Euronet Worldwide Inc (EEFT) 2006 Q3 法說會逐字稿

Greetings ladies and gentlemen and welcome to the Euronet Worldwide third quarter of 2006 earnings conference call. [OPERATOR INSTRUCTIONS] 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.

Thank you Jackie.

Good morning and welcome everyone to Euronet Worldwide's quarterly results conference call.

We'll present our results for the third quarter 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 on the conference call.

Statements contained in our conference call, which concern Euronet's or its management's intentions, expectations, or predictions of future performance, are forward looking statements.

Euronet's actual results may vary materially from those anticipated in such forward looking statements as a result of a number of factors, including technological developments affecting the market for the company's products and services, foreign exchange fluctuations, and changes in laws and regulations effecting the company's business.

These risks and other risks are described in the company's filings with the Securities and Exchange Commission, including our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

Copies of these filings may be obtained by contacting the company or the SEC.

Euronet does not intend to update these forward looking statements and undertakes no duty to any person to provide any such update under any circumstances.

Now I'll turn over the call to Rick.

Thank you Jeff and welcome everyone.

If you go to slide five, we'll get started.

For the third quarter 2006 the company produced revenues of $161.7 million, operating income of $13.1 million, EBITDA of $22.5 million and earnings per share of $0.28, excluding FX impacts and share-based compensation.

Revenues, operating income and adjusted EBITDA improved by 18%, 4% and 15%, respectively, year over year.

Euronet's diluted earnings per share, excluding FX impacts and share-based compensation, improved by 17% to $0.28 from the $0.24 posted last year in the third quarter.

Let's go to slide number six.

Here on slide six we can see our third quarter of 2006 revenue, compared to the third quarter of 2005 and the third quarter of 2004.

Annualized, our revenues are now approaching $650 million.

Slide seven please.

On slide seven we illustrate quarter over quarter transaction growth.

As we have historically pointed out, year over year transaction growth continues to fuel revenue growth.

You should also note that transaction growth came in both the EFT and pre-paid segments, across all markets.

Slide eight please.

Operating income and adjusted EBITDA, like revenues and transactions, continued to improve year over year.

As noted earlier, operating income improved 4% and adjusted EBITDA improved 15% year over year.

Significant to the lower 4% operating income improvement was the increased expense this year for stock-based compensation.

As you know, we adopted FAS-123-R in the first quarter of this year and the prior years were restated to include the expense of stock-based compensation for comparative purposes.

This increase in stock-based expense, this year versus last year, relates to more employees, the replacement in '06 of shares valued at higher amounts than shares related to '01, which fell out of the calculation this year, and the accelerated expensing requirements of performance-based stock awards.

Without the impacts of share-based compensation, operating income would have increased 9% year over year.

The other key items impacting year over year operating income were the net, incremental and recurring expense of the money transfer business and the expiration in the second quarter of the preferential exclusivity commission rate in Spain.

I'll now discuss operating income in more detail at the segment level on slide nine.

Here on slide nine we review our segments' quarterly results.

Starting with the EFT segment, revenues grew 26%, with a 24% increase in operating income.

Our EFT segment continues to see top line and bottom line benefit from our success in both the European and Asian markets.

We continue to add to our count of total ATMs managed and we have consistently seen improvements in transaction volumes.

We are very pleased with these results, given we continue to make significant investments in the Asian Pacific and Eastern European markets.

Dan will cover more details about EFT in a few minutes.

On the pre-paid front, revenues improved by 13% year over year, while operating income decreased by 4%.

The difference between the revenue growth and the operating income growth is substantially all accounted for through the expiration of the preferential exclusivity commission arrangement with a Spanish mobile operator.

As you know, we discussed this matter quite thoroughly last quarter.

Moreover, we mentioned that we will continue to push down rate reductions to the Spanish retailers and make wider distributions of the other two mobile operator products.

You will see the positive results in these actions if you look at the pre-paid group's sequential results, where third quarter revenues grew 6% over the second quarter and operating income grew 9% over the same quarter.

These numbers, if simply multiplied by four to annualize, would result in a 24% annualized growth rate, revenue growth rate, and an improvement in operating income of 36%, reflecting the fundamental strength of this group, even with increased spending for money transfer.

To that end, I'll point out that our investment in the money transfer business increased this quarter by approximately $300,000 over the second quarter.

Without this increased spend, pre-paid sequential operating income would have increased by approximately 11%, or 44% annualized.

Our quarterly net investment in money transfer is now approaching $900,000.

As we've discussed before, we believe the money transfer product will offer significant values to the pre-paid group, but in the meantime, we are making these investments to establish the product in more and more markets.

As Mike will discuss in a few minutes, we have been awarded licenses in more states, now covering all the big money transfer states other than New York, and we're confident New York, in time, will be awarded as well.

Again, Mike will cover these more in a few minutes.

So net-net, in the third quarter we saw strong sequential growth in profits from both our pre-paid and EFT segments, another testimony to the fundamental growth markets we operate in and the recurring revenue model of these businesses.

Now to slide 10 for a few comments on the balance sheet.

Our balance sheet remained relatively constant through the quarter.

Our cash increased by about $22 million, the net result of operations.

Aside from the increase in cash, there are no other remarkable balance sheet changes.

You'll note that our debt and debt-related statistics continued to improve.

Now, on a net debt basis, our debt, which is mostly the convertible bonds, is only 1 times annualized adjusted EBITDA.

Let's move to slide 11 and I'll wrap up with a few comments on earnings per share.

Our diluted earnings per share of $0.28 exceeded our expectations of $0.27 for the third quarter of 2006.

Note that these EPS numbers exclude the impacts of FX and the new FAS-123-R share-based compensation charges.

The better than expected earnings were the result of solid performance in both our pre-paid and EFT segments, together with a little help from taxes.

And had we not continued to increase our spend for the money transfer product, we would have been almost another $0.01 higher, a good solid earnings quarter.

Thanks for your time and now I'll turn it over to Dan.

Thank you Rick.

If you turn to slide 14, we'll get into the EFT processing segment.

Slide 14 gives a snapshot of our EFT financial results.

Our revenue of $33.2 million in Q3 2006, was up 26% over the same quarter last year.

Our operating income of $8.2 million in Q3 '06 saw a 24% increase over the same quarter last year.

And our adjusted EBITDA of $11.4 million in Q3 saw a 30% increase over the same quarter last year.

Next slide please.

Slide 15 graphically shows our consistent and improving quarterly operating income and adjusted EBITDA results for the third quarter of 2006, compared with the past two years.

We are very pleased with our EFT teams providing positive performance year over year.

Our teams are working hard, signing new customers and launching new markets, while maintaining this momentum.

Additionally, we're focused on expanding our profit in our key business segment, beyond just ATM outsourcing.

We've been working to leverage our extensive software platform to provide merchant inquiring and card-issuing services to customers across our existing markets.

We have added some key executives to go after these opportunities and we expect their efforts will soon generate some tangible results.

We'll now move on to discuss the EFT business highlights.

Next slide please.

On slide 16, we will discuss highlights across our EFT universe.

We signed an ATM outsourcing agreement with out first public sector bank in India, Corporation Bank, for 915 ATMs.

This is a very significant win for us, as Corporation Bank operates the second largest ATM network among public sector banks in the country.

Initially, we will not be providing transaction processing services for the bank's ATMs, but will provide other outsourcing services supporting the efficient operations of these ATMs.

We do expect to expand the breadth of our services to this bank over time.

Also, we signed agreements with Standard Charter Bank in both the Middle East and India.

We are currently live and are providing ATM driving and card management services for Standard Charter Bank in Qatar, as well as our data center -- I mean, we're doing that from our data center in Bahrain.

In India, we have signed an additional outsourcing agreement with Standard Charter Bank to take over 119 ATMs from their existing network.

This is in addition to the Q3 '03 agreement we signed with Standard Charter in India to deploy and operate 75 new ATMs.

We expect the network takeover and Cashnet connectivity for Standard Charter in India's 119 ATMs to be completed in December of this year.

We're very excited about signing Standard Charter.

This is a leading international bank, with operations in 56 countries worldwide.

We expect to expand our relationship with Standard Charter in other countries in due course.

Moving on, we've mentioned new market initiatives of EFT in our previous calls, but we've been silent with respect to which countries.

The markets we've alluded to were the Ukraine and Bulgaria.

In the Ukraine, we have launched live outsourcing operations with Pekao, an affiliate of the UniCredit Group for ATM driving services.

We currently have nine ATMs live in this market and look forward to adding more in the next few months.

In Bulgaria, we've added two more customers this quarter.

We now have agreements with five banks in total for ATM network participation, including three UniCredit OHVB affiliates.

These banks will collectively benefit from a network of approximately 100 ATMs that we've already started to roll out in Bulgaria.

As you know, the UniCredit HVB group is one of the multi-national banks we work with in Europe and we are very pleased to extend our services to the group's affiliates in these two additional countries.

Keeping up with our progress in new markets, I am very pleased to announce our second agreement in China with a leading multi-national bank for ATM outsourcing.

At this time, we're unable to disclose the name or the contracting bank, at the bank's request.

That said, however, the bank plans to deploy 50 ATMs in the next 12 months.

We look forward to managing their ATMs and assisting them in expanding their network.

This bank is like many multi-nationals that are gaining a foothold in China in preparation for this market opening up, in line with the WTO agreement.

Next slide please for more highlights.

Slide 17 please.

We renewed agreements with key EFT customers in Greece and Hungary for multi-year terms.

We further extended our services to Piraeus Bank in Greece to include POS recharge for pre-paid mobile air time.

We continue to be the most important ATM player in the Indian market.

Our cash end network continues to be the largest shared ATM network in the country, with more than 6,200 ATMs and 13 member banks.

We saw a 21% increase year over year in the number of ATMs in the shared network, while transactions increased 130% for the same period.

Currently the network accounts for more than 30% of all the ATMs in India.

Moving on Post Bank in China.

We currently have installed 62 ATMs across Beijing, Shanghai and Guangdong for Post Bank.

This includes the successful deployment of two ATMs in Guangdong.

That's the third city that was actually causing us so much trouble, and we expect that the remaining 28 ATMs from this initial pilot will be deployed by the end of this month in Guangdong, which will complete the 98 pilot force with Post Bank.

And finally software.

Our software business continued to maintain its momentum.

We continued to sign, as well as renew, ITM software agreements with these banks.

Additionally, we are pleased with the progress we have made to leverage our Excentus business.

We are currently working to extend our services capabilities on this platform to offer best in class credit card issuing and POS merchant-acquiring solutions to our customers.

Overall, a very good quarter for our EFT segment, and I'd like to thank our EMEA, India, China and software teams for their hard work.

Now on to slide 18, where we outline our combined ATM categories by quarter.

Since our last call, we've added 625 ATMs to our EFT network.

That's a sequential quarterly growth of approximately 8%.

Of the 625 new ATMs, 350 came from various European markets, and 275 came from India.

We now have a total of 8,491 outsourced ATMs.

That's a 24% increase over Q3 2005.

Our transactions processed on these ATMs increased by 26% for the same period.

India's contribution to the overall improvements in our ATM network.

Our live ATMs under management in India this quarter increased by 48% Q3 2005 and 18% sequentially over last quarter.

These improvements are even more significant in light of the Reserve Bank of India regulation on new off-site ATM deployment we shared with you last quarter.

Our Indian team made up for the slow down in the new off-site ATM deployment by taking over existing ATMs of banks.

In the ATMs under contract category, we have 1,106 ATMs under contract, not yet installed.

That's a backlog equal to approximately 13% of our current base.

This backlog does not include the Corporation Bank's 915 ATMs, which we just announced a few days ago.

These ATMs at Corporation Bank will not be included in our network count until we expand the scope of the services on these ATMs to include transaction processing.

Now I'll hand the presentation over to Mike to cover our pre-paid segment.

Thank you Dan.

We'll move on now to pre-paid.

Going to slide number 20 we can see some of our pre-paid financial highlights of the quarter.

Our pre-paid revenues of $121.2 million in Q3 2006 were up 13% over the same quarter last year.

Our operating income of $8.8 million in Q3 2006 decreased slightly, by 4%, over the same quarter last year and our adjusted EBITDA of $12.5 million in Q3 2006 was equal to the same quarter results in last year.

In our last two calls, we discussed at length the two issues impacting our pre-paid segment's results.

This quarter, to clearly illustrate our growth from all other pre-paid subsidiaries, we have excluded from each periods' results the impacts of Spain and money transfer.

Excluding these two items, the pre-paid segment would have improved its revenue and operating income by 19% and 23% respectively year over year.

And, for a view of the more recent momentum, if we exclude our discretionary investments in money transfer alone this quarter, our pre-paid segment, and that would be including Spain now, our pre-paid segment grew sequentially.

Revenue and operating income improved 6% and 11% respectively over Q2 2006.

That's a 24% and 44% annualized growth in revenue and operating income for this segment.

These results indicate that the pre-paid business, without money transfer investments, came in with very good quarter on quarter performance.

Thank you to all our pre-paid teams for that.

On slide number 21, if you'll turn the page, you can see our sequential quarterly operating income and adjusted EBITDA results for the third quarter of 2006 over the second quarter of 2006, excluding our investments in our growing money transfer business.

This quarter, we saw a sequential improvement in the profitability of our Spanish pre-paid business.

We initiated the pass-through of commission reductions to the Spanish retailers, partially offsetting the Q2 2006 expiration of our preferential exclusivity commission arrangements with Telefonica.

Further adding to our Spain recovery was the distribution of additional products and pre-paid air time from the other two mobile operators in the Spanish market.

Next slide please.

Over the next few slides we have highlighted a number of accomplishments and initiatives in our primary pre-paid markets.

Rather than re-itemizing each, I'll just re-emphasize our three major objectives in this line of our business.

First, we want to continue to add retailer cash collection locations.

Second, we want to deploy more terminals.

And third, we want to add new, high-margin products to distribute over our 265,000 terminals in our seven primary markets.

You will be able to see examples of these objectives in the itemized points on slides number 22, 23 and 24.

All markets continue to expand and were instrumental to the 6% sequential revenue growth I discusses on slide 20.

Now, if you will move on to slide number 25, we will review our money transfer and bill payment business highlights.

Okay, slide 25.

We were granted licenses in three additional states in Q3, California, the number one remittance setting state in the United States, Massachusetts and Tennessee.

That said, we're happy to receive our license in California, but don't have immediate plans to launch in to this market, as of yet.

We are currently addressing our previously licensed states, such as Texas, Florida and others, which are keeping our sales teams quite busy.

Accordingly, we don't expect to increase our money transfer investments significantly over the next couple of quarters.

We are now operating in 19 states in total and we continue to aggressively address these markets.

This quarter, we added a total of 400 plus ethnic stores.

We have more than 1,400 sending locations in our system in the U.S., operating our money transfer and bill payment products.

This quarter, out of those 1,500, we had 900 transacting stores.

We expect to increase our transacting store count through various marketing initiatives.

We launched our new money transfer corridor form the U.S. to three additional countries, China, India and the Philippines.

We currently have access to a local bank in each of these three markets for distribution of funds.

As with last quarter, I will share a few key metrics to show you that our investments in the money transfer business are moving in the right direction.

We expanded our merchant base by 180% year over year, and 47% sequentially over prior quarter, Q2 2006.

These are significant increases as we address our newly licensed states and continue to market in existing states, we'll continue to see this number grow.

With the increase in merchants, we also saw transaction growth increase by 58% year over year and 20% sequentially over last quarter.

We also increased our operating investments in Q3 to go after the newly licensed states, as well as strengthen our base in operational states.

As I said before, we do not expect to increase these investments over the next couple of quarters.

Money transfer and bill payment are exciting products in our cash collection network.

We look forward to further growth in these businesses.

If you'll move on, please, to our summary slide, number 26.

We exceeded our earnings expectation with third quarter EPS of $0.28.

This positive earnings outcome is even more significant due to the continued investments in our money transfer business, three full months of the Telefonica decrease in bonus commissions and our investments in the new EFT markets and products.

And here is why I'm excited about our business when I wake up every morning.

Our three products, ATM processing, card processing and cash collections are fundamental to the growth of the economies in these emerging markets, such as Central and Eastern Europe, India and China.

These markets represent tremendous opportunities for us.

We have a first-mover advantage in most of these markets and our investments will pave the way for long-term growth.

Specifically, we launched and expanded our EFT services in key markets.

We launched in the Ukraine, while our Bulgarian operations are in the pipeline.

We expanded with Standard Charter Bank affiliates in Qatar and India, as Dan mentioned.

We strengthened our first to market position in China now, with our second ATM outsourcing agreement.

We launched new money transfer corridors from the U.S. and received a license to launch money transfer in the U.K.

And, excluding money transfer, our sequential Q2 to Q3 '06 pre-paid revenues grew 6%, with an 11% operating and income expansion, great momentum.

Finally, we expect our fourth quarter 2006 earnings per share to be $0.29, excluding the usual items.

This concludes our presentation portion of the call and we will be glad now to take questions.

Operator, will you assist please?

[OPERATOR INSTRUCTIONS] We have our first question coming from Tony Wible with Citigroup.

Please proceed with your question.

Good morning.

I've got many questions.

So I'll ask a few here and then jump on a little later.

The first place I'd like to start is on the new ATM deal that you have in India.

Can you discuss the structure of how we should be modeling this?

Will we see the ATMs show up and would the pricing per ATM go down if you add the ATMs or are we just going to see no change in the ATM base and an increase in average revenue per ATM?

It would be the latter, Tony.

Go ahead, Dan.

I'm sorry.

Yes, it would be the latter, Tony.

This is Dan.

Since we're not doing the transaction processing on those ATMs, we're not going to add them to overall ATM count.

They are generating a decent contribution for us, but not in the range that we have typically said of contribution from ATMs we bring on.

Is it safe to say that with just the monitoring, is that half the economic value of a standard deal, or is it a third?

Just trying to --.

It's probably about a fourth.

Okay.

Just to get clear on the China contract.

Congratulations on that.

It is a foreign bank, I assume, obviously.

Yes.

And the WTO rules would go into effect in '08.

Is that the beginning of '08 or the end of '08?

The research on this that we have dug into shows that basically the market is going to begin to open up in '07 and, as we're discussing with the banks, every bank is planning and hedging their bets that they're going to spend most of '07 getting approvals and getting their ducks in order.

And '08 will be their break out year, where they really start the expansion.

Okay.

I have a question that's kind of directed towards Rick, but I guess this quarter we saw an out performance of growth by the ATM business, relative to the pre-paid business, but yet we saw an increase as percentage of revenues for direct operating costs.

I guess, what's driving the bump-up in direct operating costs this quarter and how should we think about that trending over time, as it appears the ATM business is growing faster than the other business, which has higher pass-through?

I'm not quite sure I follow your question, Tony.

Basically, what I'm trying to get to is that your faster growing business doesn't have a high degree of pass-through, but this quarter you ended up seeing a bump up in the line item that includes the commissions that you would see on pre-paid.

Yes, well, I mean, what we would see in the pre-paid business here, again keeping in mind that as the commission went down on the Spanish business, and we're continuing to sell more into that particular market on the other two products, that would give you a natural lift on that commission number.

And, I mean, mathematically it will close the gap of your gross margin a bit, just like we've said that we had that third full month in here.

I think Mike mentioned that we had three full months in here, but on the bottom line we've been able to make that up through the additional volumes, as we said, we'd be selling into those other two colors.

So, we would naturally see some increase in that expense, in relationship to the prior periods, but making up more of that on the volume side.

And then, on the EFT side of the business, as Dan commented on, and actually we disclosed this period here, we have been spending more money in the EFT market, in going into some of these other Eastern European markets.

So that's put a little pressure on growing the operating income as fast as the revenue number, but nonetheless, still keeping pretty good track, even with making those investments.

And we did improve our margins by something like 0.1%, 0.2% or so this quarter as well in EFT, correct Rick?

Yes.

Right.

So I guess if I blend all that together, should we start to assume that the direct operating costs in the near term stay flat-ish, to trend up a little bit, and then you start to scale off of that a year out or so?

It would -- it makes sense.

Okay.

Last question, I'll jump off and ask a question later, but you guys had indicated, obviously that the nice sequential growth you saw in the pre-paid business.

Should that be indicative of the kind of growth that we would see normalized, net of Spain, are you guys implying that 40% operating income growth is what we should be looking for out of pre-paid?

I don't think so Tony, but people have asked after last quarter because they're not that sophisticated and they add money transfer in and they add Spain's changes in and they said is the growth in our pre-paid segment dead?

And our answer is hell no.

You take a look at just Q2 to Q3.

It was good; it was good and strong.

I don't think we can get 44% growth annually out of it, but the point is that it wasn't an anomaly.

We did well.

These guys bucked up and brought in the bacon, and that business, for us, is alive and well.

And, on top of that, Spain is beginning to recover.

So we had two months of the reduced commission the last time, in the last quarter.

We had three full months of it this time.

So, despite that negative, we've begun to make up for that with the push-down in commission, combined with selling those two new operators.

And I'll point out that while we did exactly what we said we were going to do, by pushing that down and expanding the products to those other two colors in Spain, we had good performance by all of our other teams out there.

So, again, what I would stress is that the beauty of our pre-paid and our EFT business is the diversification across a lot of countries, to where we can leverage that as we see those markets expand, or if we have any kind of hiccup in any one market.

Diversification through the countries is a really good thing for us.

Great, thank you.

I'll jump off for now.

Our next question is from Tim Willi, with A.G. Edwards.

Thanks, good morning.

A couple quick questions, if I could.

First is, Mike, do you have, in that growth of transactions for money transfer, do you have any sense as to what mature locations, and I know there aren't that many of them, because the company itself is pretty young, but what does the growth look like maybe from agents that are 1-year-old, some kind of same store figure?

You got anything like that?

We really don't have any new 1-year-old agents.

We have some that we've added since we bought them.

If you take a look at the North and South Carolina base of business that we bought when we bought the company, you can say those are now a year out.

They're doing about 60 transactions a month per location.

And our transactions across the board are quite a bit less than that.

You can see they're beginning to ramp up.

We don't know where they're going to go to.

Our goal is to get them to a good percentage of where North and South Carolina are.

But, we're not there yet and I don't have enough empirical evidence to tell you exactly where we're going to go, because I've got nobody out a year.

Okay.

Second question, on money transfer and bill payment, is what has the acceptance for the interest levels from your merchants that you currently have signed up and those that you continue to negotiate with, about the bill payment products?

Actually, bill payment is growing very nicely in this mix.

One of our challenges that we have right now is we'd really like to roll out bill payment across a lot of our PaySpot locations, of which we've had 22,000 or 23,000 of.

But, in many of those cases, these are chains who are in multiple states and, much like money transfer, you have to be licensed.

So until you get a good coverage of the country, you can't go to the chain of XYZ stores that have 100 locations in nine states or 20 states or whatever, until you're licensed in all of those.

So that's been holding us back a bit from going after bill payment with our chains and some of our groups there in the PaySpot locations.

But now that we've gotten California, that was a big domino to fall, that's the biggest domino, Illinois is imminent.

And then all we've got really is New York.

And once we do that, we can just fill in with the little guys.

Okay.

And a question, Dan for you.

In the EFT business and the margins, you had mentioned in your earlier comments about some money you said you spent on trying to leverage Excentus into more of an outsourced kind of environment.

Any additional color on, does that investment accelerate any way on margins or should the growth of the ATM business be able to offset any kind of incremental money you're going to do in the merchant processing area?

Appreciate that question.

It gives us an opportunity to expand on this a little bit more.

First off, on the margin piece, in light of the ATM expansion, as I mentioned, about 350 of those ATMs came from our European markets.

Almost half of what popped out of Europe this quarter came out of the U.K.

And in the U.K. market we really provide to our customer up there just simple switching of transactions.

So those are decent margin contracts from a percentage basis, but very small on the revenue side.

So that would be, if you're running the calculations, it's a simple math, in terms of number of ATMs, divided by, that's part of the reason for the skew on that.

But more importantly to your question about leveraging Excentus, the spend that we referred to really is investment in some key executives that we've brought into the organization over this calendar year.

And at this point, any investments that we're making to expand our breadth of services has really been mostly -- almost completely along the lines of just sales expenses and sales efforts.

We don't expect -- don't intend to make any significant spend or investment in any sort of new systems, data centers, what you will, until we have a signed contract in hand, at which time, when we have that, then we'll better understand the economics of that.

Okay, great.

Thanks a lot.

Our next question comes from Robert Dodd, with Morgan Keegan.

Hi guys.

Just on the Centurian Bank, and actually this might tie into the other banks that you signed in China, can you just give us any color on the sales cycle differences between public sector, like Centurian or Post Bank, and the more private national banks?

Obviously it looks like the international banks signed somewhat quicker, or has this deal in China been really boiling for 12 months?

Can you give us -- anything you can tell us there?

Sure Robert.

This is Dan.

Just for clarification, the state bank in India that we signed is Corporation Bank.

Centurian Bank was a bank that we announced last quarter (multiple speakers).

So Corporation Bank -- yes, it's definitely a different process.

I mean Corporation went out -- as a public sector bank they actually went out to bid through a bid process.

It is a grinding type of a process is the bad news.

The good news is there is a process with a definitive date of completion and a decision that gets made.

Whereas, with bids that are not through state-owned banks, private sector banks, yes, you might say that they go a little bit faster, but in all reality, they all vary.

The multi-national that we picked up in China did move, I think, relatively quickly, compared to other deals we've done in the past.

However, we benefited from the fact that we have a relationship with this bank in other markets.

So, it ain't getting any easier.

I can just tell you that, Tony, to get these contracts.

I'm sorry, Robert, it's not getting any easier.

Okay.

On the - in the -- you said on the U.S, you've now got the Philippines, China that you're adding to the money transfer side of the business, you've also added the U.K., or added a license there.

On that side, in terms of the distribution at the far end, what do you have to go through to sign up -- receive locations at the far end?

You said you've got banks in certain of these markets already, but is there any -- do you have to pay anything up front or anything like that to get these locations signed up?

No, you don't.

Actually this was one of the banks that we used that goes to Latin America.

It also has branches and distribution points in these three countries.

So we just added them to it.

Classically, if let's say, we want to go to, I don't know, pick a market -- I'm in Poland today, so let's say we wanted to go to Poland and add that as a market, we would have to do the same thing we did in Latin America, where we'd have to get a Polish bank to agree to be a recipient location, put the things in place and then put a system in place between them.

So, it usually bank by bank takes longer.

This one was pretty quick.

Okay, and then how are you going through your allocations of -- you said you don't plan to invest anything more incrementally on the marketing side, on the money transfer side.

How are you looking at your allocations there?

Because it seems like you've got rather a lot of options now, between going into California or spending into some of the marketing into some of these areas.

What's the decision process you're using as to where you're devoting your capital at this point?

Well, some of this is top secret, and other of it is we're just figuring this out now, because we've really only had these markets for a short period of time.

The hard fact is we have limited resources and we can't go into all 52 states simultaneously.

So we're busy right now with the states that we were granted in the last quarter.

And as I mentioned last quarter we got Texas and Florida, a quarter or two ahead of our schedule.

So, we've been busy as beavers working down there and then in some other states.

So, we'll spend our money there.

What we have found just -- so far is that it's better to do deeper marketing in one market rather than superficial marketing in multiple markets, because at the end of the day you've got to get critical mass.

People need to start to talk about these cards and the retailers need to get used to seeing the cards and know how they work and how our system works.

So, it would be better for us to be stronger in, say, Florida and Texas than, say, be light in those two states plus California.

Okay, got it.

Thank you.

Our next question is from David Parker with Merrill Lynch.

Please proceed with your question.

Good morning everyone.

Good morning David.

Could you just give an update on the Reserve Bank of India and is there any sign of them potentially lifting some of those regulations they deployed?

Understand on this that what they have said is that unless you've got a branch of a bank, they don't want you to do off-branch ATMs, so we've been focusing on banks that already had ATMs in their branches or are going to expand into their branches.

You remember, when we very first started, we had all of these international banks as our customers only, and these guys were building out their new branches and new ATMs, so that's why it had a significant impact upon us.

Now, with our recent public sector bank, we're certainly going into banks that have got a lot ATMs that we could take over and lots of branches that don't even have ATMs in them.

We have not -- so I guess there are still plenty of ATMs to go after, even if they don't change, and we have not heard anything.

I don't think they're going to show their hand until they show their hand.

So that's kind of -- but we don't expect them to put the kibosh on this forever.

Okay, and then on the Corporation Bank, what is the probability of you winning the processing services portion and any timing on when that could occur?

Yes David, this is Dan Henry.

The other aspect of that Corporation Bank bid is that since it was a public sector bank, the bid was just for what we call the managed services.

So during the bid process, we weren't able really to try to push and upsell that bank.

But now that we are in there, it is our full intention to try to cross sell and add more services and get the full processing.

Since those banks' ATMs are connected to the cash matured ATM network, we're already connected into their system.

So the technical connection is there.

It's just a matter of time, we believe, until we are able to expand it.

And in terms of a timeline, with everything in these markets, I'm always saying it's 12 to 18 months out.

But I say that, and you should know I'm saying that without there being any -- we haven't begun any conversations in earnest with the bank yet.

Okay, thanks Dan.

And then any update on the -- an additional deal with the Post Bank of China?

No update there.

We're just really pleased that the completion of the pilot is just a matter of days away.

I was in Beijing last month and met with the bank and they reiterated that they are very pleased with what we're doing and wheels are in motion to expand the breadth of services.

We had an entourage from the bank came over to Budapest about two months ago, went to Budapest and to Warsaw to see what we do and talk to some of our customers.

So it's a large bank, which we are making very good progress in building consensus amongst a number of players in this bank.

Every journey begins with a first step, as they say in China.

So, I think we're about four or five steps into it.

Okay.

And then congratulations on the deals in the Ukraine and Bulgaria.

Can you size those deals and then also just the growth potential in those regions?

Both deals are small, 100 ATM range, they're both initial.

The one in the Ukraine is an outsourcing arrangement.

The one in Bulgaria is where we're building a shared ATM network.

We're deploying the ATMs, but the five member banks are really underwriting the costs of those machines by everybody paying a kind of pro-rata share, including profit to us.

Both, in essence, are footholds for us in these markets.

We like, as you know, to enter new markets with a customer in hand.

The growth potential in both of these markets is really tremendous.

The Ukraine is one of the largest eastern European markets out there.

There is a pretty open mindedness in terms of outsourcing, we find in the Ukraine, as compared to other European markets.

And Bulgaria is so much like some of the other Central European countries we saw, say, three, four, five years ago in their evolution.

Okay.

And then final question, moving on to the pre-paid market is can you just talk from a high level about the U.S. market, just what you saw in transaction growth, competition, what states are you seeing the most growth opportunities, and then also what mobile operators are driving the most volume for that business?

I think you'll see in the U.S., first of all, as I mentioned last quarter, I didn't get the statistics for this quarter.

Last quarter, when I looked back a year, I pointed out that we added about 50% more retailers, but our transactions nearly doubled over the prior year.

That kind of momentum is staying strong here in the U.S.

So we're still very excited about that business.

With respect to which mobile operators, now virtually all the big guys have finally admitted in public that they like pre-paid telephony.

Up until maybe a year ago they were afraid to admit it in public and all the growth was being fueled by the MVNOs, the two largest of which of course are Virgin and Boost, which are now both owned by Sprint.

And I think that's helped drive home the point with Sprint executives, and none of these executives go far without watching what each other does.

So we're seeing a kind of across the board pre-paids growing in the U.S.

Estimates are that this market could double to triple over the next five years.

And so we're very excited about the potential of the U.S. market.

This is one of the markets that we have where the pie isn't nearly built out yet.

Great.

Thanks guys.

I appreciate it.

Our next question is from Franco Turrinelli with William Blair and Company.

Good morning everybody.

Good morning Franco.

Can we extract a comment out of you regarding the margins on managed services operations?

Yes, the question was if you can extract a comment from me regarding the margins on the managed services side of the business.

Tony Wible's question I think alluded to that, is that the contribution off of the managed services piece is probably about 25% to 30% of what the contribution would be if it were a full breadth of services, including the transaction processing.

But from a margin point of view how is that revenue?

Is that pretty good margin revenue or is it -- ?

Yes, from a percentage of marginal revenue basis, it's up high there on a percentage basis.

But I think, as you well know Franco, is that since our offerings to banks around the ATM outsourcing is an a la carte solution, where sometimes we pay for some direct or part of the expenses and get reimbursed.

We really look to and drive to contribution to Euronet on a per ATM basis.

And so when I refer to a 25% to 30%, I'm referring to the amount of contribution we get typically off contracts in India.

Great.

It's good to see a new agreement in the Middle East because that seems like an area with a lot of potential.

Can you just kind of remind us where you are in the Middle East, maybe what relationships you have there, how many lives I feel like I've lost track of the Middle East.

Yes, your question is regarding, or kind of give you an update as to what's our status in the Middle East.

It's still real fresh.

We have a joint venture of a data center in Bahrain with a processing partner there that does credit card outsourcing in the MidEast and this contract with Standard Charter Bank, with Qatar, is the first contract we really have officially announced.

We really are just getting started in that market.

We do have some services in Egypt, if you will, but I would say that at this point, what we have in the MidEast has a lot of potential, but at this point it's pretty small in the overall context of what we do.

I'd like to add to that too, Dan.

We are also, in the pre-paid transaction process area, in the Middle East I think I announced last quarter that we had signed - that ATX, one of our groups, had signed a very nice deal with the UAE and actually contributed, just to kind of put things in perspective, it added -- this is where you go through distributors.

So these are high margin, high volume, but lower denomination transactions.

But just Q2 to Q3 with that contract, we added 4 million transactions, about.

So actually when you do all our divisions to try to figure out margin per transaction going from Q2 to Q3 or one to two to three, bear in mind that ATX really kicked in over the last couple of quarters and have been adding a lot of transactions.

I think we're up to almost 5 million a month right now, just with that contract.

Hey Mike, and actually the follow up is for you.

There seems to be a lot of bullet points on slides 22, 23, 24, related to stored value, cards and gift cards, specifically in the U.S.

Can you give us a little bit of an update on that and what exactly it is that you do there?

Yes, the U.S. is by far the most sophisticated market worldwide for the pre-paid division's product, outside of mobile telephony.

So we're finding that the U.S. is - they're ahead on gift cards, both closed loop and open loop.

They're ahead on things like pre-paid Mastercard, Visas, other kinds of pre-paid services, where we -- we might be getting as much as 15% of our transactions -- our margin is being generated in non-mobile telephony.

That's why when I say that our goal for the unit is to continue to increase its number of non-mobile telephony transactions as a percentage of total, it's not a hollow kind of goal because we've got the U.S. as a model for what we could be doing in other markets as these markets mature.

So, yes, we are doing a whole lot in the U.S. there and we hope to do more in other markets as well.

What exactly do you do though, Mike.

I mean is this --?

Well this is just another product to distribute.

It could be like if you're doing a, say, a pre-paid Visa or a pre-paid Mastercard, they'll be sitting on a J-hook in a convenience store and it will have denominations like $25, $50, $100.

You go to the checkout counter, just like you're going to do a mobile pop up, and you hand them $100 and they type their codes into the POS terminal.

You swipe that card through.

It's what we call a POSA transaction.

It's point of sale activated.

So, it doesn't actually have the credit on it when it's sitting on the J-hook, but once you pay for it and they swipe the card and punch in the numbers, then that card is loaded up for $100.

You walk out the door and it's a Mastercard that's basically got a credit limit of $100 and when that's exhausted, it goes away.

We also are selling rechargeable ones or reloadable ones as well and then also just gift cards, gift cards from everything from sometimes we have racks of these gift cards, everything from Starbucks to Home Depot to all kinds of things, movie theaters, restaurants, the whole shooting match.

And keep in mind that the retailers really love products like this because they're foot-stimulating products.

They have no inventory carrying costs.

They take up little space in the store and contribute high margins to them.

So it compliments directly the pre-paid wireless product and it's just another companion virtual product on the already existing terminal that we have out there in the store.

Great.

Thanks very much guys.

Appreciate it.

Congratulations.

Thank you Franco.

Our next question is from Josh Elving with Piper Jaffray.

Please proceed with your question

Good morning guys, thanks.

Good morning Josh.

The first question I had to ask was, regarding the pre-paid business in Spain, just wanted to get a sense for where you're at, as far as passing on the lower commission levels to merchants, I guess, kind of get a mix of the business between Vodafone Amena.

Just as a background, we do about 50% of all pre-paid in Spain with Telefonica and the other 50% is shared between Vodafone and Amena, although Amena was just purchased by Orange, so France Telecom.

So, those two add to 50%.

They used to be about 25-25.

I think they might be 24-26 or something now.

We are selling all three.

We've been selling all three for the last five or six months and then we've begun to pass on some of that bonus commission that we took on in the second quarter.

We've begun now to pass that through down to the merchants.

We don't expect to pass anymore of that through in the short term, but we probably will over the medium term.

And the nice thing is that market has rebounded nicely with its results, because by adding those additional products of Vodafone and Amena, and also passing through some of that bonus commission reduction back down to the retailers has improved our Spanish results significantly, Q3 over Q2.

Was it Vodafone and Amena that helped drive the increase in transactions?

Oh, absolutely.

Okay, so that was a big part of it?

And it (multiple speakers].

If you look at just Spain, when you think about it, the same number of transactions, if it was just Telefonica, are generating a whole lot less margin.

So transactions went up to make up that lost margin.

Okay, and then I guess what I was getting at with the mix of the business, I mean I understand that Telefonica is about 50% of the overall market, but as far as what you're selling?

I don't have that number right now, but because we were recently in a number of those stores with all three operators, I don't think we're at 50-50 yet because -- yes, go ahead Rick.

I was going to say, no, we're still a ways off of that market mix, because keep in mind that while it will be easier and more quick to get the tri-color product on the terminals, remember, the customers that have previously purchased at these locations have not known that they can buy tri-color there, so some of the customer orientations will have to change.

That will take a little while.

So we're not at the same kind of mix in terms of the market mix, but we do expect and we have seen nice traction in that improving over the last few months.

Right.

And then I guess a little bit more color on that new contract going in China with the multi-national bank.

You said it was for, like, 50 ATMs.

Is this a bank with several thousand ATMs in China, (multiple speakers) a private project or --?

No, this is a bank with several thousands of ATMs in other countries around the world with -- as most big multi-nationals with some pretty big plans and expectations for China.

But that again, they're just getting a foothold in the market and gearing themselves up for hopefully some accelerated expansion in 2008.

And, like, whether it's in India or it's in any of the other countries.

One of the, I think, significant things in our business is we did see our ATM counts grow nicely in the second quarter, but we didn't have -- or in the third quarter -- we didn't have any real big ATM announcement deals out there because what we see is we see growth in many of our markets form our incumbent, existing customers.

And this customer, this bank in India, we think fits nicely that same profile, where we're going to start with a few ATMs and we would expect that as that bank expands its business in China, we'll benefit from its fundamental growth.

Okay.

And I guess going back to India for my last question.

With regard to the deal with Corporation Bank and that being the first state-owned bank you've done a deal with, does this kind of give you an inside track to work with some of the other government owned banks or -- ?

Josh, a good question.

I doesn't really give us an inside track, but it does give us a reference to point to.

It says we are --.

More visibility?

-- yes, we are okay.

We are good local providers and it also gave us a lot of experience at going through the grinding process.

So, we can cut and paste on the next bid request.

Thank you very much.

It's just another credibility feather in the hat, as we've gone through each of the multi-nationals and things like that and we've got 30% of the ATMs covered in the cash net market there.

Euronet is really establishing itself as being the ATM outsource processor in India.

All right, thank you.

Thanks Josh.

I think that's probably it Mike.

Yes, I think so.

I think we're at the top of the hour.

So I'd like to thank everybody on behalf of Dan and Rick for taking the time to listen to our calls and we'll look forward to talking to you in 90 days or so.

This concludes today's conference.

Thank you for your participation.