think about operating margin targets as far as your level of marketing spend in each country? Should we be thinking of around that 9% range or what are you thinking about internally?

Yeah, I mean that's not a bad number. Keep in mind that a couple basis points can move that around a bit. But, as Mike said, we -- we -- we would anticipate to a lesser extent beefing up incremental spend in some of the other markets, so we think that -- that the first quarter was our -- our biggest incremental spend. But -- but we'll continue to take a look at those across each of our businesses, but I -- I think that's a reasonable number to -- to work with.

Okay. That's helpful. And on the EFT side, the renewal with Raiffeisen in Hungary, can you talk about any changes in pricing with that renewal?

No, we're not going to talk about any changes on pricing there but we can say that that contract was expanded in terms the bank is looking to grow their network.

Was expanded. Was there any -- I know you don't want to comment on specific -- ?

But not [INAUDIBLE - two voices at once] The value of that contract increased.

Okay. Then not a -- we shouldn't think of them -- they're pressuring you for material changes on monthly fees?

No.

No. But -- and you might comment, Dan, I -- I think we've never lost a renewal, have we?

No, we have not.

You know, so people are always want -- we've got long contracts so everybody kind of forgets that these EFT guys actually do come up occasionally because we're at -- we're signing probably on average a six-year term contract, but it can't -- occasionally these things do come up, we've never lost a renewal. So I think that's a -- a testament to the quality job that our EFT boys are doing.

And shifting to the EFT business in India, one of your competitors just made an acquisition over there, do you see any change in the competitive landscape with more U.S. companies focusing on that ATM opportunity, what are your thoughts there?

We've always known that India was going to be a competitive market for us. The nice thing about India is that's it's so -- there's such a strong outsourcing mentality that our -- our challenges there are not to convince banks to outsource, the challenge is that we knew we'd see other competitors in that market. We -- we actually looked at the India switch company which was acquired by E-funds and for various reasons and decided not -- not to pursue that aggressively. We actually believe that by E-funds coming on market and that the -- I guess the comp -- we --we expect competition to be more rational, so we actually -- if we -- if we had to make a choice we would -- we'd rather have the U.S. competitor in that market.

Okay, helpful. And then one last question, the backlog of ATM's, 858 in the backlog, how should we think about timing of implementation? Is that -- you guys targeting by the end of this calendar year?

We said that's over kind of over 12, 18 months. It's a combination of -- of signed contracts and -- and commitments.

At 12 to 18 -- 12 to 18 months?

Yes.

Okay, thanks guys.

Our next question is coming from Tim WIlli of A. G. Edwards. Please proceed with your question.

Good morning. I have a handful of quick questions here. First one, Dan, in India you mentioned you're solidly profitable and it's moving forward from this point. I'm just curious, we ran about 23% margin for the whole EFT business, are -- are we talking about a margin in India that is between 5 to 10% for that country standalone or with its 1,100 ATMs is it actually running pretty close to the division margin?

Great question. We're going to see that the -- the margins in India are going to be at this point close to that 5 to 10% range just simply because of the -- the current size, 1,000 ATMs in India as compared to 5,000 plus in Europe. Also the other driving thing that's going to keep operating margins in India lower than that of Europe is that the vast majority of our ATMs in India are going to be what we call the -- the category 2 ATMs where they're bank branded but they're Euronet owned.

Okay. Well -- well -- do -- do you envision it probably running this sort of 5 to 10% margin systematically because of that mix or would you definitely --?

No, I think that the margin will increase and I think we'll be seeing operating income margins up in the mid teens and approaching that towards the end of this year. But just due to the -- the nature of the -- of the business contracts that we're getting in India to where we can go to the markets -- the mark -- the Indian market and say we'll provide the ATM, we'll provide all the vendors, et cetera, et cetera, one package price, we'll see higher revenues, but a -- a lower percentage margin of those contracts. We'll still see the ne -- the same, as we've talked about many times, the same range of 200 to $500 a month cash contribution per ATM, but our percentage basis it'll probably look lower than that as what we have in Europe.

Okay. Second question, in Poland on the Prepaid side could you give us some color in terms of the momentum and the traction there? I know you made money in it's -- in 4Q and just how that market is looking with another quarter underneath its belt?

Poland is actually becoming a nice -- a stellar smaller market for us. We're adding -- we're at about 3,000 terminals plus there right now. We're adding -- and they're profitable for us almost at the get go. And -- in fact we have -- you haven't noticed it in the -- because things cost a little bit less in Poland, but we've been consistently ramping up our SG&A expense there just to acquire more merchants. It's kind of a land grab there and we get these guys profitable really quickly. So we -- we have been investing for the last two quarters there and will -- will continue to do so. We've got the dominant position, about 30% market share, and we -- I think we can be even more dominant.

Okay. And the last question going back to the U.S. with what sounds like a market that -- that may be getting a bit more momentum as a whole, competitively I guess I'm curious about your thoughts of Euronet relative to the more traditional merchant processors, if they begin to pay attention to this market given that they already have fairly sizable presence on the countertops of retailers in America, do you view them as a competitor or are there opportunities that -- that effectively you may be able to become an ISO or a partner with -- the the merchant processing world to -- to put your technology onto their existing hardware?

I want to be real clear about this, Tim. We are experienced with -- with merchant processors in Europe, which are very mature markets for lots of transactions for prepaid, have shown us market after market that these merchant processors have been somewhere between totally unsuccessful and extremely poorly successful. They've been pathetic in every market. They might have tens of thousands, if not hundreds of thousands, of -- of --of locations, they actually connect up to do top up and account for less than 1 or 2 or 3% of the total transactions in these markets. On the flip side, what we see is we focus on the places where people buy these scratch-off cards. It's not Dillard's in a shirt shop or something like this where these merchant processing terminals are, it's the places that we target which are convenient stores, [INAUDIBLE], et cetera, et cetera. What we do expect to see is we might find ourselves as an ISO for them, selling their merchant services across our terminals because we've already got an application that's covering the cost of those terminals. As far as them being an effective competitor I can't imagine it in this market. Even if this market gets heated up as much as it has in Europe.

Okay. Great, thanks a lot.

Tim, I think if you also think about that market is fundamental to our success as a core competency of distribution working with the mobile operators and retailers, fundamental to the success of a merchant processor is back-office administration. And they're just very different mind sets to the market and maybe that's -- that's why we target very differently the -- the types of locations we put terminals.

Yes, point well taken, thank you, Rick.

Our next question is coming from Peter Heckmann of Stifel Nicolaus. Please proceed with your question.

Good morning guys. In terms of the Prepaid business, don't have exact numbers on some of the acquisitions, but I think there's, I don't know, six or seven acquisitions that may have contributed to results in the quarter. What would you say organic growth was? I mean my preliminary calculations would suggest it was in the high 20s out of the total 42% year-over-year growth, does that sound about right?

I didn't actually calculate it this quarter, Pete. I did in the fourth quarter and I wouldn't have expected, I mean taking a look at where our numbers came from that it would have materially changed that, it would a little bit. But, at that time I think we had about 45, I'm sorry, about 70 to 75% of our year-over-year growth was from organic business.

Right.

And -- and -- and so I would say that we're probably not materially different from that, although again I haven't calculated it that much. I mean that finely.

Right. Well, the internal growth, I think you had said in the fourth quarter, was about 50% year-over-year in the Prepaid business, which would be 75% of the 72% increase. This quarter we had a 42% year-over-year increase and I was just thinking that there was about $7 million of acquired revenue in that number, which would get me to about 28% year-over-year growth.

28% on -- on acquisition part?

28% organic growth and then the -- the incremental 14% of percentage points of growth were coming from acquisitions.

So the 28 of like 42.

Yes.

So two thirds of it. I would say that that's probably in grenay's (ph) math too not too far off.

Okay. Okay. And then in terms of acquisitions that you made two, what appear to be, really good acquisitions in Spain in the last six months, we've seen maybe a little bit of an up tick in other players looking at acquisitions, Alfira (ph) making a couple of deals, do you see multiples changing materially, are you sitting out on deals that you might have played with before, and then does that change your thought perhaps at all of -- of how you might do further acquisitions in other markets?

I would say in general. Pete, the acquisitions are more expensive today than they were two years ago. But not considerably more. I mean we've been consistently coming in at somewhere between, I'd call it 5.5 to 7.7 times EBITDA. Which make quite accretive acquisitions for us.

Right.

So -- you're right,some -- there have been a couple of them out there with wacko numbers and we just -- we'll -- we'll sit out on those.

Okay. And then last question, just want to revisit this issue of renewals within the retailers within the U.K. and Australia. Sounds like you had a couple really good large renewals, I think in -- back in October you had said about 50% of the retailers were going to renew in 2005. How do we think about that as we go through the quarter in terms of anticipated retention rate and are there -- are they concentrated in the first half versus the second half? I just -- it's -- just because --

I think what -- what our general answer to that, Pete, and it's probably a pretty good answer, is that in - in general those agreements with the prepaid retailers are in the two to three year range, so we usually expect about a third of them to come up every year.

Okay.

And -- and to -- to tell you it's first half, second half, I -- I don't know if that's -- if we can really get that granular.

Okay.

Having I think the -- hitting the -- the post office and the 7-11 which were two of the largest customers in each of those respective markets bodes well for us this year.

Right. Would you anticipate like a renewal retention rate in excess of 90%

On our big customers it has been that historically, absolutely.

Okay.

Especially because, like I mentioned, once they're hooked in it's kind of hard to unhook and go to hook to somebody else.

I appreciate it.

Uh huh.

Our next question is a follow-up coming from Robert Dodd of Morgan Keegan. Please proceed with your question.

Hi, this is A.J., Mike in terms of your EFT business, when you guys entered to India you guys have made -- you guys have had tremendous success and shown the marketplace that you can enter new markets and grow and you've reached that 1,000 ATM threshold, what are some other markets, what are some other new opportunities in the EFT space for you?

Well as you indicated, I mean, we were investing about $2 million a year in India for a couple of years before this thing turned. But -- so far we've had a pretty good nose of where to go into. We're looking at a number of other markets, but we've got to get the right deal first. We can't -- we entered -- we had Citibank originally introduce us to India, and then we had a strong agreement with IDBI Bank shortly thereafter. So we kind of walked into India knowing that we had a leg up on -- once we implemented these things and got the processing center up we could make some money. We're at that first stage right now in a number of other markets. Soon as we get -- get one of the other deals done we'll be sure and let you know. But going into India has given us tremendous credibility through Asia. So I -- I guess you could say that we've got our obvious credibility in Central and Eastern Europe going across EMEA, but I think the rest of Asia has opened up for us now due to our success in India.

Okay. Great. And then one -- one last follow-up. On the Prepaid side, just -- just to make sure we understand this, I understand the incremental spend is what impacted the margins in the quarter. Will margins move up from here?

Yes. Absolutely. And just even in the U.S., I mean, in our internal forecast we're seeing a tremendous growth and profitability from Q1 into Q2. And you know we -- we beat our forecast just slightly this year -- this last quarter because we've kind a hit a little bit better than projection on a number of fronts. In our own mind we were looking at 19 to $0.20 a share, so the thing we're looking at 22 to $0.23 a share in next quarter that's pretty significant growth quarter on quarter. We're -- we're pretty optimistic that margins will continue to improve, particularly with those investments. I mentioned that the investments in the U.S., it took Australia about five or six months before they started paying off, I think it could take less even in the U.S. We're seeing these new guys that we hired, were bringing in new retailers almost their first week of business and these new retailers get profitable at 90 to 120 days. So, we'll -- by into Q2 we'll be seeing the pro -- their profitability adding to the mix on basically the same overhead.

Okay. Great.

And -- and again I'd just would point out these are conscience decisions to invest in sales and marketing in these markets behind stable -- stable gross margins. So we see good growth and consistent gross margins and -- and we think that it's better for us to move sooner rather than later at staking outs these market shares.

And in the U.S., just as a general market, has got some pretty healthy margins.

Absolutely. I just wanted to clarify, thank you.

We show no further questions in the queue at this time. I'd like to turn the floor back over to management for any further comments you may have.

Nope. I think that's all we have for now. I want to thank everybody for your time on the call and I look forward to talking to you in approximately 90 days. Thank you very much.

Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.