Euronet Worldwide Inc (EEFT) 2005 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Euronet Worldwide second quarter earnings conference call. At this time, all participants are in a listen-only mode. A brief 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. Jeffrey Newman, Executive Vice President and General Counsel of Euronet Worldwide. Thank you Mr. Newman, you may begin.

Thank you. Good morning and welcome everyone to Euronet Worldwide's quarterly results conference call. We will present our results for the second 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'd like to make a statement concerning forward-looking statements.

During this conference call, represented as Euronet Worldwide, we will make statements concerning the Company's or management's intentions, expectations, or predictions of future performance, including solicit financial guidance concerning the Company's results. These statements are forward-looking statements. Euronet's actual results will 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 or services, and foreign exchange fluctuations, and changes in laws and regulations affecting Euronet's business. Additional explanation of these factors and other factors affecting Euronet's results are set forth from time to time in Euronet's periodic reports filed with the US Securities and Exchange Commission, including but not limited to its Form 10-K for the period ended December 31st 2004, and its form 10-Q for the quarter ended March 31, 2005. Copies of those filings and other public filings with the SEC may be obtained by contacting the Company or the SEC.

Now I will turn the call over to Rick. Rick?

Thank you Jeff, and welcome everyone who has had a chance to join us. We are glad you could make it. If you go to slide number 4, we'll get started. For the second quarter of 2005, the Company delivered revenue of $132.2 million, operating income of $12.5 million, EBITDA of $18.2 million and earnings per share of $0.23, excluding FX losses. Each of these key P&L line items reflect significant year-over-year improvement. Revenues were up 52%, operating income improved year-over-year by 69%, and EBITDA increased as well by 69%. The Company's earnings per share, excluding FX losses nearly doubled, improving 92% from the $0.12 posted last year, in the second quarter.

If we now move to slide number 5, we will look a little further to the results. Here on slide 5, not only can you see the second quarter 2005 improvement over 2004, you can see that the sequential year-over-year improvement continues when looking back to the second quarter of 2003. This quarter's $132 million in revenue firmly establishes an annualized revenue run rate of more than $0.5 billion.

Let's now move to slide number 6. Consistent with the revenue growth, we see that our profit indicators operating income and EBITDA reflect the leverage of our revenue growth to the bottom line. Given our second quarter's $18.2 million EBITDA, we are now approaching $75 million in annualized EBITDA.

On slide number 7, please, let's look at transactional growth. The 59% increase in transactions year-over-year, has been instrumental in the revenue growth I just reviewed a couple of slides earlier. We continue to see transaction growth across all markets and all segments.

Now to slide 8. Here on slide 8, let's review our segments' year-over-year quarterly results. As you can see, our year-over-year quarterly revenue growth of 52% and operating income improvement of 69% came across all business segments. Starting with the EFT segment, revenues grew 44% with approximately 103% improvement in operating income. As Dan will discuss in more detail, our EFT segment continues to see both topline and bottom line benefits from our continued success in both the European and Indian markets. We continue to add to our count of total ATMs managed and we have consistently seen improvements in transaction volumes, and wow! what about those EBITDA margins, another watermark at 33%, this on the back of continuing to make appropriate investments in new and emerging markets. All in all, a very solid quarter for EFT.

On the prepaid front, revenues improved by 56% year-over-year, while operating income improved about 32%. While gross margin is not illustrated on this slide, our consolidated gross margins in the prepaid business improved approximately 30 basis points when compared to last year, and more so yet when compared to the first quarter. We are obviously pleased with this positive direction. This gross margin expansion helps to enable us to step up our prepaid marketing investments in support of emerging markets. As we said in the last couple of quarterly calls, we are continuing to make investments in emerging markets that we believe offer exceptional growth prospects.

In the second quarter, we again increased these investments, where in the United States we increased our recurring market spend by approximately $700,000. In addition to these investments in the US market, as you may have read in our releases, we recently completed the acquisition of an exciting patented card-based money transfer and bill payment business, which we have included in Prepaid Processing Segment.

As you will be able to see, it's a natural product fit with this segment. Generally, the same customer base, same merchant base, and the money comes in upfront. For this business, we incurred approximately $200,000 in net operating expenses for the quarter and we will continue to make additional operating investments to expand money transfer. Accordingly, you should expect that this $200,000 will increase to $300,000 or so in the third quarter as we gear up for roll out in the United States. In a few minutes, Mike will spend more time on this important move.

In summary, this $900,000 together with incremental and recurring sales and marketing expenditures in Australia and the US markets were about $500,000 discussed in each of the fourth and first quarters, more than accounts for the year-over-year change in operating margin as a percent of revenue. While these sales and marketing expenditures are recurring in nature, we would expect to see our prepaid operating margins reflect expansion in the next quarter.

Now to slide 9, for a few comments on balance sheet. There was nothing too significant in the movement of our balance sheet this quarter, but I will point out a couple of things. Our unrestricted cash decreased by about $23 million due to a couple of acquisition-related payments; the Telerecarga Spanish business and the purchase of TUSA, the money transfer business. The total assets declined slightly because of timing of collection in payments in the prepaid processing segment. And as you can see, if you exclude the prepaid trust accounts, assets increased slightly; for the most part this was for the money transfer business. Our total debt increased approximately 14 million. This was the result of triggering our line of credit agreement toward quarter-end to accommodate the timing of certain payables. The line of credit was largely repaid shortly after month end. So, aside from timing, no real change in debt. Our total capitalization and leverage ratios inched upwards a bit, because of the line of credit triggering at quarter-end, but as you can see, not significantly. Still, a very attractive set of debt (indiscernible), even more so if you deal with the COCO bonds, more like equity than debt.

Let's move to slide 10, and I will wrap up with comments on earnings per share. Our earnings per share of $0.23 met the upper end of our expectations for the second quarter of '05. Note that these earnings per share numbers exclude the impacts of FX. We have historically excluded FX gains or losses because of their non-cash nature and has more to do with the mathematical conversion of foreign based balance sheets for consolidated US dollar presentation. Since we redeploys our profits in assets offshore, there is no real economic impact of the FX gains or losses.

Compared to last year, we nearly doubled our per share earnings and continue to improve nicely quarter-to-quarter. On balance, we are very pleased with this result. While EPS benefited a bit from the slightly more favorable effective tax rate, the benefit was more than offset by a couple $100,000 net operating expenses of the acquired money transfer business, which amounted to about $0.005 and the significant pressure we've had this quarter due to unfavorable currency translation driven by the strengthening of the US dollar against the euro, the pound, and other European-based currencies, which amounted to approximately three quarters of a penny.

Two more quick comments and I'm done. First, as I just said, our effective tax rate was slightly ahead of expectations, coming in at just under 30% due to a more favorable country mix and some tax structural benefits implemented this quarter. Second, you may have noticed that the convertible shares were not in the diluted shares outstanding. That's because the if converted calculation would have improved earnings per share. So, according to US GAAP, you do not include them, nor exclude the interest expense in the EPS calculation.

Now to Dan for a discussion of the EFT segment.

Thank you, Rick. If you guys would slip on to, I guess Slide 13. Slide 13 gives a snapshot of our EFT results, which as Rick has already said, we are quite pleased with. Our $26 million in revenue was up 44% over the same quarter last year. Our resulting $6.3 million of op income more than doubled over second quarter 2004 op income of $3.1 million, and our $8.7 million EBITDA in Q2 2005 saw 78% increase over the same quarter last year.

Moving to the next slide, slide 14 graphically illustrates our quarterly operating income and EBITDA results for the second quarter 2005 together with the past two years. You can see the consistence in improving year-on-year results. We see a strong improvement in our margins. Our operating margin at 24% in Q2 2005, increased from 17% same quarter last year. And our EBITDA margin improved from 27% last year to 33% second quarter this year. We've consistently seen an increase in our op profit margins, I am sorry, in our profit margins for the last seven quarters in our EMMA EFT business and for the last three quarter we've seen improvement of these margins in our India EFT business. (indiscernible) we measure and review each country's financial performance on a monthly basis and everyone strives a sequential bottom line improvement. We are obviously very pleased with the consistent positive performance of the EFT business and firstly I appreciate all the great work that all of our people in our various markets are doing.

Slide 15 outlines key EFT business highlights in Europe, Middle East, Africa, and India. First of all points, UniCredito bank renewed their ATM network participation agreement in Poland and we launched ATM driving services for HVB in Slovakia. I would like to point out that both of these transactions were completed after the UniCredito-HVB merger was announced. The evidence of the signature of each of these two agreements combined with our solid relationship we have with both HVB and UniCredito give us confidence that the merger of these two financial institutions will provide us with continued business opportunities in existing and new markets. Continuing on, OTP Bank, another European multinational base in Hungary, signed an ATM outsourcing agreement with us in Romania. We also launched POS operations for Raiffeisenbank in Kosovo and we extended our agreement with PKO BP, Poland's largest retail bank for debit card issuing services.

And last but not least, we signed a joint venture agreement with Arab Financial Services, AFS, in Bahrain to build an ATM outsourcing business in the Middle East. AFS is a leading credit card outsource in the Middle East providing services to 13 banks and supporting close to 4 million credit cards. We will provide software and services for 49% ownership stake in this ATM outsourcing JV, which is designed to serve banks in the Middle East. We are extremely pleased with the efforts of our EMEA EFT team who continue to renew and sign agreements across the region.

On Slide 16, gives the business highlights in India. In India, we recently signed an ATM outsourcing agreement with another leading multinational bank for a 150 ATMs. While this time we can't disclose the name of this bank as per the request, we expect we will be able to disclose this in the near future. We signed and brought HDFC live on the Cashnet-shared ATM network. This agreement added a 1,000 ATMs to the network and helps solidify Cashnet's lead position in India with now more than 5,000 ATMs. This is nearly 30% of all the ATMs in India. We totally have ATM outsourcing agreements with 8 banks with a total of 1,147 outsourced ATMs live and additional 577 under contract to be implemented and deployed over the next 12 to 18 months.

On slide 17, we outlined our combined ATM categories by quarter. Since our last call, we have added 364 ATMs to our EFT network. These additions, along with renewal of existing agreements, continue to drive our transaction growth and add to our sequential increase in revenues in the EFT segment. We now have a total of 6,565 ATMs, that's a 29% increase over same quarter last year. As you can see, in the ATMs on a contract category, we have 851 ATMs on a contract not yet installed. This shows the number of ATMs or banks that have committed to add to our network over the next 12 to 18 months as a backlog equal to 13% of our current base. (indiscernible) the addition of approximately 50 ATMs to our own network, Category 1 ATMs. We have seen market demand and profit opportunities, and we selectively made additions to this category. While not significant, we would expect to continue to do so going forward on an opportunistic basis. That's it for EFT. I will now hand the presentation over to Mike to cover prepaid and money transfer. Mike?

Thank you, Dan. We will now move on to the two new segments. If you will jump to slide number 19, that will be great. Our prepaid revenues of 102.5 million increased 56% over last year's revenue of 65.6 million in the second quarter. Our operating income of 8.3 million shows a 32% increase and our EBITDA of 11.3 million shows a 47% increase over second quarter 2004. We are pleased with our prepaid segment results, and as you can really see, the leverage of our EBITDA that this business can generate.

Move on to the next slide please, slide number 20. On a year-over-year comparison, you could see strong growth in our op income and EBITDA in the prepaid processing segment. This quarter, as we have shared in prior quarters, we continue to make additional investments in key products and markets. Specifically, in the second quarter of 2005, we made incremental and recurring investments of approximately $700,000 in the US prepaid market and we had approximately 200,000 net operating expenses from our newly acquired money transfer business. This is an exciting addition to our business and I will cover, of course, in more of a detail here in a few minutes. I will also echo Rick's earlier comments that we expect the operating investments in the money transfer business to increase by an addition of $100,000 to $200,000 per quarter beginning in the third quarter of this year. We believe that the earnings impact of these money transfer investments will be relatively short-term in nature, as we move promptly to leverage our US based POS locations, and I believe these are relatively modest investments in relation to the significance of the money transfer opportunity. We believe the investments in marketing and product are important to grow our business and we are confident that they will add to our continued success.

If you will move on please to the next slide, slide number 21. Slide number 21 shows our prepaid business highlights in the second quarter. We saw continued growth in transactions from all prepaid markets and here a few highlights from some of the markets. First, we will start down under, in Australia and New Zealand. We signed and rolled out Telecom, the largest telecommunications operator in New Zealand with over 20% of the prepaid market share. We are now the only electronic distributor in New Zealand to offer prepaid products of both the major cellular network operators, Vodafone and Telecom. We also signed Red Circle for 250 stores in the fuel channel. If you recall, about this time last year, there was a rather significant concern regarding our ability to expand in the Australian market. Well, a year later, I'm glad to note that we grew both our topline and our bottom line in Australia and expect Australia to continue to be an important market for us. In the UK, we launched for Mobile World, a new virtual mobile operator in the UK, and we also extended a multi-year agreement through 2009 with the UK's fourth largest retailer. In the US, we signed a prepaid distribution agreement with Virgin Mobile USA, one of the nation's fastest growing wireless providers, which, I might add, is a prepaid-only carrier. We plan to roll out the Virgin product to selected chain stores in the third quarter. We now have a global relationship with Virgin Mobile in each of its three operating markets, the UK, Australia, and the United States. This really underscores our ability to leverage our relationships with customers across all markets.

We also contractually added 1,000 new convenient store locations, with a number of medium-sized and small retailers. Rollout for these new 1,000 convenient stores will begin in Q3. All these outlets were previously served by competitors, I might add. We also completed the migration to our processing platform of all Dynamic Telecom outlets, our first US acquisition. We should see some P&L positive impacts of this consolidation here moving in to the third quarter as well.

If you will move now please on to slide number 22. In Germany, we developed a new product, MTV on the phone, with one of our distributors. This will be launched in the third quarter at approximately 10,000 POS terminals and distributor stores, and it will be interesting to see what transaction volume this product achieves for us. In addition, we completed the rollout for our prepaid at 280 Woltje stores. We expanded our agreement with the Muller drugstore chain to rollout 700 more prepaid terminals in Q3, in addition to the 2,000 ECR agreements that we announced on our last call. We also signed an interconnection agreement with Montrada, a payment provider to launch prepaid services on its EFT terminals. Finally in Germany, as an update on a historical note, we've completed the rollout for all of the 11,000 ECRs from our announcement of a number of retailers in late 2004.

Now we'll move on to Poland. We continue to see strong growth in transaction and terminal. We saw 35% increase in transactions in Q2 2005 over the prior quarter, and a 23% increase in terminals in the last six months, jumping from 3325 at year-end to 4105 at the end of Q2 '05. The transaction growth is attributable to an increase in subscriber usage and terminal growth. Currently, only 30% of the prepaid market in Poland is through electronic top up, while the remaining 70% is still scratch card-based. We see a real opportunity to grow this market in the future over the next several quarters. In summary, we have built and continue to add to an impressive prepaid footprint.

Now let us talk about how we can further leverage this important asset through our recent money transfer acquisition.

Next slide please. We are very excited to introduce our two new products; Money Transfer and Bill Payment Services. If you move on to slide number 24, I'll talk to you first a little bit about the global money transfer business. The money transfer industry is growing at 8 to 9% annually, with 2004 market value of transfers at $231 billion. This growth is primarily driven by two factors; increased growth in international migration and a very large un-bank population. The US is the largest source for remittances, but remittances from the US totaling 65 billion in 2004. Of the 65 billion, US remittances for Latin America, one of the largest receivers of remittances, totaled 45 billion in 2004 or about 70% of the total US-based transfers. Two-thirds of the 231 billion, total worldwide remittances are handled by money transfer operators and banks, which accounted for approximately 154 billion in transfers in 2004. So, fully a third of the market continues to use informal networks, friends, family and countrymen to physically transport funds. We would like to do our little bit change to this. The leading three money transfer companies captured less than 20% of the total market. And an estimated 28% of the US adult population is unbanked and most of the segments look to money transfer organizations for their basic banking functions, including in sending funds and paying bills. As you can see, the money transfer market is quite significant, something most of you already fully understand. So, how we are going to go after it and most importantly what makes us different.

If you move on to slide number 25, I will start to answer those questions. As we announces in our press release released late yesterday, we launched our entry into the money transfer and bill payment markets with the acquisition of Telecom USA or simply put TUSA for short.

Let me start by sharing some key facts on TUSA. TUSA was founded in 2000, and operates as a licensed money transmitter and bill payment company serving the growing Hispanic market in the US. The company offers money transfer services primarily between consumers in the US and Latin America and bill payment services within the US. The company has its own unique patented single card based money transfer and bill payment system, which is compatible with many of Euronet's 200,000 plus POS terminal locations -- terminals worldwide. TUSA is licensed to operate in North Carolina, South Carolina and Georgia, and has over 350 sending locations in these states. It has over a 13,000 money transfer distribution locations in Latin America and offers consumers in the US access to more than 5,000 billers for bill payment services. Transactions are initiated through POS terminals and integrated cash register systems, but they can also be initiated through PC, fax or telephone. The Company has processes and controls for its money transfer business in compliance with all the state and federal regulation such as the Office of Foreign Asset Control (OFAC) and the Bank Secrecy Act (BSA) as amongst the others.

Now, moving to the next slide. This slide, slide number 26 shows a graphical illustration of the approximate number of locations for each of the leading money transfer companies, Western Union, Money Gram, and Dolex, and where they are around the world in the US worldwide. This comparison is provided solely as a means to illustrate the potential significance of our extensive point of sale network in relationship to the three most well-established money transfer companies in the market. As mentioned earlier, the simple and convenient money transfer product of TUSA is compatible with our prepaid terminals, it can potentially be rolled out to many of our 200,000 plus US terminals worldwide and our 100,000 plus locations worldwide over a period of time, beginning, of course, here with the US. As we all now know, a point of sale terminal can process much more than general credit card and debit card transactions. More and more retailers are realizing the benefits of leveraging their POS infrastructure to deliver and process new financial services targeted at the growing unbank and immigrant segment, including prepaid wireless, prepaid debit cards, money transfers and bill payment services. Company such as Euronet can enable these retailers by offering these products. As illustrated in the graph, in comparison to the approximately 212,000 Western Union locations, 74,000 Money Gram locations and 10,000 Dolex locations, we have a growing prepaid distribution network of 100,000 plus locations, all potential money transfer or bill payment locations, not to mention our more than 6,000 ATMs in our EFT segment throughout Europe, the Middle East and Africa.

Move on now to slide number 27. And slide number 27 outlines our strategy behind the TUSA acquisition and our venture into the money transfer and bill payment business. The money transfer and bill payment business is directly consistent with our core business of transaction processing, which we have been doing successfully for over 10 years in multiple market with multiple products, and it is directly in line with the recurring transactional and revenue nature of our EFT and prepaid businesses. On average, an immigrant sends money home several times a year and often pays many utility bills to third party payment entities, all leading to recurring transactions and revenues for a company like ours. The product that we have here through TUSA, that we acquired, is simple, fast, and convenient. It is a single card-based money transfer and bill payment system. Our product and accompanying technology is innovative when compared with most other money transfer products on the market, which are PC-based, slow to use, and certainly old technology. We can easily leverage this product within our prepaid and EFT business segments. We have over 200,000 prepaid terminals around the world, and more than 6,000 ATMs in our EFT segment, which present a significant opportunity for us to implement our money transfer and bill payment products. We have a strong presence in prime money transfer markets in both remittance or originating countries such as the US, the UK, Australia, and Germany, as well as receiving countries like India, and our Central and Eastern European countries. Therefore, it's a matter of execution in leveraging our 100,000 plus locations in these countries to take our money transfer product global. With the top money transfer company servicing less than 20% of the worldwide market, we have the opportunity to offer our simple and convenient money transfer and bill payment products to a wider target market.

Our strategy for the next six-month is simple, and that is to progressively roll out our money transfer product to many of our 15,000 plus US prepaid terminals and secure licenses to operate in other key states. Most importantly, we are now able to offer our money transfer product in locations where money transfer has never been sold before, for example (indiscernible) change within the US, enabling us to target a wider market and bring simplicity and convenience to consumers. And I like to reiterate this, because ours is a POS-based product, where you swipe a card and go. It's a quick and easy transaction, we believe that this will offer us brand new opportunities in a very untapped location market.

If you move then on please to our slide number 28. A key mission of Euronet has been to bring convenience and simplicity to every day life with our secured electronic top-up and ATM transaction processing capabilities. Our money transfer and bill payment products are consistent with this mission. To demonstrate this point, we have a video clip, which shows how simple, secure, and convenient our money transfer and bill payment transaction process is, for both customers and retailers.

If you look in at slide number 28, please click on the play button on the Euronet transaction link available to the left of your presentation screen to view a video clip, or you can go to our website at www.euronetworldwide.com, and view it from our home page. In a case of an unfortunate event where you can't see this clip, we have included six snap shots from the video on this presentation deck for you to follow it. So if you wouldn't mind, please click that right now. The entire transaction as you have just witnessed takes approximately 30 seconds, it does not require customers to fill out lengthy forms each time, and it allows retailers to process transactions from the checkout counters, rather than customer service counters. We hope this short clip conveys the ease of use of our newest product editions. So, get ready for our convenient secure, and simple money transfer and bill payment product services. More to come on that in the third and upcoming quarters.

Finally, let's move on to the last slide, slide number 29 for a summary of our second quarter, Dan, would you like to take over the summary?

Pretty great Mike, I will get this wrapped up. Slide 29, summary, you could see we continued our earnings momentum with a second quarter earnings per share of $0.23 over earnings per share of $0.21 in Q1. By the way, that's almost a 10% sequential quarter-on-quarter growth in earnings. And as Rick has already said it is a 90% plus growth in earnings on an annual basis. We saw year-over-year growth in and operating income in Q2 2005, over the same quarter last year, 52% increase in our revenue and a 69% increase in our operating income. We had exciting new products to our prepaid segment, money transfer and bill payment. This is the first product to manufacture ourselves, meaning we are not just distributing someone else's product across our prepaid infrastructure. This will allow us to be more in control of the related product margins. We are very clear about leveraging, over the coming quarters a simple card-based product to our extensive prepaid network in over a 100,000 locations in US and internationally. Our EFT and prepaid business segments maintained a positive pace, continued renewal of agreements, with Unicredito and HVB. And finally, we expect our third quarter 2005 earnings per share to be $0.24. We expect to maintain our earnings improvement momentum in Q3. This momentum is especially impressive given certain seasonal impact of the third quarter, continued investments in our prepaid business, investments in our money transfer products, and investments in new EFT markets, and additional pressure from the strengthening of US dollar.

So, this concludes the presentation portion of our call. I think there is still about fifteen more minutes before the hour is up, so we would be happy to take some questions.

Thank you, ladies and gentlemen, at this time, we will be conducting a question and answer session. [OPERATOR INSTRUCTIONS]

Robert Dodd, Morgan Keegan.

I got a couple of general questions, and then move on to money transfer. First of all, on the software side, can you tell us how the JV is going to impact software results over the next couple of quarters since the fees that you will be getting from that new JV?

Robert, this is Rick. What we've traditionally done in our JVs, when we contribute software into those entities is to offset the received software revenue with the investment to the point that we have recovered the investment. So generally speaking, we would expect that there is not much impact from that, and then we would start recognizing revenues and profits at the point that we have recovered our investment.

Okay, and then in the US prepaid, you are talking about Virgin Mobile, I think you referenced to rolling it out with some chain store locations. In the past, you stayed away from the bigger chains, you said the margin wasn't particularly attractive, what had changed this?

That's a good question, Robert. We have stayed away from the largest of the chains, I mean places like Wal-Mart or QuikTrip etcetera, but what we found is just like we have a sweet spot for the mom and pop stores, there is also a very lucrative market for the very small chains, and these are in the neighborhood of say wanted (ph), or say may be even 50 to 100 to 150 kinds of stores. So, it would be those kinds of things. Occasionally we can catch up 400 chain that is still significantly smaller by an order of magnitude than these big guys, but are lucrative for us, and we can make a deal for them that is lucrative for them.

Okay, thanks now moving onto the money transfer, congratulations on getting into that business. On the 100,000 locations that you have, do you know what the overlap is, in terms of what proportion of those locations are already money transfer agents like the Western Union, Money Gram, or somebody else? I mean, I know the UK Post Office, which is probably in York Ham, the inner city locations in the UK, I see already Money Gram money transfer agents, do you know what the overlap is there?

No. We haven't done a full overlap, what we have noticed here in the US whereas our immediate market, where we have 15,000 plus maybe almost 16,000 locations here in the US. As we have noticed that it's like 10%, we are doing money transfer, and one of the reasons why is because our competitors have extremely cumbersome systems. They're PC-based, you have got to go to a PC, you got to fill out a form, you got to enter this information into the computer and do your money transfer. Most of the C-stores, they just don't have time for that. People line up, they've got a single little POS terminal. They can do a top-up (indiscernible) and then they want to get to the next customer. So actually our product tends to fit very nicely for this. It's actually architected in a fashion very similar to how we do top-up in the UK with a card-based identification cards, so you know where to send the money, who to credit to and so forth. So, we see a significant opportunity in our locations. We'll try to get that full overlap for you later. But point two is, a number of the locations that some of our competitors have may not necessarily be unique locations or locations that are only serviced by them. We've noticed that several of these examples, the post offices in several countries have non-exclusives with some of these larger providers, so they could actually receive remittances or instigate remittances from multiple countries.

Robert, you might expect having addend information on what each particular location offers up, this is kind of difficult just because of data accumulations but are, as Mike said, our analysis so far indicates that is a very small double-digit percentage that currently does money transfer and largely as Mike said because it's just not a product that has been convenient in the markets where we see exceptional prepaid transactions.

And then two final questions at least for now. Can you give us roughly the price points for this, and then also you've given us indications about marketing investments in the near-term in the US, but as you take this product globally, (indiscernible) what kind of marketing and branding investments are we going to be talking about and if you got any thoughts about what brands you are going to be pushing this under globally?

Well, to work your questions kind of backwards as far as which brand. We're still debating internally whether we want a single global brand or local brands make more sense. We have done some work to determine what name we were going to use in the US, moving forward, we have basically a line on that, but we are not ready to announce that name yet. The US is where we can make the money really quick. The nice thing is we've got these over 10,000 or like 13,000 locations now, Latin America has receiving sites already set up. All we need to do now is leverage more sites to send, more of the remittance origination points. We only have 350 of those right now and yet we did a crossover analysis and we have a 1000 pay-spot locations of our own prepaid top-up locations in those three states that we're licensed for. So, what we are going to do is we're going to focus on getting license in more states, try to get those 1,000 locations that we have added to the current 350 that they have or as many as that we can, and then we will spread out to other states. As far as, like I mentioned, brands in other markets, we're trying to decide -- actually we've got a good name and a good brand in these markets with names like e-pay and transact, so we're going to try to decide what to call this product.

And any thing on the price point you can give us?

Rick, are we are going to be putting the price point in the Q.

We are necessarily doing that, but what I would tell you is that we generally offer two kinds of price structures, one which is, let's call it a flat rate price, to send a transaction and the other one is a combination of fees and some benefits from the FX difference. But our pricing strategy would largely be competitive in the market place. Like Mike said, we have really taken the product to areas that have not been traditionally served before. We believe we need to have a competitively priced product but we -- we don't believe that we need to go after it on a price basis to be able to get business. We believe that we'll be able to get business because of where we are with the convenience and the simplicity of the product.

Tony Wible, Citi Group.

Like Robert, I want to start off by saying great quarter and I do also have a number of questions. Mainly, I was hoping to look at where do you see yourselves basically a year out when you have these devices integrated from a competitive standpoint from distant e-top-up providers that are already in already in your -- in other words, the market share that you don't have in countries that you are operating in, do you see an opportunity by having a bundled solution to go in and potentially win that share back, now that you can offer more on one terminal.

Absolutely. This is both a defensive and offensive strategy. First of all, it's a great product, it's a great add-on. And when you drop a new product on a terminal, you know virtually all of the marginal revenue equals marginal profit, right? So, it just kind of rolls on to number of other products here in the US, in addition to pre-paid telephone top-up, we're doing bill pay and a few other things, and we are noticing that those things just bring additional margin straight through. Now, a money transfer product is a nice product because there is high revenues for both the retailer and ourselves on a per-transaction basis. So, it has got a lot of sex appeal to the particular retailer. We believe by adding that product, we can acquire new retailers probably from the competition or maybe just new retailers who don't have prepaid like in the US, and second is it provides a very effective countermeasure for us having our retailers swiped out from under us. So, I think that -- I mean you are dead on target here. We are really happy that this can really strengthen our portfolio with respect to our prepaid top-up with current retailers.

Mike, given your background in the software business, it's interesting you mentioned kind of the technology differences with Western Union and Money Gram. It seems like you guys might be going to more of an integrated approach on the terminal, is it fair to say that may be the terminal that you will be deploying can be configured for even more services down the line?

First of all, let me be clear that terminals we are using are standard industry based -- darn productive little terminals. They've got lot of memory in them, they can hold multiple applications, and in a given market even though let's say across all of our markets, we might have 20 products and in a given market may be only 10 of them are appropriate, and sure we will kept adding more and more products. What's interesting now is we've built this whole segment of our business on a one killer app, and that killer app is prepaid mobile top-up. We've added these other ones in our ancillary services, but I can't call them killer apps, and I don't think -- I think if anybody else does, they are kind of pulling your leg. But money transfer could be another killer app across the same infrastructure. It has all the potential to be. We will see if we can make it so. We think convenience is the key here, just like it's meant with pre-paid top-up (indiscernible) on, so we're pretty excited about this.

It sounds like the bill payment feature leverages a check-free backbone, and mostly be part of a US-based product, but overseas in Eastern Europe where you do have an e-top-up (indiscernible) and it seems so hard to pay your bills where you have to stand in line with cash at the post office. Is there an opportunity to leverage bill payments now in that market, I know--?

Actually, we were doing that even before TUSA, because every country is a little bit different. You've got to hook up each of the -- basically the suppliers, the billers themselves and we have been working that in a number of markets and do offer bill payments in some of our markets anyway. And so this just continues down that path though we want to have money transfer plus bill payment on every terminal as appropriate.

Down to the last two questions there. One is, is there also a way to maybe leverage this acquisition to maybe help -- you went to Latin American market in top-up considering that you got 13,000 retailers that are receive locations--?

Let me make that clear. Those 13,000 locations are almost all banks and the reason is because it's been difficult for any company to use retailers as receipt points in Latin America, because a lot of times they just don't have the cash there on premises to offer to the person who is trying to pick up and a lot of times they run into problems where they say well, I've only got a $300 equivalent, so will you take a toaster in $200 or something. you know. And so -- on the flip side of that is, think about all of our banking relationships we have throughout Central Europe, Central and Eastern Europe, India and other markets, we can leverage those into receiver locations pretty quickly because we already know all the names to call.

Alright, okay. Last question is for Rick, it really has to deal with the COCO (ph) and I just want to be clear on, I guess, the amount of interest expense after tax that we should be adding in as well as the shares when the COCO does finally become dilutive?

Yes, Tony, first of all, the interest piece is, the coupon is 1.65, which produces a quarterly number of about 500 and some thousand dollars and then as we disclosed on that COCO, we had about $5 million in deal fees that we're amortizing over the five year first conversion period and that produces about $250,000 quarterly, the sum of those is about $820,000 that you would add back for interest, because we're in a tax interval basis in the United States, we have no tax impact against that. So, you add that full amount back, then on the amount of shares to add in, it would be roughly 4.2 million shares, and you can see that at this point, you know, that's a fairly modest amount of dilutive impact on EPS.

And when do you anticipate that kicking in?

Well, it in theory could kick in next quarter, if we don't have any FX loss that comes to our P&L. It could have kicked in this quarter, again if we didn't have any FX loss there because it's about -- it's roughly at about $0.20 a share, where it has a minor dilutive effect. So, if not for the FX loss in the current quarter, it would have been minimally dilutive.

Great, thank you. Once again great quarter and good acquisition.

Tim Willi, AG Edwards & Sons.

Good morning, thank you. A couple of questions. One, just a housekeeping one on ATM before the others, but Dan or Rick, could you refresh me on what your pipeline at March look like for ATMs yet to be implemented and operated, is it down or up sequentially?

I think it's (indiscernible) numbers right now, I think it's just slightly down, I think it was like 900 before -- it was 858.

So even with some nice growth sequentially you still kept that pipeline pretty--?

Yes.

The second thing on -- I just want to clarify a couple of things on the money transfer in terms of the next couple of quarters of financial impact. You have talked about the expense side a little bit. In terms of revenue contribution, I'm assuming there will be some in the third quarter and fourth quarter, this basically with your increased spending (indiscernible) roll this out, will it be still a breakeven kind of business for you in the first couple of quarters or will it actually be a bit of a drag and actually maybe lose a little bit of money initially?

As we said in there, we had about couple of hundred thousands in net operating expenses, that, Tim, was net of some revenue, but the revenue wasn't much more than the net operating loss that we had. And the net operating loss that we expect in the third quarter is going to be roughly 300 or so thousand dollars, so we will increase a little bit of spin behind that. We will start bringing in some revenue numbers, but we would certainly expect that for the third quarter and then maybe in a similar amount that's starting to taper off there as we go through the fourth quarter.

When would you expect to get approvals for some of your other key markets that you could begin to put this on terminals and states like Texas or California?

We're working on that right now, Tim, I mean we've engaged a very reputable law firm that does this kind of thing for companies and has actually worked with some of our competitors and we're basically in that process, but every state is a little bit different, some are little bit hairier than others to deal with and so kind of as we get them we will announce them but we could have a number of good states here within the next 6 to 9 months.

And Mike I would like to add, I think, it's important to note it is just three particular locations the TSA had up on when we acquired them. They had run the business right at breakeven, and we have 1,000 locations, in that three state licenses. So, we have got significant growth that we can achieve in that business while allocating these states licenses. So, we have got surely I think a lots of work and further that we can do even without getting license in any new state.

It's going to be kind of one of those a little bit slower at the beginning while we just hit those 1,000, and then as we open up new states where we have thousands of locations, it's going to be quite exciting.

Great, and last question is regarding sort of compliance in security, obviously, due to larger companies like Western Union/Moneygram have had too address issues around Patriot Act and money monitoring etcetera, could you just sort of tell us where you think the infrastructure on security and compliance is for this product particularly as you think about expanding the footprint internationally? Is there a pretty decent platform there in those respects or would that maybe result at some point in time talking about an incremental investment spend before you really try to go international with it? And I mean international beyond US, Latin America, just talk about Europe and US, Europe and something like that.

Well, first of all, what I would like to -- Rick might be able add in a little to the US perspective. But, from an international perspective, every country is different, and so -- but basically, there are databases you got to go hit, and I have got some of the methodologies for doing as money transfer is all of these big ten countries. So, they do plenty of it now. We believe we have got a good infrastructure to do this, and it's basically before you do a transaction, you got to hit a number of databases, make sure you don't know how any nasty matches. And we do that now whether we hit our OPAC databases or we hit the one in the UK, when it's called, or the one in Germany, if that is called. So, we think it will take continual investment to move it into new countries, but probably not enough of an investment really to move the needle too much on the expense side overall.

I'll just add to Mike's comments. One of the things that excited us about this business is when Wayne Cooper had started the business about four years ago, which was prior to even the Patriot Act, he had number of relationships with state department types, and he worked closely with those people to really understand what they were expecting in terms of money transfer. Wayne is the honorary consulate to Mexico for the state of North Carolina, and so, he was interested in making sure that the relationships between the two countries in the movement of money was quite accepted between the governments, and as a result, the systems have been designed so that they anticipated what would happen to Patriot Act and other things that you see go on in the United States vis-a-vis money laundering.

So, net-net, we saw it was privatizing (ph) more than in compliance with the Patriot Act, and because of its structure and its nature, we think it's superior in terms of control and security to other products that are accomplished at those days.

But, as Mike mentioned, every country has got its own nuance. So, we will have to deal with those as we go from country to country, but we think that we have a very sound platform to work from.

Pete Heckmann, Stifel, Nicolaus.

Rick, a little bit confused by the pro forma EPS calculation. It looks to me -- starting at the EBIT line and moving down as if there were no foreign currency translation loss, it seems like I am coming out with an EPS number that's lower than that $0.23, and it seems like there is a fairly decent size tax benefit in that $0.23 calculation.

Well, we if we (indiscernible) add back that 800 and some thousand of interest expense, and again that's not tax affected because we are not recognizing any benefits from the deduction on that through our effective tax rate. So, that entire 800 and some thousand is added back, and that should prove to get back to that same $0.23.

Okay, I will work on it again. In terms of the prepaid business, just trying to track some of the acquisitions that have been made, I am thinking there is about $16 million of acquired prepaid revenue in the quarter. Does that sound about right?

What do you mean by that, Pete?

Well, the last six acquisitions added about $16 million of prepaid revenue, so that on a year-over-year basis, organic growth in prepaid I'm calculating was high 20's, low 30's percentage range?

High 20, low 30 percentage, you said?

Yes.

Yes, I mean our math would say that our organic growth year over year was pretty consistent with about that 70% number, even that we saw at the end of last year.

70% organic top line growth?

Yes, on a year-over-year basis, just slightly less than 70%.

I don't know that that calculation, then we get a 56% total revenue growth in the quarter?

Right, so about 70% of that on a year-over-year basis was organic as opposed to acquired.

I see what you're saying, okay.

And just to give you a little case and point on this one, we've acquired in the US up until the recent dynamic TeleCard acquisition, about 7500 terminals in the US and we ended year before we have done that acquisition at about 14,000 or so terminals, so kind of by definition we have added organically, you know, over 7500, we added you know good 70 to 80% kind of growth of terminals ourselves just in the US over the last year on top of what we bought, and then we have just bought that new Dynamic TeleCard deal, and that brought us some additional terminals and we are starting to grow those, but the nice thing is our add rate when you look at our total combined terminals, the US is an example as a new market, in the end Germany is another one of our big growth markets over the last year, has been pretty phenomenal, just organic new terminal adds.

Right, on that subject of terminal adds, when we look at the transactions per terminal, that number was really, really strong in the quarter, the fee per transaction had backed off a little bit, is there a dynamic going on with ATX or one of the other acquisitions that's doing--?

Well, yes, don't forget ATX is a little bit different, and Germany is quite a bit difference because in Germany we did a small transaction, (indiscernible) transaction where we get the full revenue amount of the distributor margin in most of all our other markets. So, you've got this kind of mix issue where you bring in basically a 100% margin over in places like Germany and ATX, when you're bring over only 20% margin business in all of the other markets because we have to kick the rest back, that other 80% back to the retailers.

We have kind of exceeded our 1 hour allotment time. So, we would like to try to wrap this up. So, I don't want to cut short Pete, but unless you have got something real, real pertinent, I'm going to bring up.

I just want to ask one more little question, do you give a purchase price for TUFA?

We have not given that number out, because it's in the grand scheme of things, it's not a huge number and for competitive reasons we'd rather be more quiet on it but it was not a huge amount and if you do a little analysis on the change in our cash and assets and stuff like that, you will be able to prove that out.

Alright, thanks.

Thanks everybody, that concludes the call, and we will talk to you on the next quarter.

This concludes today's teleconference. Thank you all for your participation.