Euronet Worldwide Inc (EEFT) 2007 Q2 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Euronet Worldwide second-quarter 2007 earnings conference call.

At this time all participants are in a listen-only mode.

A brief question-and-answer session will follow the formal presentation.

(OPERATOR INSTRUCTIONS) As a reminder this conference is being recorded.

It is now my pleasure to introduce your host, Mr.

Jeffrey Newman, Executive Vice President and General Counsel for Euronet Worldwide.

Thank you.

Mr.

Newman, you may now begin.

Good morning.

And welcome everyone to Euronet Worldwide's quarterly results conference call.

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

We have Mike Brown, our CEO; Rick Weller, our CFO; and Kevin Caponecchi, who was recently appointed as President of Euronet Worldwide with us today.

Before we begin, I'd like to make a statement 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 for the Company's products or 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 ending December 31, 2006 and its Form 10-Q for the first quarter ended March 31, 2007.

Copies of those filings and our other periodic filings with the SEC may be obtained by contacting the Company or the SEC.

Now I'll turn the call over to Rick.

Rick?

Thank you, Jeff, and welcome to everyone that has jointed us for review of the second-quarter 2007 results.

Let's turn to slide five and get started.

For the second quarter, revenues were $237.1 million, up 54% over the second quarter of '06.

Operating income of $15.9 million increased by 30% over the second quarter of '06.

Adjusted EBITDA of $30.4 million, a 43% increase over the second quarter last year, last year's adjusted EBITDA of $21.3 million.

The second-quarter '07's cash, earnings per share came in at $0.29.

Significant to these results is the inclusion of RIA for the first time this quarter.

Accordingly, there will be several observations made during this quarter's results on a discussion as it relates to RIA.

Next slide please.

We can see that our second-quarter 2007 revenue compared to the second-quarter 2006 and the second quarter of '05 reflecting both a continuation in growth from our Prepaid and EFT segments as well now from the RIA segment, the Money Transfer segment.

To slide seven, please.

On slide seven we illustrate quarter-over-quarter transaction growth in our EFT and Prepaid segments.

We have highlighted our Money Transfer segment transactions in the following slide.

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

To put the volume of these transactions in perspective, this represents approximately 3.5 million transactions processed every day of the year.

The 39% increase in transactions year-over-year has been instrumental to the revenue I had reviewed with you on the previous slide.

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

Now to slide eight.

In the second quarter, RIA processed approximately 4 million money transfers.

This represents a transaction growth of approximately 13% year-over-year.

Now let's go to a discussion on operating income.

Our profit -- here on slide nine, you can see that our profit indicators continue to expand with the business but in this quarter, we need to look at the respective segments to get a better view of the business.

It will be easiest to see this on the next slide so let's go to slide 10.

Here on slide 10, the EFT segment's revenues grew year-over-year by 15% and op income grew by 5%.

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

Our ATMs under management grew from 7900 at the end of the second quarter last year to now almost 10,000 machines.

As discussed last quarter, we made several market expansion investments in the EFT segment.

These investments generally relate to the expansion in certain Eastern European and Asian markets and incremental investments the Company has made to position itself for expanded card processing opportunities across Europe.

We believe these investments are important to take advantage of the expanding economies in Eastern Europe and Asia and the ACARD arenas across Europe.

And as you know from our announcements earlier this quarter, we are starting to see the benefits of these investments with our first agreement to deliver SEPA compliant card services for a major petrol supplier throughout a dozen or so countries in Europe and the anxiously awaited expansion of our agreement with China Post Bank.

In the Prepaid segment, we grew our revenues year-over-year by 25% and op income grew by 14%.

If you exclude the volume we picked up from the Prepaid segment's first-quarter acquisition of a UK based prepaid processing business, Prepaid's revenues grew by 15%.

The acquired business added only minor operating income given the intangible purchase price amortization.

And you will likely recall that this quarter is the last quarter where the year-over-year performance comparison is impacted by the expiration in May of 2006 of a Spanish mobile operator commission.

Now for our new segment, Money Transfer.

We've shown on this slide both the reported numbers of the Money Transfer segment and the pro forma numbers.

Last year's reported numbers were those of the Company's Veloz Money Transfer business which was previously included in the Prepaid segment.

But most of you are likely more interested in the newly acquired RIA business so we've included the pro forma results as well so that you can see what the business would look like had we owned RIA beginning January 1, 2006.

To this end, you can see that the revenues of $51.7 million grew by 10% and adjusted EBITDA of $7.2 million grew by 9%.

And you will recall from the slide earlier where we discussed RIA's transactions, volumes grew by 13% year-over-year.

While this 13% growth is less than we expect it has been hit pretty hard by the pressures impacting the Mexican transfers.

Transactions to Mexico declined 1.5% in the second quarter compared to the second quarter last year, generally consistent with weaknesses in transfers to Mexico with industry numbers.

On the brighter side, however, is the recent trend we've seen.

As you may know, weaknesses in transfers to Mexico started to hit hard in the latter part of the fourth quarter last year just after we signed the purchase agreement to acquire RIA.

And that weakness continued to build through the first part of this year.

In February we saw the direction of the trend to start to move back up and we've been glad to see that it has continued to improve each month since February to the point that in June we saw Mexican transactions post a growth over those of June a year ago.

We think it's too early to conclude on the direction of the Mexican transfers but we are encouraged with the trend.

Now away from Mexico to talk about originated transactions outside the United States, the principal reason we acquired RIA.

These transactions grew 68% year-over-year and have been key to the continued shift in mix to non Mexico transfers.

Where Mexico made up 46% of RIA's business in the second quarter last year, it fell to just under 40% this quarter.

We expect to continue to improve the mix of transactions away from Mexico.

Finally a comment about margins.

RIA has seen some pressure, pricing pressure, from Mexican transactions over the past year but the favorable mix of traffic to other countries largely offset the P&L impacts.

Mike will comment more about these segments in the next few slides.

Slide 11 please.

Here are a few highlights with regard to our balance sheet.

While balances have moved a bit, they are all pretty straightforward and all driven by the closing of the RIA acquisition together with the related financing.

Cash decreased by $137 million; debt increased by $215 million; equity increased by $160 million; and total assets increased by $470 million, again all largely the result of the RIA acquisition.

The seven-year term debt has minimal annual repayment requirements but as we previously disclosed, we intend to reduce it with excess cash flows commencing in the third quarter.

And you may recall that, 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.

Now Mike, next slide, please.

Thank you, Rick.

If you will move on now to slide number 14 and it gives a snapshot of our EFT results.

Good morning, everybody, by the way.

Our revenue of $45.7 million in Q2 2007 was up 15% over the same quarter last year, our op income $9.2 million in Q2 '07 increased by 5% over the same quarter and our adjusted EBITDA of $13.2 million was up 7% over the same quarter last year.

The year-over-year improvement in revenue was primarily due to a 25% increase in ATMs under management.

The lighter growth in operating income in Q2 '07 was partially impacted by our investments, as I've mentioned in prior calls, in the card processing business and our continued investments in Central and Eastern Europe as well as Asia.

As you know from some of our releases, we've had some recent successes on most all of these fronts which I will cover in just a minute so it looks like those investments are starting to pay off.

You'll move on now please to the next slide, slide number 15.

This outlines a few of the EFT business highlights for Q2 2007.

In Europe, we continued to make progress on both our card and ATM fronts.

First let's start with the cards.

We have completed our first few critical milestones to be ready to roll out the multi-country OMV project starting in Q4.

We signed a credit card processing agreement with TDI Credit, a leading consumer finance company in Bulgaria.

We signed an agreement with Cetelem, a consumer finance company in Greece to provide credit card transaction switching services.

They were previously serviced by a very well-known competitor.

Additionally, we expanded our payment processing services in Germany by adding several medium-sized retailers ranging from 50 to 150 stores.

On the ATM front, we are live with Piraeus Bank in Serbia for ATM drive-in services.

Piraeus is one of our many multinational clients that we service in multiple markets.

And we've expanded our position in Serbia through the launch of our own independent Euronet branded ATM network.

We signed an ATM drive-in agreement with BCP Millennium in Romania.

BCP is one of our leading customers in Poland and the bank has big plans to expand its operations and customers in Romania.

And we also expanded our customer base for ePOS services in Greece.

We are now operating switching services for nine leading merchants such as IKEA, Dixon's and Citibank.

As you can see, we've been very busy realizing the investments we're making in our card products as well as growing our presence in the Central and Eastern European region.

The breadth of our product offering continues to prove advantageous as we expand into new markets and approach new banks and large retailers.

Moving on to an update on software.

We are live with our Essentis Acquirer product from Moneris, Canada's largest payment processor Acquirer and the sixth largest Acquirer in North America.

Our product is currently enabling Moneris to process over 7.5 million transactions per day for 360,000 merchants.

That is more than 2.5 billion transactions a year being handled by our Essentis Software, huge volume.

Additionally there have been other developments in our Software business including sales of our new ITM Prepaid product as well as an expanded reseller agreement with [Atos] origin Asia for new Essentis Software sales in the Asia-PAC region.

Moving on to slide number 16.

In Asia-Pacific, live action down there as well.

We'll start with India.

We signed an outsourcing agreement with Barclays Bank to assist the bank in expanding its retail operations in India.

We renewed and expanded our agreement with IDBI Bank, one of our initial customers in India.

We contracted 200 new ATMs per deployment with this bank, IDBI, and also took over the processing for some existing ATMs from the bank's merged entity, United Western Bank.

We are live with Standard Charter Bank, SCB India, for 188 ATMs in total and we increased our ATMs under management in India by 38% year-over-year, a significant achievement, especially in light of the RBI regulation on new off-site ATM deployments.

We now have over 2,000 ATMs live in Indiana and under management for 10 banks and another 702 contracted but not yet installed ATMs.

We continue to expand our Cashnet share at ATM Network.

We have more than 7,000 ATMs connected for 12 member banks in total.

That is a 17% increase year-over-year in number of ATMs while the transactions processed on this shared network have grown phenomenally by 88% year-over-year, signifying the benefits of the shared network to banks as well as their end customers.

Further strengthening our value-added services is our ATM mobile recharge services.

We're now offering top up on nearly 15,000 ATMs for 12 banks in total.

Overall, another very good quarter for the Indian business.

Slide number seven, let's move on to China.

As you know we've recently expanded our agreement with Post Bank for a deployment of 727 new ATMs over the next 12 to 18 months in Beijing, Shanghai and Guangdong provinces.

We are very excited to win this large agreement in China which further solidifies our position in the market within just a year and a half of launching operations there.

We increased our ATMs under contract significantly.

We now have more than 800 ATMs in backlog for three banks in total in China.

We look forward to bringing these ATMs live.

We continue to market our services to many banks in the region and we look forward to bringing on new customers in the coming quarters.

Now we will jump to the Middle East, and our Middle East joint venture.

We continued to build on the value of our investments in our Bahrain JV which we have a 49% equity share.

We assigned and brought live Standard Charter Bank in Bahrain.

In addition to India, we also signed an outsourcing agreement with Barclays Bank in the UAE.

Since inception, our Bahrain JV has established itself as a leading outsource service provider in the Middle East and Gulf region.

The JV has agreements with 11 banks in six countries in total today.

Slide number 18, our final slide for EFT.

We outline our combined ATM categories.

And I'd like to also tell you before I get into the discussion of this slide, I'd like you to note that we are considering eliminating our ATM category slide going forward.

Our understanding is that the detailed ATM activity highlighted on this slide provides our competitors with strategic information that might be left best protected.

So we are considering this may be the last time you see this slide.

And I just thought I would give you a little bit of forewarning.

But now let's take this slide and take a look at what our business looks like.

We have now close to 10,000 ATMs live in our network.

This represents a 25% increase over Q2 2006, quite an achievement.

In the ATMs under contract category, we have 1645 ATMs contracted for installation.

That is a strong pipeline of ATMs that we expect to bring live over the next 12 to 18 months and incidentally, this also happens to be one of our largest contracted ATM backlogs ever in our history.

All in all, a good growth quarter with significant wins, product launches and overall portfolio growth.

We look forward to adding increased profit growth in the coming quarters from our continued investments in the new products in the market.

And let's not forget as we add those ATMs that we have in backlog, these ATMs are virtually 100% marginal from this point forward.

So that certainly changes the profit economics of this business.

I will move on to our Prepaid segment now, slide number 20.

Revenue, as you can see by our revenue of $142 million in Q2 '07 was up 25% over the same quarter last year.

I would like to also kind of go backwards and remind you that in our Prepaid financial highlights starting from this quarter, we have excluded, as Rick said, the results of our Veloz Money Transfer business from our Prepaid results as well as prior period.

So we are just talking about Prepaid now.

It does not include any Money Transfer at all, either backwards or forwards.

As you may have noticed in our press release, our transactions grew by 49% which was ahead of the 25% revenue growth.

This favorable growth in transactions over revenue results from the success of our ATX subsidiary.

And as you know, ATX processes transactions for distributors and markets where we don't focus on retailer relationships and ATX has been successful in getting a high volume of transactions but at a small fee per transaction.

Our operating income of $9.9 million in Q2 '07 increased by 14% over the same quarter last year and our adjusted EBITDA of $13.7 million in Q2 '07 increased by 12% over the same quarter last year.

The year-over-year improvement in revenue was a result of increased organic transaction growth together with the acquisition benefits of Omega Logic, a UK based prepaid company that we acquired last quarter that contributed approximately 10% of the segment's revenue when compared to the second quarter last year but had a minimal impact on the segment's operating income.

If you exclude the revenue growth from Omega Logic, our operating income grew at the same rate approximately as our revenues reflecting a strong growth of our Prepaid business.

Move on to slide number 21, please.

We signed an exclusive 14-country Prepaid agreement with Media Market, Europe's largest retailer of consumer electronics for 462 stores.

We signed Plus, the largest discount retailer in Germany to offer Prepaid at 2800 stores.

We rolled out Prepaid at 1,500 Relay stores in France and we service their stores in Belgium, Switzerland and now France as well, through ATX.

Additionally, we continue to expand our Prepaid business in new markets.

We've leveraged our robust Prepaid technology platform in the UK to launch two new promising markets, Italy and India.

We launched Prepaid services in Italy, the largest Prepaid market in Europe, by signing our first agreement with a significant retailer for ECR -- that's electronic cash register -- integration.

For competitive reasons, we will not disclose the name of this retailer until we go live.

Nevertheless this is a very exciting market to be in and we look forward to ramping up our operations in Italy.

We also launched Prepaid top up services in the organized retail sector in India.

We have signed three large retailers, Reliance Retail, Indepay, and Sify to offer Prepaid at their stores across India.

Our existing EFT business in India has been instrumental in securing these retailers and we can see it further complementing our Prepaid operations.

With the addition of Italy and India, our Prepaid segment will now operate in 14 countries.

The expansion into these markets only strengthens our position as the largest provider of top up services for Prepaid mobile airtime in the world.

And these markets fit nicely with our recent RIA acquisition.

On to slide number 22.

As you saw, we had a very solid quarter.

This is further reflective of slides 22 and number 23, where you can see our Prepaid team continued to find ways to add more stores, more products and more growth.

I'm not going to go into each of these markets one by one and reiterate what is on the slide.

I will let you do that yourself.

If you've got questions I'm happy to answer them at the end.

If you don't mind, would you please move on then to slide number 25 where we will talk about our brand-new segment, our Money Transfer segment.

Here on slide number 25, we highlight the second-quarter financials for this business on a pro forma basis year-over-year.

As stated in our press release, we will discuss the results of RIA as a separate segment and this segment now includes our existing Money Transfer business, Veloz.

I will also point out that we wrote off approximately $900,000 for restructuring and integration of Veloz in the RIA business.

Our Money Transfer revenues of $51.7 million in Q2 '07 increased by 10% over the same quarter last year.

Our operating income of $2.6 million in Q2 '07 increased by 8% over the same quarter last year, and our EBITDA of $7.2 million in Q2 '07 increased by 9% over the same quarter last year's results.

Move on please to slide number 26.

I will make some quantity of comments about our Money Transfer business.

Our total Money Transfers increased 13% year-over-year while non-U.S.

transfers increased by a whopping 68% over the same period.

As indicated in previous quarters, RIA's non-U.S.

markets are growing ahead of our expectations, resulting in significant growth in transactions and revenue.

Moving on to Mexico.

The mix of non-Mexican transfers improved from 54% in Q2 '06 to 60% now in Q2 '07.

Additionally, transfers to Mexico declined by 1.5% in Q2 '07 over Q2 '06.

However our June transactions reflected growth year-over-year.

This shows promising progress in the Mexico corridor when compared to a 4.2% decline in transfers to Mexico Q1 2007 over Q1 2006.

Our focus on growing RIA's non-U.S.

markets continues to drive our results.

Our non-U.S.

markets represent now about 22% of the total transfers, up from only 15% a year ago.

If you'll move onto the next slide please, slide number 27.

First I want to back up and remind everybody kind of the basic (inaudible) and metric model of the Money Transfer business.

It's driven by two things.

Number one is the number of cash collection points where you're able to collect cash and do those money transfers.

These are usually in developed markets in the more Western kind of markets.

The second is the payout locations.

You've got to be able -- if somebody wants to send a money transfer, say from Italy to Romania, you've got to have coverage in Romania.

So the key here is to build up both the cash collection locations where you can collect the money in say Italy, and you have to build out the payout locations which is usually through banks, maybe sometimes through retailers, in these correspondent countries where you pay out the money to the recipient of the money transfer.

So we've been working on both sides of that equation and I will share a few business highlights.

We expanded our global correspondent network, and correspondent network means where we pay out the money, by more than 15,000 payout locations in our key markets just during the second quarter of 2007.

We are very pleased with these new additional payout locations.

We signed Banamex in Mexico for 4,500 payout locations; we signed Post Bank Poland, which has the largest payout network in that country for nearly 8,000 locations; we signed a number of other correspondents for more than 3,500 payout locations totally in India, Turkey, and Kenya.

These 3,500 locations are currently live.

And we will have more announcements like this next quarter but this was an exceptional quarter for adding correspondents.

We continue to leverage our combined business assets, primarily our EFT division, and we've seen positive benefits so far.

In the U.S., we signed our first C-store chain, a 100 plus store chain in Arizona and New Mexico through PaySpot, to our PaySpot Prepaid network to sell money transfers; plan to roll out there in Q3.

We signed a number of RIA agents in the U.S.

and Spain to sell Prepaid products and we've been successfully processing transactions for Veloz products from RIA's operations center since the date of completion of our acquisition of RIA in early April.

We have received Board approval from Corporation Bank in India.

The bank is awaiting RBI approval to commence correspondent services for RIA and this is for 900 plus payout locations.

This agreement will significantly expand our payout network in India, one of the largest remittance receiving countries in the world.

And then finally, we received licenses to operate in both Belgium and Ireland.

As you can see, we have accomplished a lot in just three months since the acquisition of RIA.

We have made good progress in areas of integration and cross segment collaboration.

I'm very excited about this Money Transfer business.

RIA is a great acquisition and presents us with the significant opportunities for growth in all of our segments.

We see RIA as a non-U.S.

market posting strong growth and we believe this complements our existing overseas markets very nicely and validates our rationale for acquiring the business.

Perhaps more importantly, the expected synergies from all of our businesses are proving better than anticipated and we are seeing very positive benefits from the leveraging of our combined capital to grow the RIA business.

Now onto a few summary slides for the quarter.

First, cash EPS of $0.29 that was within the guidance range, which (inaudible) in Q2.

We expanded our outsourcing agreement with China Postal Savings, so that will be a deployment of over 700 ATMs.

We operate nearly 10,000 ATMs currently across EMEA and Asia-Pacific.

We continue to expand the significance of our Asia-Pac EFT business.

We're off to a great start to leverage the value of Money Transfer Prepaid and EFT assets, as I mentioned in a prior few slides.

We have significantly expanded RIA's global correspondent network by more than 15,000 payout locations.

We introduced two new large and promising prepaid countries, India and Italy, and we signed large retailers in key prepaid markets including an exclusive multicountry prepaid agreement that we mentioned earlier.

We have a very strong pipeline of ATMs under contract, one of our largest contracted ATMs backlogs in our history.

And Q3 2007 cash EPS is expected to be between $0.31 and $0.32.

This concludes the presentation portion of this call.

I will be glad to take questions.

Operator, will you assist us with this?

Thank you.

(OPERATOR INSTRUCTIONS) Tony Wible of Citigroup.

I was hoping we could start off with the ATMs that you have in the backlog.

Can you discuss how we should be thinking about the installation timelines on that backlog and some of the pricing on the incremental ATMs?

Well, the backlog -- what we usually do is when we've got a signed and contracted -- signed contract for ATM installation, we put them in our backlog if that contract is within 12 to 18 months.

Usually most of these are within 12 months.

As you know, a big chunk of those, 700 or so of those, are in India alone.

So a few of those are going to be related to RBI's loosening of their kind of constriction hold they have over new ATM deployment which they have been loosening in a number of banks here lately.

The rest are -- we've got the 727 in China, as you know, and then various other contracts around the way.

So we are kind of looking at them really out over the next 12 to 18 months.

As far as margins go, it depends on the market that they are in.

Our Indian and our Chinese ATMs are at slightly less margins than we typically get in Europe, but it is consistent with the figures that you have, Tony, with respect to those three marketplaces.

Okay, great.

With regards to RIA, if we adjust for the integration charges this quarter, is there anything that would cause there to be some seasonality to that margin, or can you talk about how you anticipate the margins expanding from here and at what pace?

I will let Rick answer that one.

Yes, there is some seasonal lift in the second quarter from kind of principally the Mother's Day period on the volume.

It doesn't do a whole lot in terms of the margin numbers, other than just the incremental volume that it brings.

But we do expect to continue to see growth in the business.

So yes, second quarter is generally a little better, but nothing that is so [peaky] that it will cause us to fall off of the growth rate going into the third quarter.

Okay.

And shifting over to prepaid.

The Italy opportunity, can you guys -- do you guys have a revenue opportunity in line for that market about how big and what your share in that market is?

Our share right now is tiny.

But let me describe for you the Italian market just a little bit.

There is basically one electronic prepaid provider right now in that market.

One competitor.

They have lots of the tobacs and the small shops and small kind of small segment retail.

What is very interesting is because that is about 70% of the market, the mobile operators there have been reluctant to give away that last 30% which is in large retailers, electronic fashion today.

We have offered them the opportunity, as you know, we run more large volume large retailers for prepaid than anybody by probably a factor of five -- I'm not sure about that exact factor -- anybody in the world.

And so we've got a tremendous amount of credibility with large retailers.

We're able to leverage that credibility that we've gotten in the UK, in Spain to some extent, and also in Germany to convince those retailers to let us be their electronic processor in Italy.

So you will see that grow over the next -- we've got several -- we've got one deal signed several deals in the works.

So -- and it is the biggest market for prepaid in all of Europe.

So we are kind of excited about our start there in that market.

Okay.

And last question I have before jumping off.

What would the guidance be in an adjusted EPS basis?

Or I guess another way to ask this question is should the intangible asset amortization stay at about $4.9 million per quarter?

Intangible amortization will be pretty much the same in the third quarter as it was here in the second quarter, only just slightly bigger, Tony.

Because we had four days on the front end of the quarter but you know that is not that much.

It would be just a little bit bigger in the third quarter but adjusting for those four days on the RIA piece, it will be pretty much static with second quarter.

Great, thank you.

Robert Dodd, Morgan Keegan & Co.

Hi, guys.

A couple of housekeeping ones first.

On the integration expense, can you tell us how much that was pretax and whether it was in the op income line for RIA?

Was it excluded from the adjusted EBITDA?

Robert, hello, it was pre and post tax was the same because it is largely all here in the U.S.

so we didn't have much tax expense on that.

And it was included in the reported.

It was included in those reported numbers on the Money Transfer side.

And so yes, included in the Money Transfer segment but pre and post tax the same.

And then on the tax rate, could you give us an idea -- I mean it was unadjusted very high in the second quarter -- could you give us an idea why and where it is going to go?

First if you take out kind of for a comparative view of looking backwards, that number excluding stock-based comp and the FX gain that is on there, it did end up in about the 33% kind of range which is 5 or 6% higher than what we've had in some of the previous quarters.

That was up because of a couple of things.

One is obviously the addition of RIA into the business.

Because of the interest expense etc.

it has a mathematical nuance affect to it where it brings down as a percentage your total pretax income which just kind of mathematically drives that up.

So that is one just a mathematical effect.

But in terms of real tax dollars, we did provide taxes for the RIA state type of tax as well as RIA foreign tax and then we had a few other dollars that we accrued because of some expiring NOLs and some thin cap adjustments that we made in a couple of our other countries.

So that kind of led to the overall absolute dollar amount there.

With respect to kind of going forward, Robert, for cash EPS purposes, I would expect that number to be roughly the same to potentially slightly improved but kind of in that ballpark for the cash EPS number.

On a GAAP EPS basis, we may have some additional expense that we record as a result of our purchase price accounting stuff but it is non-cash related.

It's deferred tax related.

On our cash EPS, it would remain pretty much the same.

Okay, got it.

On -- moving onto Italy, I mean you've got the competitor and all the tobac shops, I mean [L'Automatica], I think.

Do you have an aim to ultimately try and displace them in those convenience store locations?

As an avenue for a Money Transfer channel, I would have thought those smaller retailers would have made better candidates than the large guys.

So what is going to be your approach maybe longer term to the Italian market?

Well, first of all, we are taking the -- we have a real opportunity with large retailers.

It's probably 30% of the market not being touched.

So we're going to go for that because we don't have a competitor there.

But as far as leveraging those little guys, we certainly were and in fact we're going into those with the agents that we have right now with RIA in Italy.

But we're not going to -- the expense of trying to displace those guys, replace the large competitor in Italy right now just for the sake of Money Transfer doesn't really make sense because, remember, the crossover here is about 5% to 10% of small retailers might be good Money Transfer locations.

So you don't want to spend a ton of gasoline trying to get 1,000 or 10,000 or 100,000 of these small merchants when only 5% of them might be prime suspects for Money Transfer.

So we will just keep going after the Money Transfer guys.

The nice thing is we're cross-selling into our Money Transfer agents so we kind of are grabbing -- we can grab a few of those guys.

As we get them, we will probably do it from the other way around, Robert.

Okay.

And than one final one if I can.

I mean you've obviously got a lot of growth opportunities that you're looking at and investing in.

Is there, to put it bluntly, is there a limit to how much incremental you will spend in a given quarter to drive that growth?

I think we pretty much hit my limit.

As we see right now, I think we've been investing a lot over the last several quarters.

Our EFT segment had some margin pressure over the last two or three quarters because of these investments, as an example.

But we are now starting to see the fruits of those labors.

We nailed the [Envi] agreement.

We've nailed several other kind of cross-border kinds of things.

And so I think now that as these things start to ramp up and we start actually getting revenues from these, the expenses even though they are ongoing and probably aren't going to go up, are going to start to look smaller in comparison to the revenue number.

So I think I'm pretty much tapped out as far as the big investments we need to make.

There might be a few little investments that we need to make in RIA because we're just seeing tremendous growth opportunities overseas by putting in a few more stores and so forth.

But I don't think any of those are going to move the needle much.

Thanks.

I think it's time to reap -- you know to harvest, you know.

We've done our seed planting.

But, you know, Robert, I would add that we're at an interesting point in time when there is just rapidly expanding markets in Asia and India and Eastern Europe.

And while I certainly emphasize with the expense in making some of these investments, just take a look at some of the successes that we've posted over the last quarter here and we need to ultimately deliver the net income behind that.

But as a company, we've got some just great opportunities in the worldwide expanding markets that look like they are unfolding as we -- just as we expected they would for those investments.

And you know, as we've talked to you guys and we look forward, you know, we are really not that brilliant over here.

I mean you can notice that the investments we make start to pay off pretty quick.

I mean most of our investments are kind of that pay off in that kind of 12 to 18 months kind of timeframe and you can see that markedly in a number of these agreements that we've signed.

So our goal is not to overinvest.

You know we will certainly want to give ourselves flexibility to do so but I am happy to say we've nailed several very nice agreements just over the last quarter that shows that those investments make sense.

Not the least of which is on that EFT side, kind of the long-awaited [Next] Post Bank kind of track which we've been losing $0.03 a share there for the last year or two as we've grown that marketplace.

And now we're getting enough ATM where we can start to cover the lion's share that of that.

And certainly enough credibility with this very large retail customer now to go talk to other banks and also other provinces within that customer.

Thanks, guys.

Josh Elving, Piper Jaffray & Co.

Good morning.

A quick question for you.

You mentioned Essentis briefly in your prepared remarks.

Did you offer up a revenue number for the quarter?

No.

We include that in our (multiple speakers)

-- (multiple speakers) more in general?

The needle didn't move much over the prior periods.

Okay.

A deal like Essentis and with Moneris, I mean that is a deal where you are kind of filling in with milestones as you go along so it isn't like you get this magic pop at the end.

Yes, as a matter of fact, we had very little Moneris revenue in the second quarter.

It was like Mike said, largely build and milestones in previous periods.

Okay.

Just with regard to Prepaid transactions overall, up very significantly I guess quarter over quarter on relatively flat terminal growth.

Was that due to ATX?

I think you had mentioned that briefly as well.

Yes, ATX had a lot to do with that.

They have a little bit different model than what you might be used to in our kind of distributor, share the commission model.

And their transactions have been just going through the friggin' roof.

And we love that.

It's a different model but that is why.

Yes, plus just to add to that, in the prior periods, we've announced some terminal -- I mean some customer expansions ranging anywhere from the German stuff that we did around the number of countries.

And so some of those customers that we sign up and we get those ECR integrations especially in countries that have not heretofore sold much prepaid in the mass retailer kind of segment, those volumes kind of shift a little bit over time.

And so in those cases, we might have the terminal numbers going our count prior to seeing more of the volume come along and I think that is kind of what you are seeing here in the second quarter.

Okay.

And then just kind of follow up on the rollout of the ATMs in backlog.

I think the backlog pickup was primarily to the announced relationship or expansion with Post Bank.

Is that right?

That and also SCB and a couple of these other deals that we signed in Central Europe.

Okay.

And so I guess how fast, specifically with Post Bank, how fast -- I know you mentioned 12 to 18 months for the full rollout there.

Is there a different kind of timeframe?

I know you don't have a lot of visibility into India as far as regulatory issues are concerned --

China will probably be closer to the 12 months than the 18 months at least that is what they've told us.

So we just got to go out there and get these sites and put these things in.

But if you remember, our first 90 that we put in we put in lickity split.

So we will go out there.

We will go find these locations and start the installation.

I mean it is all prepared, there is no impediments other than us just getting our job done.

But it will be more of a ramp as opposed to -- it's not a flash cut.

Yes, I mean we won't have 727 in one day.

But -- you know it would surprise me if we don't have virtually all of them in within a year.

I mean if you've seen some of the reported numbers of ATM growth coming out of places like China, you know that these banks aren't sitting back there and Post Bank won't either.

That is why they signed this deal with us.

Has there been any kind of an update on the regulatory environment in India as far as deployment?

There is no official word.

However, a number of our current customers including SCB, ING and so forth, it's kind of like one at a time they are getting okays from the regulatory body to put in ATMs.

So it isn't like -- I don't think they are going to like lift it -- you know lift these regulations just in a day.

But it's going to be kind of bank by bank and that is good enough where once they say go, then we go.

Okay.

And then just one quick question and I don't know if you have offered this or not?

Just number of Asian locations and number of received locations on Money Transfer?

We've got about -- well we had 10,000 agents when be bought them on the send side.

That has gone up some.

I don't have that exact number.

Yes, we didn't disclose that but that is kind of roughly right.

RIA has continued to add agents and as we mentioned earlier here, we probably put about another 15,000 payout locations on together with those that have been installed or those that will be installed here in the next 30 to 45 days.

And the ballpark on the distribution side?

Like total?

About 42,000.

That is in our press release as well.

Okay.

It's in the back -- it's in the "About Euronet" section.

Okay, great.

That's all I have, thank you very much.

Franco Turrinelli, William Blair & Co.

His line has dropped.

David Parker, Merrill Lynch.

Good morning.

Your cash EPS of $0.29 was at the low end of the guidance that you provided on your previous conference call.

Outside of the higher tax rate, was there anything that emerged during the quarter that surprised you?

Well, I wouldn't say necessarily surprise you, but you know as we've talked along here is that the kind of -- the upper and lower end of that range was more dependent upon what we see in terms of Mexican volumes.

And while we saw some resilience come back into the Mexican markets, it certainly wasn't robust by any means.

And so had we seen a little stronger kind of performance out of Mexican transactions, we would have been possibly on the upper end of that.

It's amazing how -- with Mexico accounting for 40% of our transactions, and you see a weak market which can turn on a dime really, that is why we have the range and we're able to hit the range kind of on a -- just even though Mexico didn't come through.

On the flip side, our international stuff was phenomenal.

So that was great.

We think Mexico seems to be solidifying every month.

It has improved since February for us.

With last quarter down 4.2%, this quarter down 1.5% but June being actually up over the prior June.

All these are kind of good indications you are kind of holding your breath as all of this happens.

But these guys are 40% of the market of our transactions and these are highly marginal next transactions.

So as Rick said, could have easily if Mexico would have come out of the outhouse a little bit quicker, we would have been -- we could have hit the upper end of that range.

Okay.

You announced the number of correspondent locations for your Money Transfer services.

How difficult or how easy is it to switch these payouts locations to become send agent locations?

Actually the Software at any of our locations kind of goes both directions.

But you've got to understand that 95% of the transactions in a quarter are usually going one way -- you know U.S.

to India.

You know, (inaudible) many people in India sending money to their relatives in the U.S., as an example.

Yes --

UK to Poland you know and those kind of things.

UK to Poland is going to be a big market for us, there is a ton of immigrants.

Let's not forget about we spend a lot of time talking about Mexico but the other side of the coin and why we are growing so fast in Europe and Asia is because in Europe in particular you've got this expand EU.

You don't have the documentation problems that you have in the U.S.

You are not chasing immigrants out of the market.

In fact, the expanded EBU means you can come and work in these markets.

And so what we see as large growth in the Central and Eastern European immigration -- those folks into Western Europe and they are all legal.

And these are usually pretty high margin kind of transactions.

And so we are excited about like turning on Poland.

We just haven't had a great coverage in Poland and now we do.

We haven't had great coverage in India and we're adding 900 plus sites with Corporation Bank.

So it takes a little while to get them going but as Juan Vianchi says, who runs this division, he says there is just a lot of action going on under the hood right now that will cause significant growth in the coming quarters.

So we are still real excited about where we see that Money Transfer business.

And then you couple that with the fact that on the Prepaid side, take a look at that.

We've got revenues in growth strong.

We don't have the margin pressure that we didn't have the result in margin pressure that everybody has kind of been concerned about this quarter because when you take out the Omega Logic acquisition, we've got basically around 14%, 15% growth in both revenues side and the profit side.

And then you've got this big old backlog of ATMs we have in the EFT side.

So I'm feeling pretty good about all three of them and it looks like all these investments and these acquisitions are starting to pay for themselves.

Okay, great.

And then just a final question.

Mike, if you could comment on the new hire during the quarter and what role you expect Kevin to take?

Well, actually I will let Kevin answer that because you've never heard his voice before.

So you can see what he -- what he says.

Perfect.

We will see if he gets it right.

Welcome everybody.

This is again, Kevin Caponecchi.

I spent 17 years at GE and it was a wonderful experience.

I got to work in an environment with one of the world's most renowned management companies in the world.

And what attracted me to Euronet was the entrepreneurial spirit and the opportunity to play in the same markets that I've spent the last five years growing in as I ran one of the transportation businesses for GE.

Mike hired me to help put some discipline and structure to the business.

You know, this business has grown at an enormous pace with an entrepreneurial spirit.

And one of the things that I think that I bring is some management experience working at GE where I can bring some operational discipline to the business.

And somebody asked a question earlier around expenses.

You know, one of the things I think I can help with is solidifying our strategy and really hunkering down on making sure that we are properly operating on the expense line.

And I'm -- it was a big decision for me.

You know I was senior executive at General Electric and I wouldn't leave that Company for something that I didn't believe in.

And I am real excited about this opportunity with Euronet.

Welcome and thanks, guys.

How did I do Mike?

You did okay but you forgot the fact that you are a pretty damn good salesman.

And so selling is a piece.

Actually Kevin as we mentioned in the press release, will be responsible for our Prepaid and EFT divisions and also keep an eye on the Money Transfer division because that's going to take a lot of the -- we can leverage the other two businesses, I know them quite well and so that is kind of how we are kind of dividing up that duties right now.

Franco Turrinelli, William Blair & Co.

Good morning, gentlemen.

Sorry about the user error earlier.

That's okay.

A couple of quick ones if I may.

Just to make sure that I've got this absolutely clear.

So on the Prepaid processing side, the organic growth was 14%, 15% and then Omega Logic adds another 10% of growth.

Is that correct, Rick?

On the revenue side, yes.

Okay, perfect.

And then when we bought them, they were about a breakeven business.

So they added a lot of revenue and a lot of expense and it is only in the third quarter that we will see that expense eliminated as we've been able to meld those two organizations.

Okay.

And Mike or Rick, actually, I'm wondering if you feel able or willing to either reiterate your prior Money Transfer guidance or update it?

We haven't separated it out.

We kind of chose going into this quarter here that the businesses kind of get melded together and with the new structures on the P&Ls and stuff like that -- I mean on things like cash and debt and interest and all that type of stuff, it makes it a little bit more difficult to look at it on a with and without basis.

So we just decided to meld the two together on the go-forward basis.

Is it at least fair to say from an operational view though it is tracking in line with your expectations?

Yes.

Yes, I mean as we said in the obviously the $0.29 being on the lower end of that guidance range is we would have liked to have seen a little stronger Mexican stuff there but it is within our expectations.

Okay.

And then I know you've got a lot of plans to roll out Company-owned ATMs in various Central Eastern European countries.

I think you talked about it on the first quarter as well.

Those are not in the backlog though -- that is just your standard policy or --?

Absolutely correct, absolutely correct.

(multiple speakers) things that we've cut.

What's in the backlog are third-party outsourcing agreements only.

So there is no change to the plans for rollout of Company-owned ATMs in those markets?

Yes, no change, no change.

Okay.

And then I think you indicated previously that Italy a tough market to break into and congratulations on finding a way into that.

Is this opening up some other new market opportunities that may be previously we thought might not be there or is there anything to be gleaned in terms of future Prepaid markets?

Well, I'd say to make a jump and say just because we got in Italy means we can get into that next one, it's impossible to get into, I don't think that is a good jump.

But let's not forget Italy is Europe's largest Prepaid market.

And so we've been trying to get in -- we're starting to run out of markets to get into.

We are not yet in Sweden but Sweden doesn't hold a candle -- you know 25 Swedens don't equal Italy.

So I'm happy to get into these guys with the big retailers, be able to leverage those retail relationships with both the EFT Processing segments and the Money Transfer segments.

And once we get the big retailers, then we will start to attack the competition with the little guys.

I think the other thing to just observe is that what we've seen in this market is that there is right and wrong times to go into some markets.

And whether it is the right opportunity presents itself for us to go into Italy today, just like in India, the right opportunity is there with some of the larger retailers and things like that.

And as you know, that has been an unbelievable strength of ours and one that we've leveraged across a number of other different countries or products or whatever.

So I think you have to take a look at each market as its appropriate time to get in for what expertise and value we bring to the retailers.

And just a case in point, India is a great one to talk about.

You folks have been asking us are we going to go into India for the last three or four years.

But India just has not had organized retailers.

There is one large player right there trying to play at the mom-and-pop.

They've got something like 10,000 or 20,000 locations out there.

They are losing money every single day of their lives.

But something has happened, something has change.

Organized retail ala Tesco, Wal-Mart kind of models, are now happening with the likes of Reliance, one of the largest corporations in India and several others.

And now that they decided they want to do organized retail, they want to contract with the company that has got the best expertise to do Prepaid top up for large retailers and the world.

That is us, undoubtedly.

There's nobody even close, not even a far number two.

And so you know, India is now (inaudible).

So we will get into them as we'll get into new market as the opportunities arise.

Let me -- last one.

Is the organized retail in India a good Money Transfer opportunity as well?

We think so because there is a tremendous amount of opportunity both as maybe potentially receive side and also even within India.

So it is something we need to develop.

Don't put any of those numbers into your projections yet but having a strong relationship with what is going to probably be the Wal-Mart of India and that is Reliance, I think certainly isn't going to hurt us.

One final.

I think you'd said that the UK is about maybe one-third now of the Prepaid revenue.

Is that about right?

Yes.

Yes, I think it's around one-third, yes.

Okay, great.

Thank you very much.

Tim Willi, A.G.

Edwards.

Thanks.

Good morning.

A couple of questions including some housekeeping.

Mike, I can't remember on the Money Transfer side, did you make any commentary about the pricing environment?

Yes.

Tim, real quickly I said that we did see some pricing pressure primarily in the Mexican market but fortunately we've had great growth in the non-Mexican corridors which is largely offset that.

But nonetheless there was some Mexican price pressure out there.

Did the Mexico pricing at all change as the quarter went on like you talked about the year-over-year transaction growth or was Mexico pricing sort of consistent throughout the quarter?

You know, I would say we probably saw a little bit more of the pricing pressure towards the first part of the quarter.

It kind of continued itself in the second quarter but kind of on a trend line, a little bit more of it came in the earlier part of the year.

Two questions in the Prepaid business.

One is, if I'm doing the math correctly and maybe I want to make sure that I am.

But if you just take your revenue on Prepaid and roll it over the terminal count, there still looks like some pretty substantial year-over-year declines if you say sort of like Prepaid revenue or profitability that you are getting per terminal.

I know that we (multiple speakers) the year-over-year comparison issue out of Spain which obviously weighs on it a bit.

But is there something else within there you could talk about in terms of the ramp up of new locations particularly locations that have never offered Prepaid before versus then maybe you are swapping out a competitor?

Because you had a lot of growth in the locations.

Yes, actually you have zeroed in on something that is an absolute fact in that what you see is actually a complement to it, it's not a detriment.

What we have done over the last six to nine months in Germany in particular and a number of other markets as well, is we have added a number of large retailers with ECR integrations.

These guys heretofore have not done Prepaid.

And so much like the UK when we bought ePay, five years ago, ePay was doing maybe 20% of its transactions in the large retail environment and now it does 70% of the transactions.

So these larger retailers are very convenient for people who go to it.

So we watch that mix shift happen across years and the consumer habits change across years in the UK.

You've first got to light up the terminals though and then they have to learn how to market it and that is kind of where we are with Germany.

We've added a ton of terminals in Germany over the last year, year and a half and they are in their ramp phase so you are going to see -- when you divide out total number of transactions or total revenue by the number of terminals, it is going to look like something has gone down when actually we're just a little bit ahead of the curve as far as number of locations as opposed to what the actual transaction traffic is there.

So for us, what you see and you might have a little concern about, we're actually excited about because what this means a lot of opportunity for growth in other markets.

Great.

And then two last questions.

One is on Prepaid cards, which you had a lot of success within your U.S.

franchise of selling and distributing, activating Prepaid cards.

There is a lot of talk in parts of Western Europe that that is going to be a large market, a lot of people are chasing it.

Can you just sort of talk about what your views are on general sort of Prepaid or sort of value cards?

They are going to be made, Tim.

I mean if you -- I try not to listen to every press release that Visa and MasterCard puts out but the reality is it's going to be enormous because those Prepaid cards -- let's not forget -- are going to -- I mean their projections show the prepaid debit market is going to be many times in excess of the prepaid cellular market several years out.

And the reason being is because you use that credit to buy more than just prepaid cellular.

And yes, it is starting to catch hold nicely here in the U.S.

and --.

But Europe, it is just now starting to be offered so we are kind of excited about the potential growth for that particularly for that particular product across Europe.

And let's not forget, we're the distribution channel; we've got the distribution so we're going to be the guy distributing these products and they are virtually 100% margin for us.

Remember, they are going to look for ubiquity just like the mobile operators do out there and that is the value of our retail presence in these 14 countries.

And these countries as well if you take a look at the statistics and terms of where the Visa and MasterCards believe that the volume is going to accumulate, it is exactly these same countries.

Okay, and my last question is just on, Mike, can you make any general comments on your M&A pipelines and the environment?

We still see some.

We've got a number of acquisitions that we are looking at primarily now in the Money Transfer and EFT segments.

We don't see a lot of pipeline here in the Prepaid segment but this kind of changes by the month.

And we are just going to look for good, accretive kind of add-ons, bolt-ons to what we have.

We've got our three businesses pretty well laid out.

Great, thanks a lot.

I think with the end of this question, its past top of the hour, so I think we will cease.

I'd like to thank everybody for their time on this call and I'll look forward to talking to you in about 90 days.

Ladies and gentlemen, this does conclude today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation.