Euronet Worldwide Inc (EEFT) 2007 Q3 法說會逐字稿

Greetings, and welcome to the Euronet Worldwide third-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.

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

Thank you, Mr.

Newman, you may begin.

Thanks.

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

We will present our results for the third quarter 2007 on this call.

We have Mike Brown, our Chief Executive Officer; Kevin Caponecchi, our President; and Rick Weller, our Chief Financial Officer, with us today.

Before we begin, I need 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 US Securities and Exchange Commission, including but not limited to its Form 10-K for the period ended December 31, 2006 and its Form 10-Q for the period ended June 30, 2007.

Copies of those filings 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 Weller, our Chief Financial Officer.

Thanks, Jeff, and welcome to everyone.

Let's turn to slide number five and get started.

For the third quarter, revenues were $246.3 million, up 52% over the third quarter of 2006.

Operating income of $16.8 million increased by 28% over the third quarter of 2006.

Adjusted EBITDA of $34.4 million represented a 53% increase over the third quarter of 2006.

The third-quarter 2007 cash earnings per share came in at $0.32.

Significant to these results is the inclusion of RIA, which was acquired at the beginning of the second quarter of this year.

Similar to the second quarter's highlights, there will be several observations made regarding RIA's inclusion in the numbers this quarter.

Next slide, please.

Here on slide number six, we Illustrate our three-year revenue as it relates to the third quarter.

If you were to annualize the third quarter's revenues, you can see that we are approaching another significant milestone in Euronet's history, $1 billion in revenue.

Let's turn to slide number seven.

On slide seven, we Illustrate quarter-over-quarter transaction growth in EFT and Prepaid.

Our money transfer segment transactions have been highlighted on the following slide.

As the graph shows, we continue to see good transaction growth in both the EFT and Prepaid segments.

Now to slide number eight.

In the third quarter, RIA processed 4 million money transfers.

This represents transaction growth of approximately 15% year over year.

While we have been seeing an improving trend in the Mexican transaction year-over-year growth rate from a decline of 4.2% in the first quarter to a 1.5% decline in the second quarter and now, in the third quarter, slightly up, it has put considerable pressure on the overall growth rate.

Accordingly, we are especially pleased to see a 15% overall growth rate, in light of the Mexican traffic being virtually flat year over year.

RIA's international business, which was a key reason behind the acquisition, grew at approximately 70% year over year, making a significant contribution to the overall growth rate.

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

EBITDA and operating profit continued their expansion as well, again consistent with transactions and revenue.

Generally, margins expanded sequentially across all three segments.

Let's go to the next slide, slide 10, for a more detailed discussion of segment results that make up these numbers.

Here on slide 10, you can see that the EFT segment revenues grew year over year by 19% and op income grew by 12%.

However, on a sequential basis, the 5% revenue growth drove EBITDA and operating income improvements of 13% and 12%, respectively, overall excellent margin expansion.

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

Our ATMs under management grew from about 8,500 at the end of the third quarter of 2006 to about 10,500 this quarter.

As discussed last quarter, we made several market expansion investments.

These investments generally relate to the expansion in certain Asian and Eastern European markets and incremental investments to position the Company for emerging card processing opportunities in Europe.

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

As you know from our announcements earlier this year, 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 agreements in China, which now stand at four.

In the Prepaid segment, we grew our revenues year over year by 20% and op income declined by 9%.

If you exclude the volume we picked up from the Prepaid segment's first-quarter acquisition of Omega Logic, Prepaid's revenues grew by 10%.

The acquired business's addition of operating income was considerably less than the segment's overall average, given the intangible purchase price amortization.

On the operating income front, as you likely read in our press release, we recorded this quarter $1.7 million as the cumulative effect of carrying certain acquisition-related intangible assets such as customer list in the US dollar, rather than underlying operating entities' local currency.

We concluded the cumulative effect of this charge was immaterial to the financial condition of Euronet or its results of operations.

Accordingly, we booked the full amount in this quarter's results.

This non-cash adjustment had no impact on adjusted EBITDA, just intangible amortization and related deferred taxes.

With this charge, the Prepaid segment's operating margins would have been 7.2% of revenue -- I'm sorry, without this charge, it would have been 7.2% of revenue, an improvement over second quarter's operating margin of 7%.

Now for our more recently added segment, Money Transfer.

We've shown both the reported and pro forma numbers.

Last year's reported numbers were those of the Company's [Vilos] money transfer business, which was previously included in the Prepaid segment.

We have included the pro forma results as well, so you can see what the business would have looked like, had we owned RIA in both periods.

To this end, you can see that revenues and adjusted EBITDA improved by 15%, and you will recall from the slide earlier, where we discussed RIA's transactions, volumes grew by 15% year over year.

While this 15% growth continues to be less than we expected, we know that the Mexican corridor, while showing signs of recovery, has not returned to the more historical robust growth rates.

Transactions to Mexico grew about 0.5% in the third quarter this year compared to the same quarter last year, generally consistent with industry-reported numbers.

While we should continue to be cautious about the recovery of transactions to Mexico, the trend is clearly moving in the right direction, as witnessed by the 4.2% year-over-year decline in the first quarter, a 1.5% year-over-year decline in the second quarter and now, in the third quarter, a year-over-year growth of about 0.5%.

Now let's talk about transactions originated outside of the United States, a key reason behind our acquisition of RIA.

Those transactions grew by approximately 70% year over year and have been key to the continued shift in mix to non-US transfers.

Where non-US made up 16% of RIA's business in the third quarter last year, it was 25% this quarter.

We expect to continue to improve this international mix.

Finally, a comment about margins.

RIA's EBITDA and operating income improved to 14.2% and 6.3%, respectively, compared to last year's pro forma margins of 14% and 4.9%, respectively.

These margin expansions are the result of continued leveraging of volume growth, continued international expansion and cost synergies produced from RIA's absorption of Euronet's Vilos business.

Mike will make additional comments regarding all segments in a few minutes.

Next slide, please.

On slide 11, we provide a few highlights with regard to our balance sheet.

Most notably is the reduction of unrestricted cash and debt.

As we mentioned last quarter, we expected to reduce our debt this quarter.

We paid down the RIA-related term loan by $25 million, and we paid down our revolving line of credit that we had drawn on for only a few days prior to the end of the second quarter.

We will continue to reduce our debt with free cash flow.

As I mentioned in our comments on the Prepaid segment, we adjusted certain of our acquired intangible assets and goodwill from a US dollar currency carrying balance to a local currency balance.

In addition to the one-time non-cash charge to reflect the higher carrying balance resulting from the use of local currency, our assets and stockholders' equity increased by approximately $30 million.

Overall, the strength of our balance sheet continues to improve.

Before I turn it over to Mike, I thought I would comment on taxes.

From time to time, I get questions about the effective tax rate, and given our comments in the press release about the incremental $2.4 million non-cash charge, I thought I would spend a couple minutes commenting on it.

Now, you have to hang in here with me on this one because it gets pretty technical, and it may not sound at all logical to you -- and, I may say, it may not sound logical to me.

So here it is.

I'll start by saying that this charge relates to intangible amortization, is non-cash and has no impact on our cash EPS.

As unusual as it may sound, these charges would cease upon our determination that we can benefit from our NOLs.

In essence, we are required to record an expense or a benefit.

Remember, I said it may not sound logical.

In the RIA acquisition, we were able to get a very favorable tax structure and, in essence, deduct most of the purchase price as goodwill expense for tax purposes over 15 years.

With these favorable deductions, together with our substantial US tax NOLs, Euronet will not have to pay federal income taxes for quite some time.

However, in how FAS 109 works for GAAP purposes, differences between GAAP income and the IRS taxable income are required to be recorded on our balance sheet as deferred tax assets and liabilities.

These deferred tax assets and liabilities then reverse themselves over the life of the underlying asset or liability that gave rise to their initial recording.

As it relates to goodwill, it is assumed for GAAP purposes to have an indefinite life.

Moreover, because we have significant NOLs, FAS 109 does not allow us to net deferred tax assets and deferred tax liabilities arising from indefinite-life assets.

Accordingly, the deferred tax assets on our balance sheet resulting from deductible goodwill are required to be expensed as a provision to tax expense until such time as we utilize the deductions.

If you go to the reconciling schedules we provided with the press release, you will be able to recalculate the cash effective tax rate to be approximately 25% for the third quarter.

This rate is a bit more favorable than the second quarter as a result of some beneficial tax structure improvements we made.

I would expect future cash effective tax rate -- and again, I say cash effective tax rate -- to be similar to the third quarter's, absent any changes to operations or tax treatments.

So I'll wrap up my comments on this tax matter by repeating my opening comments.

This charge is non-cash and has no impact on cash EPS.

This concludes my comments.

I'll turn it over to Mike now.

Thank you, Rick.

Let's move on.

We can go to slide number 14.

Slide number 14 gives us a snapshot of our EFT financial results.

Our revenue of $48.1 million in Q3 2007 was up 19% over the same quarter last year.

Our op income of $10.3 million in Q3 2007 saw a 12% increase over the same quarter last year.

Our adjusted EBITDA of $14.9 million in Q3 2007 represented a 16% increase over the same year.

The year-over-year improvement in revenue was primarily due to a 24% increase in ATMs under management.

Our EFT operating income increased year over year, but less than the rate at which the revenue increased.

As discussed in the last few quarters, this was due to our continued market expansion efforts in Eastern Europe, (technical difficulty) recurring investments in the card business, and it was a result also of certain rate concessions we granted to a limited number of EFT customers last year to extend those contracts for much longer terms.

As many of you know, the seasonally weak Q3 for the EFT division makes sequential growth very challenging.

But on a sequential quarter-to-quarter comparison, we have got something to brag about.

From the second quarter of this year to the third quarter of this year, we grew our revenues by 5% and further expanded our operating income by 12% and increased our adjusted EBITDA by 13% -- very nice leverage.

Move on, please, to slide number 16.

We continue to be the leading EFT service provider of choice to a number of banks in emerging markets in Europe, Asia, Africa and the Middle East, and the accomplishments we see across our EFT markets this quarter further strengthens our competitive position.

We expanded our agreement with UniCredit Bank in the Ukraine for participation in the total of 50 Euronet-owned ATMs.

We have been providing ATM driving services for the Bank since Q3 of 2006, and currently have over 80 ATMs live in the market.

We expanded our agreements with Millennium Bank and BRE MultiBank in Poland for ATM outsourcing and network participation.

We signed a network participation agreement with Citibank in the Czech Republic.

Additionally, we signed an agreement with Afripayments to enable them to roll out a POS payment platform in Kenya.

Afripayments partners with RIA and Postal Corporation in Kenya to provide local and international money transfer services under the brand name Postapay.

This is a good example of our cross-segment collaboration efforts with our new division, RIA.

Lastly, we continued our effort to expand our customer pipeline for card processing.

We signed TBI Credit in Romania for credit card processing services.

This is in addition to the agreement we announced in Bulgaria with TBI last quarter.

We signed our first cinema partner, Cineplex, with a largest cinema chain in Germany for payment processing services of up to 150 locations.

We signed and rolled out 200 Ulla Popken stores, a retail chain in Germany, for payment processing.

Our continued success in signing these small to medium-sized agreements for card and payments processing further justifies our investment to develop capabilities in the card arena.

Additionally, after careful consideration with the customer, we have mutually agreed to move the launch date of the OMV project from November of this year into January, to accommodate technical complexities and also to avoid the challenges associated with the holiday season retail peak.

In the meantime, we continue to work on filling our pipeline with new customers, while we work on getting the contracts that we have signed live.

Move on, please, to slide number 16 and to the Asia-Pacific area.

We're very pleased to sign our fourth customer in China, Standard Chartered Bank, SCB, for ATM outsourcing and deployment.

Our outsourcing agreement covers the Bank's 120 existing ATMs as well as 200 new ATMs for deployment.

SCB China was not part of that 10-country regional agreement that we signed earlier this year, so this is a new win for us.

Now for an update on the status of our regional SCB agreement.

We are live with ATM card and outsourcing operations for the Bank in the United Arab Emirates and the Philippines.

We now have successfully implemented six of the 10 contracted SCB countries to date, and are progressing nicely with the rollout of the remaining contracted countries.

This is a significant achievement, and we're very happy to deliver best-in-class outsourcing services across a very large region to SCB across these multiple markets.

In India, we expanded our agreement with HSBC to provide management services for 60 branch ATMs.

This agreement is similar in scope to our previously announced agreement with HSBC, wherein we were providing non-transaction processing-related services for the Bank, and we're pleased to expand this initial agreement.

We increased our ATMs under management in India by 20% year over year.

We now have 2,154 ATMs under management for 11 banks and an additional 659 contracted but not yet installed ATMs in India.

Despite a wider number of ATM rollouts in Q3, we anticipate a better Q4 rollout of contracted ATMs as a result of RBI's -- that's the Reserve Bank of India -- recent approval of certain ATM rollout plans for both private-sector and public-sector banks.

Our Cashnet shared ATM network has more than 7,150 ATMs connected for 13 member banks, and continues to be the largest shared ATM network in the country.

To give you just a snapshot of the success of this endeavor, the transactions continue to grow with Cashnet.

In fact, they have grown threefold in less than two years.

We're now connected to over 25% of all the ATMs in that market.

Moving onto slide number 17, please, and we'll talk about our Middle East joint venture in software.

The series of ATM outsourcing agreements signed by our Bahrain JV in the last two years is a strong indication of the Middle East opportunity, and validates our rationale for investing in this JV.

We signed an ATM processing agreement with Financial Smart Card in Algeria,.

The agreement also includes providing debit card management and national switch services.

We expanded our initial agreements with Barclays Bank in the UAE and ABC Bank in Jordan to provide new functionality.

In total, we have agreements with 12 banks in six countries in our Euronet Middle East network.

We continue to pursue opportunities available in the fast-growing Middle East region.

Moving on to software, we had a number of very good wins in the software arena, with a number of very good banks including DSB Bank, ABN Amro Bank of the Netherlands and also PKO-BP, one of the largest banks in Poland, to upgrade their system to the latest Essentis release and implement additional functionality.

All at all, another very good quarter for the EFT segment.

We had 10,516 ATMs live in our EFT network and a good backlog of contracted ATMs.

Our sales teams are working hard, continuing to fill this pipeline with more ATM agreements, while investing in new markets and products that will benefit us in the long term.

Now I'll move on to the Prepaid Processing segment.

Jump over here to slide number 19, and we can talk about that.

Our Prepaid revenues of $144.6 million in Q3 2007 were up 20% over the same year.

The year-over-year improvement in revenue was a result of increased transaction growth, about 33% year over year, and a result of our first-quarter 2007 acquisition of Omega Logic, which contributed approximately half the segment's revenue growth compared to the third quarter of last year.

Our operating income of $8.7 million in Q3 2007 decreased by 9% over the same quarter last year's results, while our adjusted EBITDA marked an 11% increase over last year's results of $13.2 million.

As Rick discussed earlier, we recorded a cumulative adjustment [causing this] of $1.7 million or additional intangible asset amortization in Q3 2007, our current quarter.

Excluding this non-cash adjustment, the Prepaid segment's Q3 2007 operating income would have been $10.4 million, which represents an 8% increase over the Q3 2006 results.

Additionally, this happens to be the highest quarterly operating profit ever recorded in the history of our Prepaid segment.

Additionally, operating margins in the Prepaid segment excluding this adjustment would have been 7.2% of revenue, an improvement over second quarter 2007's operating margin of 7%, consistent with an expansion of EBITDA margins from 9.6% in the second quarter of this year to 10.2% for this third quarter.

Next slide, please.

On slide 20, the fundamentals of our Prepaid business continue to drive growth in this segment, as I mentioned on the last slide.

Margins have expanded.

On slides 20, 21 and 22 you can see our Prepaid team continues to focus on our three main objectives by finding ways to add more stores, more products and more transactions.

You will be able to see examples of these and itemized points on slides 20, 21 and 22, but let me hit a few highlights for you.

We saw continued progress in our new markets announced last quarter.

We signed a direct agreement with Telecom Italia Mobile, TIM, the largest mobile operator in Italy, to distribute prepaid products to independent retailers.

As many of you probably know, Italy is the largest prepaid market in all of Europe.

We have rolled out nearly 3,000 stores in the organized retail segment in India for Prepaid, since we launched this new product very recently.

We're very excited to be in these new, promising markets, which represents significant opportunities for us to expand.

We call them the two I's -- Italy, the largest prepaid market in Europe; and India has huge potential in Asia.

We're happy to see these early successes for us in both.

In Poland, we commenced prepaid rollout of 450 HDS Polska stores situated in high foot traffic locations such as railway stations, airports and [cybermarkets].

In Germany, we signed a supermarket and department store chain for 150 stores.

In Spain, we signed Shell petrol stations to offer our complete wireless product suite.

Moving on to slide number 22, in Romania we signed and are live with Cosmote, is the third mobile operator in the country.

With this agreement, we now have access to 100% of the prepaid mobile market.

In the UK, we launched top-up services for two prepaid debit cards.

In the US, we expanded our c-store chain presence significantly by adding nearly 600 stores for three new retailers -- Stewart's Shops, Strasburger Enterprises and Uni-Mart for prepaid.

We also signed Azteca and Movida, two virtual mobile operators, MVNOs, for handset distribution into the Hispanic retail stores, including RIA agents and stores.

Between RIA and our prepaid network distributor, we have nearly 3,000 transacting stores in the Hispanic retail segment.

On a separate note, we continue to make strides in our cross-selling effort.

We currently have over 450 RIA agents and stores offering prepaid in the US from a total of 700 stores in RIA's network who have been approved to offer prepaid.

Our Australian team down under -- they have been busy as well, launching a new closed-loop gift card product and signing their first gift card client, Retravision, a large electronics retailer, to offer this product in over 400 stores.

Additionally, we signed Vodafone core store network and BP buying group to process prepaid on approximately 400 terminals.

Please move on to the next slide, and we're going to talk about ATX for a minute, because ATX kind of changes the complexities and the mixup a lot of the numbers that we do in our Prepaid segment.

We own 51% of ATX, and it continues to post very, very strong results.

As you may already know, our ATX subsidiary processes transactions for distributors in markets where we don't focus on retailer relationships, and ATX has been successful in getting high volumes of transactions, but at a small amount per transaction.

This just puts this in perspective.

Transaction volumes at ATX have increased by almost 400% since Q1 2006 -- so that's just seven quarters -- from the $9 million in Q1 2006 to nearly $44 million in Q3 2007.

For the same period, we saw our revenue per transaction for ATX decrease from about $0.06 to about $0.04, because of our volume-related agreements.

So as their volume has jumped, so the pricing has gone down some.

But that's okay with us, because we've watched our operating profit increase by 300% over the same period.

Including ATX, our Prepaid segment revenue per transaction has decreased from $1.15 to $0.89.

I get a lot of questions from analysts on why is our average revenue per transaction going down?

It's because ATX is bringing a whole lot of money to our bottom line through high-volume agreements.

If we exclude the results of ATX from our Prepaid segment, revenue per transaction in our Prepaid segment has decreased by only $0.05 from $1.25 to $1.20 over the last 18 months, reflecting the strength of our Prepaid business across our primary market.

Now to a discussion on a few more ATX business highlights.

We signed Family Food Centre, the largest supermarket and distribution company in Qatar, for prepaid.

The series of agreements signed by ATX in the Middle East indicates our strength in this very fast-growing region.

Additionally, we signed Logicartes, the top-tier wholesaler in France, to offer ATX prepaid solutions to its customers.

We will now move on to discuss the highlights of our Money Transfer segment.

So if you wouldn't mind, please, jump over here to slide number 25.

We'll highlight our financials.

Our Money Transfer revenues of $53.6 million in Q3 2007 increased by 14% over the same period last year.

Our op income of $3.4 million increased by 48% over the same period last year, and our adjusted EBITDA of $7.6 million in Q3 2007 increased by 15% over the same period last year.

Jump to slide number 25, please.

We continue to see some improving trends in our Money Transfer business.

We strongly believe that quality of our convenient and reliable product offering, offered by our fast developing agent base, will continue to drive strong performance.

Now I'll give you a few quantitative comments about our Money Transfer business.

Our total money transfers increased by about 15% year over year, while non-US transfers increased by approximately 70% over the same period.

The growth posted by non-US markets has been key to the expansion we've seen in our adjusted EBITDA and operating income year over year.

This growth, together with steady margin expansion, comes as no surprise, and we expect it to continue to grow.

Our non-US markets represent 25% of the total transfers, up from 16% a year ago.

To put it into perspective, a fourth of our business is growing at strong double-digit growth rates, 70% this quarter.

This is the foremost reason why we bought RIA.

I need to reiterate how pleased I am with RIA.

Now Mexican transactions are a bit out of our control and just slightly up, but seeing a 70% growth in non-US transfers certainly is promising and comforting.

We continue to see a positive shift in the mix of non-Mexico transfers.

The mixup non-Mexican transfers has improved from 56% in Q3 2006 to 62% now in Q3 2007, and we expect this trend to continue.

On the other hand, transactions to Mexico posted a slight year-over-year improvement of 0.5% in Q3 when compared to the same period last year.

We continue to see a promising trend in the Mexican corridor transfers.

As Rick reminded you, we started with a 4% decline in the first quarter year over year to about a 1.5% decline in the second quarter to now about flat to up 0.5% in this quarter.

The statistics I shared reflect a stable market environment, together with margin expansion contributed by favorable international mix.

Move on, please, to slide number 26.

We have been working on the expansion of both our cash collection points and payout locations.

We have over 11,000 cash collection and Penny locations, offering our RIA money transfer products in 13 countries.

On the other side of the coin, we expanded our global money transfer payout network by 34% quarter on quarter.

We now have over 56,000 payout locations.

The majority of this growth in Q3 relates to the full rollout of the Postbank locations in Poland and Banamex bank branches in Mexico announced last quarter.

As you know, increasing our global correspondent networks is a vital precursor to growth.

By building a robust network in new and existing countries and adding more payout points, we will attract customers that we were previously unable to serve, increase our customer loyalty and chip away at the market share of our competitors in certain corridors.

In addition to enhancing our Polish and Mexican corridors, we strengthened our payout network in the Philippines by signing the Bank of the Philippine Islands for 700-plus locations, and we look forward to rolling out these locations in the next few months.

We also signed a correspondent agreement with Bank Niaga for 212 locations to launch services in Indonesia shortly.

Before we wrap up our call, I would like to make a few additional comments.

RIA is better positioned than ever to increase our market share in the multi-billion-dollar money transfer industry.

Our non-US markets are posting strong results, evidenced by margin expansion both year over year and quarterly sequentially, and we're seeing steady improvement in the Mexico corridor.

Our teams are working hard to execute on opportunity and take advantage of our global strengths together with our expanding markets.

Additionally, RIA has been under the Euronet roof now for about six months, and we can see many tangible results from our cross-selling of products and our cross-pollination of our executive brainstorming and planning initiatives.

The next six months should be even better.

Now to a few summary comments on the quarter, and then we'll take questions.

Please move on to slide 27.

In summary, you can see this.

We hit the upper end of our guidance this quarter.

We signed our fourth customer in China, Standard Chartered Bank, for another 120 existing ATMs and 200 more new ATMs.

We continued to successfully implement multi-country agreements such as the SCB bank agreement.

We increased our global money transfer payout network by 34% since last quarter.

We grew our non-US-originated money transfers by approximately 70% year over year.

We produced margin expansion in each of our three business segments sequentially.

We made additional headway in the card processing arena, and we have reduced our total indebtedness by over $40 million in the third quarter, $25 million of which related to the RIA acquisition debt.

We expect to continue to pay down debt from free cash flow as we generate it across our businesses.

Finally, we expect our fourth-quarter 2007 cash earnings per share to be $0.34 to $0.35.

All in all, a good quarter, and we are continuing to see the benefits of having our three businesses in three fast-growing emerging markets.

In closing, I can't help but recognize the significant efforts of our 2,400 employees across the globe who are working hard to realize the opportunities we have available to us.

This concludes our presentation portion of the call.

Now I'll be glad to take questions.

Operator, will you please assist?

(OPERATOR INSTRUCTIONS).

Sean Jackson, Avondale Partners.

A question I had regarding your market opportunity in China -- how exactly are you going to market there?

In other words, what partners do you have?

How are you signing up these banks?

Can you just talk a little bit about that?

We have a joint venture there that we own 75% of, and this joint venture partner is pretty well-connected with that industry.

It provides us a lot of door-opening and so forth.

But basically, we're selling there just like we sell in every other market.

We are going into these banks.

We are proving to them just by the data that's coming off our ATMs that we can run their ATMs more efficiently and cost effectively.

We can kind of remove that ATM headache as they try to make their banks more competitive with the Western banks that are running around and attracting these retail customers now with RMB deposits.

So it's really no different than any of our other banks.

It's just as difficult as every other market, because outsourcing is a bad word in all languages, including Chinese.

People don't like to loose their budgets or their empire or whatever.

So signing outsourcing agreements are difficult.

They always have to be approved right from the top.

But the nice thing is we've got a value proposition that is absolutely amazing to these people.

When we talk to one of our largest banks there, China Postbank -- we turned on our first ATM, just as an example.

We were doing 1,000 transactions on that first day and we've done 1,000 transactions on that ATM about every day since.

The head of that bank said, "We don't have any ATMs out of our 10,000 other ATMs that are doing that volume."

So the point is not just that we've picked a great location, but that our ATMs are up and running.

We are very darned good at this; this is what we focus on.

We allow that bank to be more competitive.

Kevin Caponecchi, who is here on the call, was just in China last week; he might have something extra to add.

The other element that they told us was, we can roll them out much quicker than they can do themselves.

So with new ATMs, when they want to expand their ATM network, they like to use us because we can help them with getting them out there in the marketplace even quicker.

I'd just put a P.S.

on it.

As Mike mentioned earlier in the call, we have continued to implement multi-national bank agreements, China being no exception.

We have been successful across India, across Europe, and the early signs are showing themselves across China that our relationships with the multinational banks have been helpful in expanding to new and emerging markets.

So we now have four agreements in China, one of which is a Chinese national bank, and the other three are multinational banks.

So it's a combination of having that local presence and relationships, together with multinational relationships that we can really help these banks grow in all of their jurisdictions.

You mentioned that it's still a hard sell.

But is the sales cycles any different there than anywhere else?

With our multinationals, I would probably have to tell you that the multinational sales cycle is probably a little bit shorter.

But typically, for a new bank, they are about the same.

They are a year to 18 months, sometimes two years, even.

On the Money Transfer side, really quickly, the non-US is obviously very strong.

What areas are you seeing particular strength?

What are the competitive dynamics in those areas compared to, say, the US market?

Well, first of all, we dumb Americans kind of look at the world through our lens.

The reality is -- and we talk a lot about immigration, and we see a lot of immigration, and it's in the news every day about Hispanic immigration to the US and a little bit from Asia and so forth.

But what's happening in Europe, as an example, is an enormous and almost new phenomenon.

Ever since the EU has expanded, we've got millions upon millions, tens of millions of new workers coming from Central and Eastern Europe who are part of the expanded EU, and they are working in Western Europe legally.

So it's almost like -- it's tons of people coming across the border, and they are coming across the border legally and they are working.

They are expanding these economies, and they are sending back money to their loved ones, just like the immigrants in the US do down south.

So we've just seen a tremendous growth there.

We've got a very compliant system.

The reality is, even though you talk about competitors, if you to add up the total market shares -- and I can't say this too many times -- of the top three or four or even the top five money transfer companies in the world, their total market share is only 25%.

So there's plenty of market out there of little guys who are having troubles with compliance and troubles keeping up with the volumes as they are expanding.

When we've got 70% kind of growth rate on a big number, imagine these little companies, (inaudible) if they've got big growth rates as well, they just can't keep up.

So just to kind of repeat that, you're saying that the bulk of the business seems to be from Eastern/Central European workers going to Western Europe, as opposed to India or China being involved in that?

Well, India is -- basically, it's all the immigrant groups going to Western Europe.

We also get a bit also in Australia; we are just growing that with a nascent operation, but that's growing nicely with the Asian immigrants.

But if you look at it, and it's India, Bangladesh, Pakistan and places like the UK.

You go to Italy or Spain, and it's Romania and Albania or whatever.

There's lots of places, but it is a lot of the Central and Eastern Europeans.

There is a fair bit of Northern African --

Oh yes, I forgot, right.

(multiple speakers).

Absolutely.

Our African business is actually growing through the roof.

Robert Dodd, Morgan Keegan.

On the sales organization, it seems that there's increasing amounts of overlap.

You've got Australian prepaid businesses signing a closed-loop card deal.

You've got the EFT segment doing deals with RIA partners in Africa.

How are you organizing the sales between the three divisions to take advantage of all the relationships and make sure nobody is stepping on toes or anything like that?

Well, that's been our opportunity and our challenge, to get everybody together.

But we've had senior meetings and group meetings with every country manager.

We've had, now, just since we've owned RIA, just in the last six months or so, we have had two or three meetings of the country managers of each of the countries.

Some of these countries now are actually locating themselves under the same roof.

The Prepaid guys are talking to the RIA guys about leveraging each other's contacts for cross-sell back and forth, and we're just spending a lot of time working these guys together.

It's funny -- you get a bunch of smart people in the room together, and they recognize opportunities and then go after them.

That's what we do.

I'd say, too, it's such a great big, immense market out there that we don't run into toe-stepping too much.

Right now, we haven't initiated any significant organizational changes.

But, as Mike mentioned, we have significantly improved internal communication and how we're doing strategic planning, in a way where we're really involving all three business units together to figure out how to leverage each other's relationships.

If it's EFT, it's on the banking side.

If it's on the Prepaid side, it's with various merchants.

The second one is just a question about your Middle East, your EFT JV over there.

Has any communication there between it and RIA?

Because obviously, the Middle East is a fairly major send market into India, for example.

Yes, it is.

We are actually beginning now, through both our Prepaid and our EFT groups, to get more both payouts and send countries in the Middle East.

We've just started to work on that, but actually a couple of these things have come together.

You saw the little Afripayments deal, where basically the RIA guys gave our EFT guys a lead on that one.

So there's multiple things going on, and we will describe them to you as they happen.

But it's great putting these guys together, because they give each other leads, and it's all kind of for the greater good.

David Parker, Merrill Lynch.

On the Prepaid side, it looks like the transactions grew about 1% sequentially.

In previous years they have grown, I think, a little bit faster than that.

Is there anything that occurred in the quarter, or were you happy with the transaction growth?

No, nothing unusual.

We do typically see the third quarter can be just a little lighter on the transactions there because of holidays, principally throughout the European marketplace, where we have a substantial volume of business, but nothing there that stands out from a remarkable standpoint.

Then, on the Money Transfer, looking at the Mexico growth, it has rebounded in the third quarter, but it's still tracking lower than Western Union and MoneyGram.

They both reported around 6%, 7% transaction growth this quarter.

Are you seeing the centers move back to the large brand names, or can you just address the competitive situation down there?

Well, we didn't get quite the growth that they got in actual number of transactions, and I'm not quite sure how that is.

Maybe They gave up on pricing and maybe that's why their margins were off and ours were expanding, not quite sure.

They haven't shared their financials with me personally yet.

But I'd say we look at it -- Mexico is a huge piece of the business.

It's about flat.

It should continue to expand as it was, and we'll take advantage of it.

But we're not going to do this to the point where we jeopardize our margins and start giving away the store and causing something to go downhill.

The nice thing is, we're going to be offsetting, like you said, good news from all our other markets.

The only other thing I would say, and I'll just reiterate what Mike said, is we don't have their financials and their statistics.

So it's not right for us to try to observe matters for them.

But it would appear that last year about this time, there was a little bit more in terms of fall-off on volume that may have been reported by those entities and what we may have seen in the RIA business at that time.

So it just might be a little bit of the same period-over-period kind of comparisons there.

I know you don't provide annual guidance, but we're getting close to 2008.

Just looking into that year, what type of revenue and earnings growth should we be expecting?

Should it still be in the high teens, low 20% range?

Or should we be taking a more conservative approach when we build out our models?

I do appreciate that you're like the first guy up this morning, even though you are on West Coast time.

But that doesn't give you the opportunity for me to give you or give everybody guidance that we don't give anybody.

So I'll just say we are going to give it a quarter at a time.

We've got a lot of data points, and you can try to put together your model.

But the overall story, I guess, hasn't changed?

You look at our overall story, and we're pretty excited over here.

You can see where the numbers are.

Obviously the fastest-growing markets are probably things like our EFT and our Money Transfer markets, even though we were getting nice little expansion there on Prepaid.

So I think we should see all these continue kind of along the lines that they have.

We still haven't really gotten any of these synergies -- we haven't gotten any money out of these synergies yet.

When that starts to hit, then we could see an acceleration beyond.

I'd just add to it, there has been nothing that has dented our enthusiasm about being in three great markets with three great products -- the Central and Eastern European market, the Indian market, the China market with the EFT/ATM outsourced product, the card products and then the cash collection products, being prepaid and money transfer.

So we haven't seen any kind of fundamental shift or sign in those markets.

We continue to see very good card distributions and penetration numbers reported by the card organizations, and numbers coming out of places like the box manufacturers on ATMs.

Each time I look at the global statistics on money transfers, they go from $250 billion to $300 billion.

The numbers continue to increase.

The number of worldwide immigrants continues to go up each time I see the new research reports.

We've made additional inroads into Middle East and Africa.

So, while we don't give that next-year annual guidance, we have not seen anything fundamentally in the economy or in our products that would dampen our view to the business that we're building.

Tony Wible, Citi.

I understand that there's a lot of things that cause variability in the prepaid revenue per transaction.

But Mike, I was hoping you could walk us through what's causing the operating income per transaction there to come down for the last three quarters.

I would have thought that foreign exchange might have helped cushion that.

Do you know that?

Well, you're obviously factoring out this the one-time adjustment we made here in your comments?

No, but --

Okay, because if I factor that out, we have actually seen an expansion in our operating income over the Prepaid business, on a sequential basis.

Keep in mind that the first quarter is traditionally a more weaker quarter, which is going to put a little more pressure on that.

So again, if you factor out that adjustment, you have actually seen an improvement here sequentially in the Prepaid business quarter to quarter -- first, second to third.

On the revenue per ATM metric, I know that's becoming less meaningful as you branch into new business, and I would imagine that that would help prop up that metric as you get more revenues and you don't have the impact of the denominator.

But that would also have been down, I guess.

Is that just a reflection of the economics from the multinationals and then pushing into further east?

I think we've got two things behind that.

One is your observation is correct in terms of the eastward push there.

As we've said before, we on average make a little less out of some of those Indian and Chinese ATM deals there, still have very substantial and significant profits on each one of the ATMs we signed up drop through to the bottom.

The other piece that puts a little pressure on that number is, as we've consistently talked about, is we've rolled out some of our own ATMs in some of the markets like Bulgaria, Romania, Ukraine; those are some of our owned ATMs.

It takes a little while for those to ramp up, but we have also been signing up participation agreements and things like that.

Those ATMs are intended to have pretty quick breakeven numbers, but we're hopeful that we will have more success in signing outsourcing agreements in those markets by having a stronger presence of independent-owned ATMs that they can use to supplement their own ATMs.

Would that mix shift be, in part, responsible for the, I guess, last three quarters we have been seeing a drop in that incremental profitability on the EFT business (multiple speakers)?

Probably primarily it's going to be the Asian growth.

The Asian growth?

Yes, but as opposed to it being, let's say, a profit per ATM, as we talked about in the last few quarters, we have continued to make investments really that's kind of gone more into the SG&A part of the business to support growing into those markets like Bulgaria, Romania, Ukraine and the card product.

So that's probably put a little bit more pressure on the profit per ATM numbers you're looking at.

We're investing significantly in our expansion in this particular segment.

We brought that to everybody's attention starting about one year ago.

It squeezed our margins a little bit, but as I mentioned on the last call, we've gotten those investments -- we've been kind of indicated with them, because we've signed a number of agreements.

We haven't yet been economically vindicated, but at least with signatures we have.

But once we start rolling these things out, it will look like they were very good investments.

Do you continue that investment cycle, or do you feel like there's a timeframe where you can sit on the investments that you've currently made to date?

We haven't improved them or increased them.

But when you look at the history of our company, we're working on $1 billion in sales now, on an annualized basis.

We are in all these great emerging markets.

We didn't get here by sitting on our hands.

We invested in markets before everybody else was comfortable enough to go there, and we ended up with a dominant position.

We will continue to, when we see those opportunities, to do that.

But as far as where the investments are right now, we haven't needed to increase them much over the last couple of quarters.

Can you provide an update on [just Luan Nationale] termination?

Is there any expected charge as a result of that, or are you feeling more favorable on getting the reserve back?

I think right now, this is still a little bit up in the air, so we're just going to -- we are in discussions with them again to see if there's -- now that more time has passed, we have been able to dig in a little bit deeper to see if we can put this thing back on track or not.

It's still up in the air, though.

It's too early for me to give you that final answer.

But with regard to the charge or anything like that, we don't have any reason to believe at this point that there would be a charge.

Last question is just, I guess, management bonus targets.

Are they based on earnings growth or operating income growth, and can you share with us what kind of targets have generally been established for this year or in prior years?

Well, I don't know if you noticed, but we had pretty substantial targets in there for last year and for this year.

I didn't make a bonus last year because we made these investments in these new areas.

We will continue to make investments in the right places for the long-term benefit of the Company.

But I don't think we'll get into where -- you can read the K and find out all about me, but I don't need to go any deeper than that on this call.

But they are earnings-based.

Yes, very much.

EPS earnings-based.

That was the heart of my question (multiple speakers).

Oh, absolutely.

Absolutely.

I believe we should be rewarded on penalized just like the shareholders.

On cash earnings, or is there another --?

It's cash EPS.

Franco Turrinelli, William Blair.

My question is actually for Kevin.

Kevin, you have been there a little bit now.

Can you share a little bit of what you have been focusing on and what you have found in (inaudible)?

Yes.

Recently -- you know, I'm still trying to learn the business, for the most part.

I've really concentrated on a couple different thanks -- one, learning the business, meeting our customers and really trying to figure out how to drive what Mike described earlier is the synergies between the three businesses.

Without going into a lot of detail, we're starting to have some success with figuring out how to leverage the three business segments for the continued growth of the business.

Also, I've spent some time really focusing on our priorities.

We have a lot of opportunities right now in front of us.

One of the dangers of any business is trying to do too many things at one time.

So we are, I think, for the first time really getting -- nailing down on a set of priorities for the business going into 2008.

Obviously, with your background from GE, kind of an operational powerhouse, what is your sense of where you are in terms of the operational efficiencies of the Company and what opportunity there is there?

Without going into any sort of quantitative metrics, we believe there are a lot of opportunities in the business for some operational efficiency cost out.

We're exploring -- that's not something that Euronet has traditionally had to do.

As we look at the assets that we've got, there's some opportunities there.

Mike, a couple of questions for you, if I may.

Are you willing -- can you give us the total ATM backlog?

About 1,800.

1,800?

Yes, about 1,800.

Of which almost 700 of those are in India.

Where are you with the Phase II of the China Post contract?

We are just now starting.

Remember, we signed that agreement about exactly 90 days ago, and it takes a while to just crank it all up, order the phone lines, all that other kind of stuff.

So we're planning on getting 100 or so of those in, in the fourth quarter.

Then it will probably accelerate from then.

One final question, if I may, Mike.

There seemed to be a pretty high level of activity across the [three slides of] prepaid, in non-telephony applications.

Can you give us a little bit of a sense of where you think the market is in that development and where you are really focusing your efforts on?

Well, as I mentioned before, the way you make more money, particularly in the more mature markets of prepaid, is you either gut it out and steal somebody's retailers, you get more locations, or you are able to put more products across that same infrastructure at zero incremental cost.

We have been focusing a lot on trying to put more products across there.

We don't have another killer app the size of prepaid cellular.

Some people believe that prepaid debit and maybe gift and a few other products like that could become one at some point in time.

We want to make sure we've got it covered every which way.

We have been quite successful at things like we have done in Germany with the satellite TV deal.

We'll continue to find more ways to do that, because it's a great way to put virtually 100% marginal traffic across your -- profitable traffic across your network.

Our first priority is to continue to expand the network, and you see a lot of wins there, where we continue to get new deals.

Then we're exploring, as Mike said, other products to put across that network.

It's a pretty impressive list.

What percentage -- think of Italy for a second.

Is there any way to quantify how much of TIM's prepaid would be done in the independent retail network versus Company-owned stores?

I'm trying to get a (multiple speakers).

Well, kind of here it is now.

We've got one huge, formidable competitor in Italy, and they are called Lottomatica.

They're in all the little tobacco shops and little places and distributors and so forth.

They have virtually 70% market share, one company.

The other 30% is still done through scratch cards directly with retailers, mostly the big-box guys and larger retailers.

That's the segment we're going after for ECR integrations.

It hasn't been gotten by Lottomatica.

I would imagine that's probably because the -- or what we understand is the mobile operators don't want to give all the distribution to any one company.

So we see a large opportunity there.

Just turning back to Tony's question for a second, I'm assuming that operating income per transaction in Prepaid is also going to be affected by ATX the same way that revenue per transaction is, right?

Absolutely, absolutely.

ATX's transactions -- as you watch, ATX's transactions are frigging phenomenal.

So you've got to kind of factor that in.

The growth rates are tremendous.

Yes, you didn't even talk about the latest announcement in that area, right?

Oh, yes, which is the Saudi deal, which, compared to what we've got in the Middle East, it could be four times bigger.

So who knows?

We'll see how that all plays out, how cooperatve each of these distributors are over there.

When you go to the Middle East, it's interesting.

Thank you, guys.

Good quarter.

Michael Hussey, Mid-Continent Capital.

Operator, this will be the last question, because we're past the hour.

But Michael, please give me your question.

Three quick ones -- these are for clarification.

Maybe you have said this before, but I just need to make sure.

When you refer to the non-US Money Transfer business, by that term, do you mean money transfers neither originating nor terminating in the United States?

We almost do nothing terminating in the US, but basically it's non-originated from the US.

So this is going to be all through Western Europe and Australia.

Secondly, piecing through the non-cash charges, the impact of the Omega Logic deal, would it be fair to say that it was essentially, in Prepaid, a high single-digit, low double-digit revenue/operating income type quarter?

Yes.

Is that the kind of organic growth you think that that business is capable of, or is there more to it than I'm missing?

You know, that depends.

Right now, that's what it has been for the last several quarters.

We've got these two larger markets, India and Italy, that could go online.

Poland is doing really quite well as well, Germany nicely.

So we hope to get a little bit more juice.

But the key area is to add more markets are going to have fast growth for us.

But I guess what I getting at is, as you add these new markets, they may goose top-line growth, but at the same time maybe not add as much to bottom-line growth.

So the net effect is it doesn't help your operating income growth grow that much, accelerate that much in the short run?

Maybe not on a per-transaction basis, but all new operating income is operating income growth.

That's the way we look at it.

We've had the largest operating income number in the history of our business, this quarter.

You may have disclosed this before, but ATX -- what percentage of Prepaid's revenue do they represent now?

They are obviously not big enough to move the needle, but --

No, no.

Very small because, remember, unlike our -- it's a whole different model than our distributor model, where we get paid like 8% and then we split it with the retailers and we probably net 1.8% of the 8%, you know, like 20% of the 8%.

These guys are just on a very small transaction basis.

So it's going to skew all the numbers [funny].

It's a high-volume in transactions and low amount [in revenue].

And very, very profitable.

But I mean, is it less than 5% of the Prepaid revenues?

I'll bet you so, yes.

Sure, yes.

Thank you, Michael, and thank you everybody for today.

Signing off.

This concludes today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation.