Euronet Worldwide Inc (EEFT) 2007 Q1 法說會逐字稿

Greetings, ladies and gentlemen.

And welcome to the Euronet Worldwide first quarter 2007 earnings call.

(OPERATOR INSTRUCTIONS).

As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Jeff Newman, Executive Vice President and General Counsel.

Thank you, Mr.

Newman.

You may begin.

Thank you.

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

We will be presenting our results for the first quarter 2007 on this call.

We have Rick Weller, our CFO, and Mike Brown, our CEO, with us today.

Before we begin I need to make a disclaimer concerning forward-looking statements.

During this conference call representatives of Euronet Worldwide will make statements concerning the Company's or management's intentions, expectations or predictions of future performance, including selected financial guidance concerning the Company's results.

These statements are forward-looking statements.

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

Additional explanation of these factors and other factors affecting the Company's results are set forth from time to time in Euronet's periodic reports filed with the U.S.

Securities and Exchange Commission, including but not limited to its Form 10-K for the period ended December 31, 2006.

Copies of that filing and our 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.

And welcome everyone who has joined us for a review of the first quarter '07 results.

For the first quarter revenues were $170.4 million, up 16% over the first quarter of 2006.

Operating income of $12.1 million decreased slightly by 2% over the first quarter of 2006.

Adjusted EBITDA of $21.9 million, a 4% increase over first quarter of '06 adjusted EBITDA of $21 million.

Q1 '07 earnings per share came in at $0.28, a 17% increase over the first quarter '06 EPS, excluding FX gains or losses, share-based compensation, discontinued ops, and the effects of a $1.2 million arbitration award we were informed of earlier this week.

I will comment more on this in a minute.

The next slide please.

Here on slide 6, we can see that our first quarter 2007 revenue compared to the first quarter of 2006 and the first quarter 2005, reflecting a continued pattern of good annual growth.

Slide 7 please.

Here we illustrate our quarter-over-quarter transaction growth.

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

The 35% increase in transactions year-over-year have been instrumental in the revenue growth that are reviewed on the previous slide.

You should also note that the transaction growth came in both our Prepaid and our EFT segments.

On slide 8, our profit indicators continue to expand with the business, but in this quarter we need to dissect them a bit more to get a better view of the business.

And I will do that.

It is easiest I think to do that at the segment level, so I will do that on the next slide, if you go to slide 9 please for that review.

Here on slide 9 I will point out that similar to what we said in our earnings announcement, we combined the EFT and the Software segments starting in the first quarter of this year.

We did that because the Software segment is closely and strategically aligned with the EFT Processing segment.

And as you know, starting in the second quarter with the acquisition of RIA, we will add the Money Transfer segment.

Accordingly, this first quarter 2007 was the most appropriate time to make this move.

Now to the detailed numbers.

The EFT segment revenues grew year-over-year by 17%, and op income declined by 12%.

The revenue growth was fueled by the addition of more ATMs and their related transactions.

The ATMs under management grew from 7600 at the end of the first quarter last year to now almost 9200 machines.

On the operating income side we recorded a charge of $1.2 million for an arbitration award we learned early this week.

As reported in our prior disclosures, this award related to a claim made by a former cash supply company related to the provision of cash in late 1999 and early 2000.

In that our agreement with the former cash supplier included a provision for binding arbitration, and we knew the amount of this award before we released the first quarter earnings, we recorded this amount in the first quarter rather than in the second quarter.

Excluding the $1.2 million arbitration award, the EFT Processing segment operating income improved 4% over the first quarter of last year.

The difference in the margin expansion generally relates to the expansion of certain Eastern European markets, incremental investments the Company has made to position itself for expanding card processing opportunities across Europe, and due to the effect of certain rate concessions granted by the Company in prior periods to extend contracts through the year 2011.

We believe these investments are important to take advantage of the expanding economies in Eastern Europe and the changes in the card market across Europe.

And as you know, from our announcement earlier this quarter, we're starting to see the benefits of these investments with our first agreement to deliver SEPA compliant card services for a major petro supplier (inaudible).

This the last quarter where there is a full quarter's difference in the year-over-year numbers, as it relates to the Spanish Exclusivity Commission matter.

If the Spanish prepaid business and the money transfer product impacts were excluded, the Prepaid segment would have improved revenue by 20%, and op income would have improved by 12%.

Moreover in February of '07 the Company completed the acquisition of a UK-based prepaid processing business that contributed approximately 5% of the segment's quarterly revenue growth.

But -- in the segments included in the numbers -- but had a neutral impact on the segment's operating income.

If the acquired businesses results had not been included in the segment's results for the quarter, the Prepaid segment would have reported slightly improved operating income margins compared to the sequential fourth quarter 2006 operating income margins.

Mike will make more comments on this in a few minutes.

Now to the next slide.

Here on slide 10 we discus our cash EPS numbers.

And as we suggested when we presented our full year 2006 we would transition to a cash EPS discussion.

Our deluded cash EPS per share was $0.31.

And note that this cash EPS number excludes the tax affected impacts of FX share-based compensation, intangible amortization, dis ops and the arbitration award I discussed.

Now to slide 11 for a few comments on the balance sheet.

Since the year-end 2006 our balance sheet changed in certain key areas, mostly cash.

Some of it due to timing, but most of it due to the private placement of approximately 6.3 million common shares in mid-March.

Also, as you know, we announced after the quarter end that we closed on the acquisition of RIA.

The purchase was completed for $380 million in cash, about 4 million shares of Euronet common stock, and about $3.7 million contingent value in stock appreciation rights.

The $380 million in cash was funded through cash from our balance sheet, as well as the net proceeds from a $190 million 7 year term loan.

The pricing on the $190 million term loan was LIBOR plus a couple hundred basis points, and there are no prepayment penalties if we liquidate it more quickly than its term.

Simultaneous with the placement of the term debt, we restructured and expanded our revolving credit agreement.

We now have $100 million available over a five-year period.

So after completion of the RIA transaction, together with private placement of common shares, we continue to have over $200 million available cash, and almost $100 million from available revolver -- the revolver agreement, putting us in a very strong liquidity position.

Now to Mike for comments on the business.

If you will step to slide number 13.

As Rick mentioned earlier, beginning this quarter we will discuss our software results as a part of our EFT Processing segment.

Our Software segment is an integral part of the EFT business, working primarily on supporting our EFT service offerings and processing centers across EMEA and Asia-Pacific.

This has resulted in significant cost savings for us in comparison to using third-party licensing and maintenance options.

The decision to combine these two segments make perfect sense in light of the way that we manage our business and the role that software plays within the EFT segment.

Let's jump over to our financials then please on slide number 14.

Slide number 14 gives a snapshot of our first quarter 2007 EFT financial results.

The 2006 results have been restated to reflect the combination of the EFT and Software segments for comparative purposes.

Our revenue of $42 million in Q1 2007 was up 17% over the same quarter last year.

Our op income of $6.9 million in Q1 '07 decreased by 12% over the same quarter last year.

And our adjusted EBITDA of $11 million in Q1 '07 decreased slightly by 2% over the prior year.

This quarter our EFT segment results were impacted by the $1.2 million arbitration award against Euronet related to a legal claim stemming from the 1999 and 2000 cash supply agreement, as Rick mentioned earlier.

Now we're not convinced that we really got a fair shake on this deal, but it is what it is, so we're getting on with the coming quarters.

After excluding the arbitration claim, EFT's operating income increased year-over-year, but not at a rate -- at the rate of the revenue increases.

The lighter growth in operating income was a result of three primary factors, including incremental and recurring investments in the card processing capabilities.

More on this front in a minute.

And incremental investments in certain fast expanding Eastern European markets.

And as a result of certain price incentives we granted to certain large EFT customers in exchange for long-term contract extensions through 2011.

This was actually discussed last quarter.

Nothing new this quarter there, but just a restatement.

If you will move on please to slide number 15.

Slide number 15 outlines a few EFT business highlights in Q1 2007.

In Europe we signed our first SEPA compliant cross-border transaction processing agreement in Central and Eastern Europe with OMV, the leading oil and gas group in Central Europe.

We renewed our outsourcing agreement with Raiffeisen Slovakia at even better commercial terms than our previous agreement.

This was an example of a little bit of positive margin pressure as we move forward.

Moving on to the update on Standard Chartered Regional bank agreement, we are live with SCB Indonesia projects, and are currently providing outsourcing services for our 22 ATMs in addition to card management services.

We currently have four more countries in the pipeline for SCB, India, the UAE, the Philippines and Bahrain.

We expect to roll them out in the next few months, and are simultaneously working to finalize the scope of services to be performed in the remaining contracted countries for SCB.

Standard Chartered Bank is a well-known multinational bank with a large network, and we continue to engage them in our product offerings and cross-selling work.

Our Bahrain joint venture signed a new customer, Commercial Bank in the IAE, for ATM outsourcing.

And additionally we implemented other outsourcing contracts as well.

If you will move on to slide number 16, in India we have signed an ATM management services agreement with HSBC -- this is Hong Kong Shanghai Banking Corporation -- for 41 outside ATMs.

And we will also manage the bank's new ATM rollout in the region allocated to us.

This is a very significant win for us, as we now have established agreements with all six multinational banks in India that have a retail presence.

The agreement does not include providing transaction processing services.

This is much like Corporation Bank's agreement we announced last quarter.

But we hope to sell these in the future.

We increased our ATMs under management in India by 27% year-over-year.

We now have 1877 ATMs live and under management for 10 banks in India.

Now this does not include almost 1000 ATMs where we do provide management but not direct transaction processing, like Corporation Bank and HSBC.

Additionally, we continued to provide added convenience to our banking clients, as well as to their end-user customers.

The success of our value-added services is reflected in our achievements.

We have a leading market share in ATM mobile recharge in India.

We currently offer top-up across more than 14,000 ATMs, for 12 banks in total.

Our Cashnet shared ATM network continues to maintain its dominant position with more than 6300 ATMs for 12 member banks.

Moving on to slide number 17 on China.

We have rolled our first two ATMs, one in East Beijing and Shanghai, for Deutsche Bank, which was announced in Q3 of last year, but was not named.

Deutsche Bank wanted to make sure that they were live before we announced their name.

Deutsche Bank is one of the many multinational banks trying to establish a strong foothold in the fast-growing Chinese market.

The bank plans to deploy 80 ATMs by 2008.

And as their strategic partner we're assisting them in their expansion and providing outsourcing services for their ATMs.

Additionally, we signed our third customer in China -- this was Citibank China -- for ATM outsourcing and deployment.

Initially we're taking over their 12 off site ATMs in the Shenzhen area.

And we will support their new ATM rollouts across the country.

One of the advantages of signing these multinational banks in China is that either the banks have or are in the process of getting their R&B licenses to enable them to do retail banking locally.

These banks have huge plans for ATM rollouts in the two to five year horizon.

We're very happy to be signing them up early, so that we're well-positioned to service them when the market opens up and they do their largest expansion.

If I just take a moment and step back and pause a little bit and look at China, I am very happy with what we have accomplished there.

And we see that this is following along very similar trends to the successes that we have had in India.

We believe that all the right things are happening.

We are picking up both multinationals, and unlike in India, one of the largest private sector banks, which is China Postal.

We were successful as you know with our pilot project there.

And we are in significant discussions with both them and other local banks to do ATM processing.

And we are already gaining a very good reputation.

Moving on to Software.

We signed major a customer in the U.S.

for our ITM product, and we continued to expand our EMV installations across our European customer base.

We're also in the process of replicating our Essentis mainframe product under the UNIX environment, and to further expand our services and capabilities.

The good news is that we have a leading bank in Europe already signed up to use our UNIX version of this product.

Going on to slide number 18.

On our final EFT slide we outlined our combined and where we are with our ATMs in each of the three categories.

We have a total of 9182 managed ATMs.

That is a 21% increase over the same quarter last year.

In the ATMs under contract category we have more than 1000 ATMs contracted for installation.

If we include the contracted ATMs in our total ATM count, we have now crossed the 10,000 mark, a noteworthy achievement.

Although our investments in new products and new markets, combined with our price incentives for customer term extensions affected our profit growth this quarter, we are confident that our efforts to further expand our business will pay off.

We are already seeing some tangible results from these investments, such as the EMV cross-border win, contracts signed in Ukraine and Bulgaria, and from our investments in our Middle East JV wherein we have signed a number of ATM outsourcing agreements, in addition to the SCB agreements that we talked about earlier in those Mid Eastern countries.

Now we will move on to our Prepaid Processing segment.

Please move on to slide number 20.

Our Prepaid revenues of $128.4 million in Q1 2007 were up 16% over the same quarter last year.

Our op income of $8.8 million in Q1 '07 decreased slightly by 2% over the same quarter last year.

And our adjusted EBITDA of $12.7 million in Q1 2007 increased 3% over the same quarter last year.

Similar to the last few quarters, we have presented our Prepaid results with Spain and money transfers set aside.

If we exclude Spain and money transfer, our Prepaid segment would have improved its revenue and op income by 20% and 12%, respectively year-over-year.

This is nice, strong growth for this segment of our business.

As we discussed earlier by Rick, the year-over-year improvement in revenue was the result of increased transaction growth primarily, that is 45% year-over-year, and the addition of Omega Logic, a UK-based prepaid processing business that we acquired in February of 2007.

Omega Logic focuses on working with retailers with large electronic integrated cash systems, such as Woolworth and Carphone Warehouse, among others.

Though Omega Logic contributed approximately 5% of the segment's quarterly revenue growth, it had no impact on the segment's operating income in Q1.

The Company did benefit from the same scale that we enjoyed in the UK, and we plan to improve their operating profit by integrating their businesses with the e-pay UK platform.

Omega was our only competitor in the UK which focused on prepaid ECR, that is electronic cash register, integration.

If the acquired businesses' results had not been included in the segment results for the quarter, the Prepaid segment would have reported operating income margins expanding over 4Q '06, reflecting the health of our Prepaid business.

Moving on please to slide number 21.

This shows a few of our first quarter Prepaid business highlights.

We continue to expand our retailer cash collection locations in our primary Prepaid markets.

We signed and rolled out Prepaid at 280 stores, Kaufland, the hypermarket chain, and a non-alcoholic beverage chain for our Payment product at 170 stores in Germany.

In the last U.S.

we signed an agreement with Chevron for 400 corporate stores and 100 franchise store to offer Prepaid product.

We've got a lot of hope for our U.S.

market.

It continues to grow very nicely.

We signed several midsized C-store chains, Road Runner, Blarney Castle and Maverick in the U.S., and Consum, Alimerka and Spar in Spain.

We continue to deploy Prepaid terminals across our retailers space, including a drugstore chain, Ethnic Retail Stores and hypermarkets, as you can see in these slides here.

And in Germany we completed the rollout for Prepaid at 700 stores of a leading drugstore chain, and 5000 stores for Premiere Prepaid Pay TV products, both agreements announced in Q4 2006.

On slide number 22, if you will move to that please.

We also added new products, both wireless and non-wireless, to our product portfolio across various markets.

We added new wireless providers, including virtual mobile networks in Spain, the UK and Poland.

We launched prepaid debit cards and rechargeable calling cards across our independent retailers' space in the UK.

Additionally we signed an exclusive top-up agreement with a mobile operator in Saudi Arabia for our ATX, a 51% subsidiary.

We signed an agreement with EFTPOS in New Zealand to provide prepaid software applications on their payment terminals at independent retail stores.

So a lot of action going on still in last quarter.

On the acquisition fund, we strengthened our position considerably in the UK, our largest prepaid market, with the acquisition of Omega Logic, a prepaid top-up Company focused, as we mentioned before, on retailers with large integrated electronic cash register systems.

With the addition of Omega Logic we have added well-known multiple retailers such as Woolworth, WH Smith and Carphone Warehouse to our retail portfolio in the UK.

The acquisition is a strategic move to solidify our position in the UK and within the integrated ECR market.

We're actively working to integrate Omega Logic's business into e-pay superior platform to optimize resources and to generate positive operating results from the newly acquired businesses.

Then we will move on please to slide number 23.

A lot of people have asked us about RIA.

They said, well, how is the integration going?

Is this a challenge?

Are you making some progress?

Well, I think you can see by this slide that although any acquisition is challenging, the integration here seems to be moving extremely smoothly.

But let me talk about the business here for a minute.

While the Mexico money transfers have experienced weakness driven by immigration issues, together with certain sector economic issues, we have seen a more resilient trend recently in our Mexican traffic.

Mexico's transfers certainly have not recovered to previous levels, but the recent trends are encouraging.

But again, why we bought RIA was not about Mexico, but rather about the rest of the world.

Non-Mexico transfers made up about half of RIA's business and are growing rapidly.

For example, RIA's year-over-year growth rate are in the range of 25% to 30% to markets other than Mexico.

And in those markets RIA is generally able to get better margins than those on Mexican wire transfers.

And in markets outside the U.S., RIA in those send markets in those countries, they are growing at rates of 50 to 100% year-over-year, currently making up 25% of the business of RIA.

That is the reason why we bought RIA.

We did not buy RIA because we're looking at Q2 '06 -- I mean, Q2 '07 or Q3 '07 or even Q4 '07, but that we see a large potential as we look across markets outside of the U.S.

where we can leverage our other strengths.

RIA's team and the Euronet team have commenced integration efforts, and have made substantial progress prior to the close and then shortly thereafter.

For example, our Veloz business is now fully operationally integrated with RIA, and with only certain administrative activities which will follow shortly.

And we have deployed Prepaid at many of the RIA company-owned stores, together with good traction at the agent level.

Regarding payout locations for RIA, we secured a verbal commitment from a bank in India, which has 1000 branches, and we are lining up several other key bank contracts to gain similar commitments.

When you really look at what it takes to be successful in money transfers, it is really two things.

You have to add more sending locations, and that is why we want to leverage our Prepaid business segment to do that, and you need more payout locations.

You need ubiquitous payouts, and that is where we leverage our emerging market bank relationships like we have just mentioned with this one in India.

On the agent depository side, we have leveraged our U.S.

banking relationships and now have expanded our depository resources, enabling us to attract more agents here in the U.S.

Overall, we added RIA to the Euronet family quite nicely within just three weeks of closing.

In addition to our integration and collaboration efforts, RIA continues to run its operations efficiently.

We have received our final money transfer license to operate as an independent financial services company in France.

And with this license we can operate without third-party licensing arrangements in that country, much like we do in Germany.

And these are two of our highest margin countries with very high growth opportunities.

Now to a few summary comments on the quarter and then we will take questions.

Slide number 24 please.

We were -- as you can see, we were in line with our first quarter EPS of $0.28, when excluding the arbitration award that Rick and I mentioned here earlier.

We completed the acquisition of RIA Envia Inc., and established Euronet as the third largest global money transfer company.

RIA is a strong well-managed business.

And we intend to accelerate their growth by leveraging the combined strength of both businesses to increase our market share in the multibillion dollar money transfer industry.

We have already made significant progress to leverage RIA's and Euronet's combined assets to strengthen our product offering.

We continue to strengthen our presence in China.

We signed our third ATM outsourcing customer, Citibank China.

And we are continuing our success there.

We established ATM outsourcing agreements with all six multinational retail banks in India, a significant achievement.

We recently announced the signing of the first SEPA compliant cross-border transaction processing agreement in Central and Eastern Europe with OMV.

This is an important step towards realizing the investments that we're making to expand our POS and card processing services to complement our traditional ATM business.

We also solidified and consolidated our market position in the UK with the acquisition of Omega Logic.

We look forward to integrating Omega Logic's operations and enhancing their contribution towards our bottom line.

Finally, we expect our Q2 2007 cash EPS to be $0.29 to $0.31, excluding the usual items.

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

Operator?

(OPERATOR INSTRUCTIONS).

Josh Elving, Piper Jaffray.

Two quick questions, both on the ATM processing side.

Is there any updates or any color you can add to the Post bank relationship in China?

It sounded as if last quarter that perhaps there was an additional or expansion to that relationship potentially coming down the road.

Anything to add there?

The problem with all these things is I can't predict timing very well it all.

But I can tell you there is some extremely good kind of developments that are happening with our relationship there.

The first was, and we mentioned that in the last call, and a lot of us people here in America don't quite get it, but they -- Post Bank, first of all we have been deemed a successful pilot project for them, and they have communicated this up and down their ranks.

So first we needed to get kind of the blessing from on high that we're doing the right thing.

And that was given to us end of last year.

Second, because of that we have been able to engage in a number of conversations with that bank in a number provinces to have follow on agreements.

And that is where we are right now.

We are in serious sales discussions with this bank.

I think I mentioned in the last call that things are moving nicely, and maybe by midyear we could get another agreement.

I think that is still possible.

We have been quite successful with them.

We are working hard with them to come up with the exact right agreement.

And certainly we would like to have a more substantial award of ATMs than just 90.

So I think this is moving along real nice, just kind of keep your stage tuned up to us.

That sounds good.

I guess in India, any development on the regulatory restraints that you are facing?

There is no huge big news there, other than a number of other small things have occurred.

As we mentioned, they are loosening up in a few areas.

They have let a few banks out with their ATMs.

They have told the market that they are open-minded to allowing third-parties, not necessarily banks, to deploy ATMs in kind of an off site kind of model like we see more in these Western countries.

All those things are positive, and we're working them all right now.

But I will tell you, we grew a heck of a lot last year, like 27% despite this headwind.

That just shows you how strong our India team was.

Our India team went out there and they found more ATMs to get that were either already deployed, so we could take them over and we didn't need to deploy new ones, or found a few banks that can add more ATMs within the constraints of the Reserve Bank of India.

I think we're getting the good signs.

When the flood gates open we've got a lot of backlog here in India.

And it will be wonderful for our P&L if that does happen.

But in the meantime our India team is not just sitting on their laurels.

They are out there going after local banks and finding new business.

And Corporation Bank was a good example of that.

We're not doing all our the outsourcing there.

We're not doing the transaction processing yet, but it is a nice, public sector bank.

A classic Indian-owned bank with 1000 branches that we're doing all the field services, cash forecasting and so forth with.

It has given us very good notoriety, and we're now going back in and trying to cross-sell them additional services.

Our India team won't be sitting around this year.

They've got big quotas, and I imagine they will probably achieve them.

Are you still optimistic you can get the full processing from Corporation Bank?

All these things are sales processes.

We have now been live with all the other pieces for about five, six months.

We're now to that point where there's enough time under the bridge and trust under the bridge that we're beginning to go back to them on these other issues.

I have never said for sure we will get it.

But I will tell you, we're doing all the right things.

We have got a right great relationship with them.

I met their CEO just two weeks ago.

And he gave us a list of seven things he wants to cooperate with us on, and we're chasing all seven of them, including ancillary things like money transfer, card processing, card deployment, lots of different things.

It is a big bank, lots of customers, so we intend on cross-selling them a number of services, including the rest of our transaction processing.

David Parker, Merrill Lynch.

With the China deals did you have to agree to any pricing incentives to get those deals with the multinational players?

No, it is just kind of our common standard Chinese pricing.

China -- we're going to make less on a China ATM than we do in our typical European ATMs, but everything has been consistent with our pricing model that we have had there so far.

Then looking at the margins for the two different business segments, those both continue to deteriorate, even excluding the charge that you had for the arbitration loss this quarter.

What are we going to save these margins bottom in each of the businesses?

And how much more of an impact do these rate concessions -- will these rate concessions have on the EFT margins?

Really, I think we're probably had -- and Rick correct me if I get some of this nuance wrong.

We had the rate concessions that were granted towards the end of last year, the very beginning of Q1, so we won't really see any additional rate concessions impact as we move from Q1 to Q2.

When you do your comparison on margin, the biggest thing on [CSC], and have been mentioning it now for three quarters, is we decided to take on a lot of expense over the last three quarters to invest in a couple of areas.

We have invested, as we mentioned, in card processing and getting all that up to speed.

But the results of that have been an excellent contract with OMV, which is a very well-known and well-respected multicountry retailer.

And we're really the first multinational guys -- we're really the first company to provide a multinational SEPA compliant solution for anybody in Europe.

The results are starting to come in.

We are continuing to invest in some of these other new Eastern European markets, like Bulgaria, Serbia and the Ukraine.

And we're signing agreements there.

We're working hard to get all those things brought live so that we can get some revenues to offset those costs.

It is interesting, our investments, they don't take years to pay off.

And in fact in several quarters -- we have been just within several quarters of doing the investments we are seeing the contract signed, and then you have the quarter or so of delay before you get them implemented.

That is what is putting pressure on EFT primarily.

That is why I am kind of excited because those investments are at our own choosing.

They are not just because of rate reductions or the world is coming to an end.

It is really at our own choice.

So we can always decide not to continue those investments.

But based upon our early indications of sales success due to those results, we will keep them going.

And we're going to -- our plan is to get the sales number to cover and offset -- more than offset those investments.

David Parker What about on the Prepaid side, any direction that you can give us on what we should expect next quarter when money transfer is by itself, so margins in the money transfer business but also in the Prepaid side excluding money transfer?

Rick, you want you maybe dissect that a little bit?

As Mike said, our margins actually lifted a bit over the fourth quarter, so we saw an improvement sequentially.

Obviously, we will take out the Prepaid segment the money transfer, and so that will naturally change those numbers.

On a pro forma basis, because when we describe how that has changed year-over-year, it won't make a dramatic difference on the pro forma, because we have tried to sort some of that noise out.

And then the other thing too is Bain in the second quarter will only have a partial quarter impact, because you may recall that was May of last year that that exclusive commission had gone away.

As we go into the second quarter, I would expect that our business is in the stable category, because we are going to move that money transfer out into its own segment.

And we will still have to deal with the pro forma kind of comparisons of Spanish business, but again excluding that, we should see it in that kind of stable category.

There are a couple of markets that we are dipping our toe into to see if we can develop some market activity.

We have not put much money into the expend category there, but we will see if we start generating some activity there.

But I think the point is quarter to quarter, Q4 to Q1 we saw -- in this business we saw a small uptick or margin expansion, which is good news.

I think that means we're hitting pretty well with several of our countries right now, and we hope to continue to do so.

I mentioned those in the report.

We still have a lot of hopes for Germany this year.

The U.S.

is doing very well, and it continues to grow.

We're getting a lot of action out of Australia, New Zealand, and we want that to continue to grow.

And Poland has grown very nicely as well.

Even the UK now, because we will have the Omega Logic, we will be able to squeeze some costs out of the Omega Logic acquisition in that we should see a little bit of an uptick here in the UK.

All this is kind of good news as we move in towards the next two or three quarters of this year with respect to Prepaid.

This is still a growing business, and we're happy about that.

David Parker Final question is, First Data announced the acquisition of Polcard.

First this places a competitor in your backyard.

How do you feel about that?

And then secondarily is you did a private placement which appears to have been targeting this acquisition.

Is that true, and what do you expect to do with the cash?

Two things.

First of all, Polcard has been in our backyard for our entire existence in Poland.

They have been there for 12 years.

There is really -- so it is not a new competitor.

We know their strengths and weaknesses.

We continue to fight against them every day.

We have been extremely successful in Poland.

When you take a look at it, we're running 30% of the ATMs in that market.

We own that market.

Where Polcard's strength is in that market is primarily in the acquiring game, which is a little bit more down the fairway for what First Data likes to do, and certainly less so from what we do.

We will just continue to compete against them as we move forward.

With respect to the timing of our last deal, I think I have kind of reiterated that several times.

We decided back in December, even before Polcard was in the thick of things, that we're going to do another offering to make sure that we had money in the coffers after RIA closed.

RIA is now closed, our cash position has gone down substantially because of that, and we wanted to make sure that we had enough cash in the bank to be able to do other acquisitions.

Polcard was one that we were looking at.

And honest to God, we could not get those numbers to work out in any kind of an accretive manner for the next two or three or four years.

So we had to let that one go.

But we will continue to go out there and search for good deals that you would be proud of us for.

Franco Turrinelli, William Blair & Co.

Just a couple of minor questions maybe.

Could you just give us an update on Spain in terms of the extent to which you have been able to replace the original business with other business, and what the outlook is for the progress of the Spanish market overall?

We continue to do that.

We're putting more channels.

We announced a couple of new retailers just in this quarter.

And in addition to that, we are selling Tricolor to everybody, so that is good.

We want to -- Spain, we were getting just wonderful kind of bonus commissions there for 18 months.

To make all that up, we're going to have to expand our retail base, and of course sell all three products.

We're watching the growth in those three products across our locations grow nicely, because people now are realizing they can buy all three.

So that is all good.

But in addition to that we also have kind of a new wrinkle on this, and that is that we've got -- RIA's largest outside the U.S.

business is located in Spain.

We had begun already to do the kind of -- set ourselves up for cross-selling both RIA products into our agents and our products into RIA's agents in Spain.

So Spain is going to have a number of kind of new issues that could fuel its growth as we move forward through 2007 and 2008.

On the same lines, could you help us understand Omega a little bit better?

Why did they decide to combine forces with you?

And maybe give us a sense of --?

Omega was a very well run company about five years ago when I started looking at e-pay.

It is quite a bit smaller, very well-run by two entrepreneurs.

They sold to a third company, or sold to another company.

And this company really hasn't done very much or very well with them.

We were able then do take advantage of the fact that they have actually not grown but shrunk under the new management.

They don't have the economies of scale that we do by any means, but they are damn good at doing -- at having very good relationships with these ECR integrated large accounts.

And so sucking them in and taking their -- and basically moving their transactions over to our platform, we will be able to eliminate a significant amount of their overhead, of course.

And it is a classic consolidation kind of game there.

There's only five people in the UK that have been granted licenses to do prepaid top-up, and we wanted to make sure that these -- we were about defensive and offensive.

On the defense side we want to make sure nobody entered our market and started messing with us.

And grabbing these guys and sucking them into where we're very strong, which is ECRs as well, just made all kinds of sense.

So you will start to see the cost benefits and the op income kind of benefits starting to accrue towards the end of Q2.

One final question for you.

I think it is indicative that we can just collectively gloss over the announcement of Citibank as a new customer in China.

Can you tell us a little bit more about that?

And in particular is this a situation like the one that you have in Greece where you'll be doing a full-service rollout, or is this a more typical contract where you really are just doing the transaction processing?

We're going to do the transaction processing, but we are discussing with them to do more as well.

It is interesting, China -- everybody in China -- these multinationals have yet to the granted R&B licenses.

They're just itching there at the gate to explode.

And they are going to want every bit of help that they can to do that, because they want to concentrate on acquiring the customers, while somebody else runs their ATMs.

We have Citibank as a customer in -- gosh, I am losing track -- six, seven countries right now.

So we've got a good relationship and an excellent rapport.

And we can point to Greece as something that we can do there.

But I think the important thing to mention is that we're not just sitting around doing a postal exam.

We're talking to lots of local banks.

We've got two very well-known international banks that have large expansion plans.

And we will continue to sign more banks in that market.

And we're the only guys doing ATM outsourcing in China.

Our early entry -- the fact is we're burning $0.03, $0.04 a year right now in China.

That is a fact of life when you consider all the in-country overhead, some of our Asia overhead is in there.

We're burning a lot of money.

It is an investment, but we think that that is worth while.

And it is already -- with three agreement so far, Postal maybe towards -- getting close to another agreement, and other banks that we're talking to, I think '07 is going to be a turning point for the kind of -- a turning point for China as we get more and more of these agreements.

Thanks.

I guess we're the only people who think so.

Well, it is -- the last I checked China was a pretty big market.

And we get all excited about India because we've got 10% of the ATMs in that market, but they only have 20,000 ATMs.

The reality is China's got darn near 100,000 ATMs right now.

We've got the fifth largest bank, the second-largest retail bank.

They've got 10,000 ATMs of their own that I would love to sink my claws into.

And we are closing other agreements as well.

I think with Postal we have shown these guys that we can help save them time and money.

They are a very smart bank, smart guys running it.

They recognize that they want to be competitive with the Western banks and with other banks in China.

And so we've got a -- we forged every good partnership.

But it's great when you have -- actually in China we've got some partners that are pretty darn smart, and those are my favorite kind of customers.

Thanks, Mike.

Good quarter.

Tony Wible, Citigroup.

I think you guys are having some technical difficulties.

Either that or you knew I was going to ask a hard question.

(multiple speakers).

I want to tack on to Franco's earlier question about the Spain turnaround.

Do you guys have a particular timeline for that?

And it is kind of a two-parter, but if we look at the Spanish detail that you provided, I guess we have seen profits in Spain in third quarter go from $1 million to $1.5 million in the fourth quarter.

And then there was a negative number this quarter.

Is that just indicative of how seasonal Spain is?

And if so, then what should we be looking for in the second quarter for when that business turns around fully?

Do you want to hit that, Rick?

Yes.

There is a strong seasonal effect there.

Actually in many respects third quarter is one of their stronger quarters, because of the holiday season there.

First quarter is always the worst or weakest quarter there.

And we also had a few other expenses in that business in the quarter because we are doing more to bring together our two different businesses in Spain.

So we would expect to see us come out of the second quarter and move into -- I mean out of the first quarter and move into the second quarter more in a resumption of its traditional seasonal patterns.

How long do you guys think it will take to get Spain back to where it was prior to the contract changing terms?

I think that when we had originally talked about it, we said it was going to be in the year to two year kind of timeframe, because the customers out there that previously did not have the multicolor product, they are those retailers.

The customers that walked in there simply weren't accustomed to buying their product there.

So you've got to get the product out.

You have got to get customer awareness changed, and all those kinds of things.

That process will take a while.

And while we can reasonably quickly enable the terminal to do it, it takes a little bit longer for the customer patterns to change.

We didn't expect that it would happen overnight.

And a matter of fact if we did, you would have been able to see that come through in our quarterly earnings expectation.

We're not expecting it to flip overnight next period either.

It will take a little longer.

But as Mike said, we're continuing to see the uptake.

The retailers are certainly interested in the product.

And significant I think as well is we've got now another product to take to our retailers, and that is money transfer to be able to further supplement their profits.

We are continuing to be the excited or optimistic about continued lift in that multicolored product, as well as getting other product on their shelves.

On RIA, what kind of seasonality should we look for?

Typical money transfer tends to be a little bit more seasonal with business coming more in the warmer months.

Is that what we should expect?

That's true, but the biggest month is the month that includes Mother's Day.

So they've got this big -- that is the biggest --.

So there is big uptick in May and also in December around Christmastime.

And then of course traditionally through the summer months as people are up here from Mexico doing outside kind of labor.

So that said another way, should this be the quarter where the dilution is lightest on RIA?

The dilution is lightest?

Meaning you have a warmer, I guess, set of months coming ahead, and you also have Mother's Day falling in this quarter?

Right, actually this should be an uptick in sales quarter, absolutely.

So for modeling purposes, look for more of the dilution in the back half?

Yes, it is obviously offset by growth.

So you've got your seasonal effect, and then you've got growth that will counter that, as well as continued debt paydown.

Got you.

And can you go over what you see is the key variables for the $0.20 to $0.25 accretion?

It really kind of gets into three things, growth, debt reductions, which will lower the interest expense, and the cost synergies by wrapping in our Veloz and all that related business, together with a little bit of upside from our Prepaid business.

But those are the three things that will drive those numbers.

I think we need to be careful, because I think what you're trying to do, I think you're trying to back into -- we have been kind of ranges of where we expect dilution to be this year.

And you're trying to match that against the quarter.

The reality is the bulk of that dilution is coming from purchase price amortization.

Right?

So that is going to be -- the only way you would overcome that is just in general getting your sales up.

Even though it is seasonal in Q2, seasonally a strong quarter, we expect our sales to continue to grow all through the year.

We're going to -- it is a fact we're going to have -- Rick has I mentioned that we're in the range of that kind of the high end of around say $0.11 to $0.13.

It isn't going to $0.02 of that in Q2 and the remaining $0.09 or something or $0.10 or $0.11 in last two quarters.

It really is going to be I guess more front loaded than back loaded, because we expect RIA sales to continue to grow as they have been growing.

Last question.

For the $0.21 to $0.22 guidance on the adjusted basis, what is the share base that you are using for that guidance?

52 or 3 million shares.

Say 53, because as you know we did 6.3 million on the pipe.

We did about 4.1 on RIA shares.

And there was about 1 million on a weighted average basis of the pipe shares in the first quarter.

If you back out 1 million, 1.1 million, add in the 6.3 and add in about 4.1, and then add in like about another 6, 700,000 for the effects of the [BR/SAR] you will be right in that 53 million camp.

Tim Wiley, A.G.

Edwards.

A couple of questions.

First, Rick, I just want to make sure that I understand the impact of Omega Logic on the revenue for Prepaid.

I think Mike had said that excluding Spain, the sort of adjusted performance for Prepaid was a 20% revenue growth number?

Is that correct?

Right.

If we pulled out the impact of Omega Logic in the quarter, would the revenue growth have been more like 15%?

Does that sound about right?

That's right.

Good.

I just wanted to make sure I understood that.

Second is, Mike, in Europe could you just talk a bit about again just pipelines for ATM?

And then to the extent that it is part of the same discussion, or if there is a distinctly different pipeline discussions about the card issuing and the Essentis products?

Okay.

In the classic ATM outsourcing game we've got a number of -- we've got a nice strong pipeline.

Several of them are pretty big deals actually.

And we have been working on some of these deals for over a year.

We have one deal we have been working on for many years.

We just don't know if they will close, when they will close, but they are definitely out there.

We also have a number of deals in the pipeline in some of our very new markets light Bulgaria, Serbia, the Ukraine and so forth, and those are closing.

So these are markets where people have a lot less choices, maybe they are a little bit less in transient than some of these other markets, so we have been having pretty good luck there finding them.

And so we just now need to get them implemented.

We will see -- I'm still bullish about the potential that we have for EMEA in the classic ATM outsourcing game.

Now if you want to move over to the card processing stuff, having the win with OMV is a tremendous -- it is a great coup from a PR perspective.

Is a complex agreement.

It is a complex contract with a very big and well known customer.

And so it is causing other customers, which are retailers who want to save money, coming to us and asking us for the same kind of thing.

So we are in the close cycle on others too.

But these things take -- I mean OMV took six to eight months, so you know the next one will take six or eight months too.

With regards to Essentis, those sales cycles are a year to two years as well.

They are big numbers when you get them.

And we're chasing down a number of those.

I guess everything is in the process.

I would just like a few of these things to loosen up and free up, and so I can announce them to you as well.

Rick, I'm sorry if I missed this, but did you talk at all about CapEx in the quarter, and could you give us any thoughts about it for the year?

We didn't talk about CapEx.

It wasn't much, in the 5, $7 million range for the quarter.

We hope have said that CapEx for the year, I think in our 10-K we said would probably be about $20 million to $30 million.

I just have to check that number, but it is kind of in that ballpark.

It is not $50 million.

The only thing that would push that up a little bit is, as Mike mentioned, in the Eastern European markets like Bulgaria and Romanian and some of those places, we are deploying some of our own ATMs.

But at $10,000 to $12,000 an ATM, we're not putting in a couple of thousand.

It is only light a couple of hundred or a few hundred.

That would push it a little bit.

But they really isn't any other kind of extraordinary kind of CapEx stuff coming in there.

And the only other -- the only other caveat I would make is as you know sometimes in ATM outsourcing deals we will do kind of like the type 2 ATM where we will purchase ATMs from the bank and do some kind of a sister least entity arrangement.

We don't look at those as being CapEx per se, because they are kind of facilitated financing transactions for the deal.

So I would exclude that from my anticipation, because I don't know what the size of those might be.

But just our business as usual, our gross CapEx in that kind of $20 million to $30 million range.

Franco Turrinelli, William Blair & Co.

Just a quick follow-up for Rick.

And I know that I'm going to take you down a path that you may not want to go, but I think it would be really helpful to understand within the Spanish Prepaid the money transfer business adjustments, even if just directionally you want to give us this, Rick.

But just help us understand what is Spanish Prepaid and what is money transfer as we think about the second and future quarters.

That will obviously become very clear when we deal with the second quarter number, because when we report that we will strip out the historical Prepaid.

And we will put that into the new -- not historical Prepaid, the historical money transfer and put that into the new money transfer segment.

And so really the only pro forma adjustment that would be for Spain.

You will give us historical money transfer numbers on a go forward basis?

Yes.

I can't twist your arm for some directional help right now with the model?

I guess not.

Not right now.

Well, it was worth a try.

Let's see if we can get Robert.

Let's go back to Robert.

Robert Dodd, Morgan Keegan.

Well, it must be that we have something faulty on Robert's line.

Everything else seems to work.

Robert, are you coming in there yet?

I'm here, but I guess you can't hear me.

No, I can hear you know.

You can hear me now.

Excellent.

I was starting to despair.

Robert, we really do love you, you know.

I love you guys too.

I keep trying.

[I just keep coming and going.]

It is a really bad connection though, Robert.

I apologize for that.

I'm in New York, what can I say, the phones are terrible up here.

Just going back to the question on dilution.

In the press release you say Ria Envia is going to be dilutive by $0.08 in the first quarter, and then call it $0.11 to $0.13 for the year.

That implies not a lot of dilution in the back half, and maybe not a lot of dilution in Q3.

Can you give us an idea what -- beyond -- given that Q2 is seasonally strong, and Q3 is not as easily strong, but it is going to be much less dilutive, are you expecting a lot of growth Q2 to Q3?

Just backing up, and I will let Rick add to it.

But let's not forget this business has been growing kind of 25% a year.

So just every quarter it just gets a little bit easier to cover that purchase price amortization nut.

And it is certainly going to be in the high end of the range.

It is going to be $0.11 ro $0.13 is where we're looking at now.

Maybe probably closer to $0.13.

But you're right, we expect it to get better as we get serious into summer.

Is that an assumption of a meaningful improvement in the Mexico trends, or just your performance?

It is going to improve no matter what, with or without Mexico.

But we are starting to see some uptick in Mexico.

And I don't want to get too excited about this and rest our whole future on that.

To hit these numbers, Mexico has got to come back some.

We have seen early indications that it is starting to do so.

But if Mexico goes south worst, or stays pretty ugly then we're going to be stretched to hit the upper end of that range.

But right now we feel -- all the data we have says that we can still hit that upper end of that range.

Is that about right Rick?

I'm sorry.

Robert, adding to that as you know in our money transfer business we have been seeing numbers that were in excess of $1 million in terms of burn on a quarterly runrate basis.

And as Mike mentioned, we have done a pretty good job at starting to get all that threaded into the RIA business.

So we will benefit from reduced expenses because of some of the integration.

We will benefit from starting to get a little traction in our cross-selling out there.

We will benefit some from continuing to pay down debt on our free cash -- on our generation of free cash flow.

So all those kind of pieces together kind of move us in that direction, in addition to what Mike said.

One other question.

In terms of when you start looking overseas, you are adding a lot of products and a lot of -- which are in many cases sold to different customers rather than the ATM department of a bank.

What are you doing on the salesforces side to be able to pitch these merchant acquiring dales, like OMV or the card processing deal, which might take a slightly different salesperson or a slightly different sales approach.

It does.

In fact, maybe just to connect the dots, you have been looking at the expense but maybe not connecting the dots.

But we are spending -- we have made probably -- we mentioned this in an earlier quarter -- probably $2 million of ongoing annual expense in that kind of salesforce and product expertise area to be able to sell these additional kinds of product.

That is one of the things that is squishing down the EFT margins.

If we didn't want to go after these agreements, and if we weren't closing them, we could just shut that expense right down and be back to the margin that we had before.

While everybody's talking about like margin reduction and EFT it really -- I mean a big piece of it, a very large piece of it is by design.

And we are starting to see the results of that.

That is what is exciting.

We're closing these deals in Bulgaria, Serbia, Ukraine.

We closed the UMV deal.

We are out there pitching other OMV-like deals.

But this is costing us basically $2 million of overhead that we didn't have two years ago.

I know (inaudible) what kind of guys are you hiring?

Where are you hiring them?

Well, as an example, our head of operations was the COO of Barclays Card International.

That guy that we just -- that we signed.

And there is a number of people like him who are industry experts.

They come from a multitude of companies.

They might come from from -- it is probably not good to mention them all, but they are all the big names who are in card processing in emerging and Western European markets.

We're recruiting them away.

And they see a lot of opportunity for our Company because of its unique presence.

And that is how we got the OMV deal.

We got the OMV deal because, yes, we could do it, but more than that it is because we have these local operations across these 15, 18, 19 countries across central and Eastern Europe, and nobody has got those.

Nobody on the planet has got them.

So in our sandbox we are the 800 pound gorilla.

And we took advantage of it with all these local operations that we have grown little by little organically over our trying to do ATM outsourcing agreements with.

And we leveraged those same guys to be able to nail the OMV deal.

When somebody calls up -- when there is a fuel station manager, a gas station manager in Bulgaria, and he's got a problem with his POS system, he wants his answers in Bulgarian, not in some other language.

And we've got a Bulgarian office.

And that is the kinds of things that we can add to the -- that we have uniquely that nobody else has.

In addition to the literally incremental resources on the sales and product side that Mike mentioned, recall too that we purchased the Essentis business -- you know, their people are directly in this space.

They are out there talking with the banks.

They've got a lot of banking relationships and things like that.

And so we are taking advantage of those resources, together with the incremental ones Mike mentioned.

[Mike Ryan, DSE].

I think you answered part of my question which was, what is the annual runrate for the merchant card processing.

But if you could remind us again what the annual runrate is in terms of operating loss investment and the ATM business in China and the wire transfer business, that would be great.

Thanks.

Now you want to tell them down to multiple significant digits, Rick.

Let's see.

The runrate on the money transfer was in the $4 millionish range annualized.

And with respect to our China business, I think Mike said here earlier it is in the roughly couple of million dollar range here.

Operator, I think that we have gone well beyond our hour limit.

It is now 9.15.

Mike, so if you want to make any other closing comments, I think we're about out of time or over our welcome here.

No, I do want to thank everybody for taking their time.

And I think think I -- in closing everybody is kind of -- we have had several questions about our investments.

And I think we're announcing several agreements that are the result of those investments.

So we're pretty excited as we move forward.

We welcome anybody comments, and welcome you on our call in 90 days or so.

Thank you very much.

This concludes today's teleconference.

Thank you for your participation.