Euronet Worldwide Inc (EEFT) 2008 Q2 法說會逐字稿

Greetings and welcome to the Euronet Worldwide Second Quarter 2008 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's 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.

Thank you.

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

We will present our results for the second quarter of 2008 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 disclaimer concerning forward-looking statements.

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

These statements are forward-looking statements.

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

Additional explanation of these factors and other factors affecting the Company's results are set forth from time to time in Euronet's periodic reports filed with the United States Securities and Exchange Commission, including, but not limited to, its Form 10-K for the period ended December 31, 2007 and our 10-Q for the period ended March 31, 2008.

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

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

Now, I'll turn the call over to Rick Weller, our Chief Financial Officer.

Jeff, thanks.

And welcome, everyone.

For the second quarter 2008, the Company reported revenue of $264.5 million, operating income of $17.3 million, adjusted EBITDA of $34.6 million, and cash earnings per share from continuing operations of $0.32.

I'll point out here, as was mentioned in our press release, we have reflected the Essentis software business as a discontinued business.

Mike will talk more about our business decision behind this treatment.

Now, let's move to slide six.

Here on slide six, you can see the last two year's revenue of the second quarter and how the yearly improvement trend continues.

You will notice the rather significant step up in the second quarter 2007 when RIA was first included.

The second quarter 2008 marks the first quarter where RIA has been included in the year over year comparisons.

Let's now move to slide number seven.

In the second quarter, RIA processed $4.3 million money transfers.

This represents transaction growth of 9% year over year.

You can also see in this chart how the business continues to grow through transfers sent to countries other than Mexico.

While pressures in Mexico persist, the non-US business continues to experience significant growth rates, 42% this quarter, which drove a 64% revenue increase.

Let's turn to slide eight.

Slide eight includes a review of our segments' second quarter results compared to last year.

The EFT segment's revenues grew year over year by 25% and operating income grew by 3%.

It's important here to point out, as we've previously reported, that in the second quarter, the UK outsourcing customer's contract expired and the customer did not renew.

Moreover, consistent with what we've communicated in the first quarter, the development of our Cross-Border products is requiring a substantial level of effort that we did not incur in the second quarter last year.

Accordingly, to help better understand the fundamental state of the business, these two items, without these two items, we provided a pro forma view of the EFT business without the effects of the UK contract and the Cross-Border products.

Accordingly, you can see that excluding these two items, operating income would have improved consistent with the revenue improvement of 27%.

In the prepaid segment, we grew our revenues year over year by 7% and op income increased by 16%.

Operating income margins expanded quite nicely despite the investments we're making in new markets, such as Italy.

Our money transfer segment grew quarterly revenues year over year by 21%.

Given we completed the RIA acquisition on April 4 last year, there were four days of operations not included in the second quarter 2007 results.

Accordingly, on a pro forma basis, revenues grew 15% year over year.

The 15% pro forma revenue growth was a result of 9% overall transaction growth which reflected a 4% -- 42% growth in non-US originated transactions, but a decline of 7% in transactions to Mexico.

Finally, corporate and other increased by $1.1 million, largely due to additional FAS123R share based compensation expense, which is driven by the overall larger size of the business.

Mike will make additional comments with regard to all segments in a few minutes.

Slide nine.

Since last quarter, our balance sheet continues to show improvement.

You can see the cash increased by approximately $18 million and debt was reduced by about $11 million.

Subsequent to quarter end, we paid down an additional $15 million of our term loan, leaving a balance of approximately $134 million of the $190 million borrowed to acquire RIA.

We will continue to reduce our total debt.

In this slide, you can see that we present a couple of our debt ratios on a last quarter annualized basis.

Both total debt to EBITDA and net debt to EBITDA improved over last quarter.

Our leverage continues to reduce and, as we said, we expect to see similar trends continue in future quarter.

Now to Mike.

Next slide, please.

Thanks, Rick.

We'll move on now to discuss the EFT processing segment.

So, if you wouldn't mind, please, go to slide number 12.

Slide number 12 gives us a snapshot of our EFT financial results for the second quarter of 2008.

Our revenues increased by 25%, operating income improved by 3%, and adjusted EBITDA increased by 10%.

As Rick mentioned a few slides ago, there were two items that impacted our EFT results this quarter when compared to last year.

Excluding these two items, the EFT segment's second quarter 2008 op income would've improved by 27% and adjusted EBITDA by 25% over prior year results, clearly illustrating strong bottom line growth from our core EFT business.

The EFT business is our legacy business and over the last 14 years it has expanded significantly.

But you can see by these numbers why we still like it.

We are investing in China and a number of new markets and Central and Eastern Europe.

Even with those investments, taking out Cross-Border and the UK deal, we still have a strong bottom line, leveragable business growing very, very nicely.

Move on to the next slide, slide number 13.

We have over 10,000 ATMs live under management and approximately 1,400 ATMs under contract, but not yet installed.

We signed Delta Bank in the Ukraine, a leading bank in consumer lending for ATM network participation.

We signed IDBI Bank in India, which is actually our first bank that we ever did sign in India, to deploy an additional 200 new ATMs.

We signed Barclays Bank in Pakistan, a new market for us, to deploy 100 new ATMs and provide card management services.

We now work with Barclays Bank in four different countries.

In China, our team rolled out approximately 200 ATMs from our backlog prior to the Olympic blackout period to bring in our total number of live ATMs in China to 532, of which 348 are China Post ATMs.

And additionally, we have more than 600 contracted ATMs left in backlog for this country, China.

We renewed our agreement with Raiffeisen Bank in Serbia.

We renewed our agreement with Tesco in Poland and signed Tesco in the Czech Republic.

Additionally, we continued our foray into emerging markets by a shareholders agreement with Cashlink Bangladesh Limited for a 10% equity partnership.

Cashlink will provide shared ATM network services and ATM POS and card processing services for banks in Bangladesh.

Move on, please, now to slide number 14.

Furthermore, here we have --- we're expanding into adjacent product lines which complement and strengthen our core ATM offerings.

We completed full roll out in our first countries for OMV and we are rolling out additional countries by the end of 2008 for this Cross-Border product.

We were recognized by leading industry experts as Merchant Acquirer of the Year at the recent Cards International Global Awards held in Brussels for our pioneering efforts in launching the first SEPA compliant Cross-Border merchant acquiring solution in Europe.

We expanded our ATM and POS driving agreement with Commercial Bank in Serbia to include full field services for 10,000 POS terminals.

We signed Agricultural Bank in Greece and Romania -- Agricultural Bank of Greece in Romania for credit card issuing.

We signed C3Cards in the UAE to process prepaid payroll cards.

And here's a very important point.

Transactions on our Cashnet network, the largest shared ATM network in India, increased by a phenomenal 85% year over year.

As well, mobile recharge transactions on ATMs managed by us increased approximately 300% over the same period.

For our ITM software, we signed licensing agreements in Aruba, Egypt, and Poland.

In closing my discussion on EFT, I would like to say a few comments on our decision to sell the Essentis software entity.

Essentis offers a world-class card processing platform designed specifically for blue chip banks.

We opportunistically bought this asset to complement our EFT business.

We've taken a look at what we believe to be our best opportunities and investments to focus on over the next few years.

As part of this analysis, we've concluded that the Essentis software product is complementary, but not essential to our core objective of being a world-class Electronic Financial Transaction processor.

Therefore, we narrowed the focus of our investments and resources within our three transaction processing segments.

We have been approached by a number of software services companies expressing interest in the Essentis product and we expect to sell Essentis in the next six to 12 months.

This brings us to the end of our EFT discussion.

Why don't we move along to prepaid.

You can skip slide number 15 and jump to 16.

Slide number 16 gives us a snapshot of our prepaid financial results which show improvement in all of our key P&L line items.

Our prepaid revenue of $152.6 million in Q2 '08 increased by 7% over the same quarter last year.

Our operating income of $11.4 million and adjusted EBITDA of $15.6 million increased by 16% and 14% respectively for the same period.

I would like to underscore that growth in prepaid's EBITDA and operating profits outpaced the increase in revenues, indicating the strength and leveragability of this business.

We have prudently managed operating expenses against revenue growth in spite of ongoing investments in a number of new markets which include Italy.

I'm very pleased with our prepaid segment's overall performance this quarter, particularly in light of the challenges in the telecom sector reported by a few of the mobile operators in certain European markets.

Slide number 17, please.

The increasing popularity of electronic prepaid products around the world is fueling the growth of the prepaid segment.

Our growth momentum is the result of our continued success signing large and independent retailers alike to distribute our extensive prepaid product portfolio and launching new markets.

In Italy, for instance, we signed the Rewe Group to initially offer prepaid mobile air time and calling card products at 250 stores, followed by full implementation in 2009.

The Rewe Group is a leading retail chain in Europe and we currently service their stores in Germany and Austria as well.

We acquired a network of approximately 2,000 independent retailers as a part of a joint venture with Conaedi, a leading distributor in Italy.

In India, we launched prepaid services for mobile operator Aircel.

We now offer services for eight of the nine mobile operators in that country.

Additionally, we launched prepaid services at 1,200 Suvidha lottery stores in India.

Many of you may have already read the announcement on our Caltex Australia win.

Caltex is the second largest petrol and convenience retailer in Australia and was also -- is actually the largest petrol and convenience retailer in Australia and was also previously the second largest customer of a major competitor who recently closed down shop and went into court appointed administration.

We rolled out approximately 400 stores in total for other leading petrol chains in Australia and we're pleased to further strengthen our position within this market.

We rolled out 120 stores for Kaufhof Warehouse, a leading German retail group, and we also rolled our prepaid in Switzerland for Media Markt as part of the multi-country agreement we signed several quarters ago.

On slide number 18, you can see we continue to move our focus beyond mobile pop ups by adding several new prepaid payment and content products to our global cash collections network in multiple markets, including Nokia maps and a major lottery product.

We also expanded our network in the independent retail channel, including Australia, for approximately 600 stores and in Wilkinsons, the UK based hardware and grocery retailer, for another 300 stores.

Overall, a great quarter.

We now move on to our money transfer discussion on slide number 20.

Slide 20, on a pro forma basis, our money transfer revenues of $59.5 million in Q2 2008 increased by 15% over the same quarter last year on a 9% increase in transactions.

Our operating income in Q2 2008 was $2.6 million and our adjusted EBITDA was $7.7 million.

On to slide number 21.

Non-US send markets continue to be strong contributors to our overall growth in the money transfer segment.

Revenues from non-US send markets increased by 64% while transactions increased by 42% year over year, showing continued margin expansion in the non-US sector.

Our decision to focus on high margin transfers, higher margin transfers to Mexico has enabled us to maintain our profit margins year over year despite a 7% decline in transactions for the same period to Mexico.

We continued our expansion efforts in new and existing non-US send markets.

We launched money transfer operations in Belgium.

We increased our Company-owned stores and agent locations in both the UK and Italy.

On the product technology front, we are piloting our card-based money transfer product on e-pay terminals in the UK and Company-owned stores and selected agent locations thanks to integration efforts of both our money transfer and prepaid teams.

We continue to expand our money transfer distribution network.

Since acquiring RIA in April 2007, we have signed and launched 33 correspondent partners for payouts across 36 countries, of which our EFT team has been instrumental in helping sign eight correspondents for payouts in 15 of those countries.

We currently have more than 2,500 payout locations in the pipeline pending implementation.

As you can see, we have continued to focus on favorable markets and continue to expand our money transfer agent network.

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

Slide number 22.

In summary, you can see that we posted our cash earnings per share of $0.32 in Q2 2008 from continuing operations.

We continued to focus on strengthening our diversified markets and product portfolios across all three segments.

Our Australian prepaid team has done a phenomenal job thus far of taking advantage of a competitor's difficulties to further strengthen its prepaid leadership position in Australia by signing key retailer accounts.

We continue to expand on emerging market opportunities in our EFT segment, as evidenced by our wins this quarter in the Ukraine, Pakistan, and Bangladesh.

And we took action to limit certain investments, for example, Essentis software.

Since April 2007 through now, we strengthened our balance sheet through the repayment of $56 million of the $190 million term loan.

And finally, we expect our third quarter and fourth quarter 2008 cash earnings per share from continuing operations to be approximately $0.33 and $0.36 per share respectively.

This concludes our presentation portion of the call.

Now, Kevin, Rick, and I would be more than happy to answer your questions.

Operator, would you please assist?

Thank you.

(Operator Instructions) Our first question comes from Franco Turrinelli from William Blair and Company.

Please, proceed with your question.

Hi, Mike.

Hi, Rick.

How are you?

Good.

Good morning, Franco.

Good morning.

Couple of questions, if I may.

First, a sense of, Mike, there's a lot of obviously good stuff happening beyond the ATM business in EFT.

I guess maybe could you just remind me what -- how do you deliver how much product without Essentis, I guess, is the question?

We have ACSG.

We have a very strong credit card processing segment that we purchased from Piraeus Bank, as you might remember, about three years ago.

It's located in Greece, run by an excellent manager.

And we continue to use that platform to close a number of credit card deals, all through the emerging markets, which really is our focus area.

We haven't given up the rights to the Essentis software anyway.

We own it.

Perhaps one of the pieces of the deal would be to take back a license for Essentis.

But at the end of the day, we don't want to necessarily be a software sales Company.

We want to be a processor.

So, having that as an asset, we probably could still do even after a sale of the entity.

Okay.

So, the sale of the entity doesn't preclude any of the POS, card, or other value-added -- ?

No.

In fact, we know POS and card are big expanding areas.

We've got our whole Cross-Border endeavor.

We've got all the stuff that we're doing in Greece out of our Greek office as far as credit card processing.

In fact, that same office is really instrumental in selling a number of other deals across Central and Eastern Europe, not just in Greece.

So, we still want to be a processor.

We just don't want to be a software sales Company.

Turning quickly to money transfer, obviously, nice to see the non-US revenues so much higher than transfers.

What's really going on there though?

Is it just more volume from higher priced markets?

Or are you able to price -- to raise price in existing markets?

Our largest markets outside of the US are Spain, Italy, UK, France, and Germany.

And all three of those, all four of those markets are growing for us in number of transactions.

In virtually every one of those markets, there are a number of corridors which have nice healthy margins attached to them.

Each and every one of them are growing quite a bit.

And it's primarily because of the overarching demographic of the fact that we've got an expanded EU.

And there's lots of Central and Eastern Europeans and also Africans and North Africans who are coming to Europe because the grass is greener on that side of the fence and that's a fact.

So, even though we do have a little bit of a slowdown in some of those economies, it's still a heck of a lot better than it is at home and there's still job opportunities in expanding economies.

And we're able to get a little bit more per transaction on a lot of these things.

One final question.

It's both.

We both -- our numbers of transactions are way up and our average revenue -- gross margin per transaction is higher.

Okay.

On a slightly different note, prepaid was the lowest growth I think we've seen for the last couple of years.

What's going there?

Is it really macro or is it -- ?

Help us understand the 7%

It is lower than we have seen, although we're seeing that start to step up now.

I'm not quite sure why it was a little bit lower this quarter, but I do know that as we look forward by opening up Italy and with the recent events in Australia, we certainly expect to see that go back, probably back into the lower double digits as we look into next year.

There's a little -- this is Kevin.

There's a little softness in Spain and there's a little softness in the UK with those two economies.

Some of the highly publicized activity with Vodafone created a little softness.

But the seasonality effect in the third and fourth quarters and the situation in Australia, we expect that to pick up for us.

Okay.

Thanks, Kevin.

And that's actually, Franco, one of our -- we would expect prepaid to be a star for us over the next couple of quarters.

Our next question comes from Tim Willi from Avondale Partners.

Please, proceed with your question.

Thanks.

Good morning.

A follow-up on the prepaid and then just maybe a question or two on the EFT.

But two to prepaid and following up on Franco's question.

If you look at some of the metrics and terms of the revenue and profit per location, sort of just looking at the POS terminal count you give out, those trends seem to still be very much going the right way.

I'm curious if you could just sort of talk about the driver of that in terms of you watching expenses relative to some of the younger terminal locations and the ramp up in terms of transactions and productivity?

Which one of those may have been a bigger driver of that metric?

I think -- we are adding new terminals as we do every quarter, but the real fact is the bulk of the new terminals that we have added in Q2 and will probably add in Q3 are probably in Australia.

And even though those -- a typical terminal has a ramp up period, these are terminals usually that we've taken over from the competitor.

So, they already have -- you might say they already have some built in quantities.

So, their ramp up's quicker.

You kind of rambled a little bit with that question.

So, I'm trying to --- could you clarify a little bit further what you want me to answer?

Yes.

I have a tendency to ramble.

Sorry about that.

I think last year you had some pretty ---

I just got confused this early in the morning.

You had some, I think, fairly good success last year in the German market with some of the big box locations.

I think just overall.

And I think you've commented in the past that a lot of those were basically cold locations in terms of POS, terminals for prepaid until you had signed those deals.

So, I guess I'm just curious if you've seen the German market, in particular, where that was the case, if you're seeing acceptable or better than expected revenues?

Oh, yes.

Germany's certainly -- we talked a lot about Australia and, certainly, we've got the wind at our back there.

But Germany's doing quite well.

Tim, the other thing I would add is you may recall from a few years ago when we bought Germany, Germany was largely a transaction based, kind of a processor catering to a couple of the larger distributors.

As we said then we would continue to focus on developing direct to the retailer relationships where we make more money and can be more efficient, produce more profit per terminal per location.

And some of those deals that we announced a year ago, even as of last quarter with the Aral deal, have kicked in and shown us some results from that.

So, we're continuing to get benefit and get good transaction performance out of specifically in that market in Germany that you asked about.

But, as Mike said, in other places like Australia where we're picking up terminals quickly and they're lighting up pretty quick and becoming profitable rather quickly rather than over a several month period.

Tim, one more comment real quick from Kevin.

There's three sort of drivers for our prepaid business.

One is the consumers are shifting from independents to big box retailers.

As you know, as we've explained to you before, we've positioned ourselves with the big box retailers in almost all the markets.

Secondly, as consumers switch from scratch card to electronic, they, again, tend to move to the big box retailer which is good for us.

And then the third is putting new parts and services across those same POS terminals.

Debit cards, et cetera.

So, trying to get the transaction count up on those same POS terminals to different products.

Yes.

We don't want to be a cellular only prepaid Company.

For sure.

It makes lots of sense.

I appreciate the detail.

If I may follow-up quickly on EFT before hopping us to let someone else in, just some quick things.

First of all, is how do pipelines look?

You've consistently talked pretty bullish or pretty active.

I'm just sort of curious about some of the pipelines, et cetera, as you see it at the end of this quarter.

I think, Kevin, you can correct me, but the pipeline that we have in both Asia and in Europe is strong.

We have 1,400 ATMs in backlog but we have many times that many in potential sales pipeline.

So, we're still pretty bullish about what we can close.

We're kind of narrowing in on closing a couple of deals right now.

We've just actually signed a few and we kind of mentioned them in these remarks.

We're still bullish about that segment of our business.

Okay.

Thanks a lot.

Our next question comes from David Parker with Merrill Lynch.

Please, proceed with your question.

Good morning.

How are you doing?

Good morning, David.

Just to begin with, just on the money transfer side, you mentioned that you had 2,500 locations in the backlog.

Where are those geographically?

Are they in the areas that you mentioned previously?

And also, just if you could provide some timeline on when you expect to roll out those locations?

These are in our markets.

They are the payout markets, David.

So, they're really spread around the world.

I'd bet you, if I was to guess, I'd say probably 40% of them are in south of our border and probably the other 60% are in Asia, Central and Eastern Europe, Africa.

A lot of Africa.

So, they're kind of spread out all over the place.

As you can see just by the number of agreements, you could say every one of those agreements is probably in a different country.

But generally speaking, the focus on adding these payout locations, David, has been to cater to transfers originating out of the European marketplace as opposed to out of the United States marketplace.

So, you're typically going to see Eastern European locations, Northern Africa locations, and some of the kind of Middle East, Eastern locations in that mix.

That's really, the game on money transfer and the reason we're number three and not number two is that we don't have all the payout locations that number two and number one do.

Certainly, we need to have a few more agents too, but you need the payout.

So, we're focusing heavily on that.

Okay.

And then on the prepaid and EFT.

You mentioned there's a shareholder agreement in Bangladesh and then also, on the prepaid side, a joint venture, I think Conaedi is who you said it was with.

Are there any up front costs associated with those two agreements?

Can you provide some more color around both of them?

The one in Bangladesh is a typical deal like what we've done in other markets.

You might remember we did one in Serbia and somewhere else, Bahrain, earlier.

This is where basically our 10% we get by contributing our software and some services.

So, not a lot of out of pocket.

The one in Italy, a little bit of money changed hands.

But not a lot.

What we do is we basically leverage our software to get in there, be the processor of choice.

We're the guys with the system in there.

We then get paid for our services on sort of a per click basis.

So, these are really nice deals.

And it's hard to get this intermediated as a partner when you're that intertwined.

David, to give you a perspective like in the Conaedi thing here.

Our investment into that JV was less than a couple million dollars.

So, it's not like this is a $40 million, $50 million kind of JV.

Pretty small set of numbers.

Okay.

And then, just finally on -- you saw some accelerated growth in India on the EFT side.

Anything that's driving that specifically?

India is probably one of the most ill served markets in the world when it comes to cards and electronic financial transactions.

Here you've got a market, just to compare it to China, and both of these have a large, significant population that we might call third-world.

And yet, India has about one-fifth the number of ATMs per capita as China does, even though their populations are almost the same.

So, what we've got is just card growth, ATM growth, account growth that's driving the business.

And every time you add another bank to your shared network, you end up with that many more permutations of people who are walking around and find themselves without money in front of one of your network's ATMs.

So, it's just wonderful for us.

India's roughly one ATM per 30,000 people, whereas in the United States it's one ATM per 1,000, to put it into perspective.

Thank you, guys.

Our next question comes from Robert Dodd with Morgan Keegan.

Please, proceed with your question.

Hi, guys.

Question about investment spending.

If we look at just the EFT for now.

Q1 offset was $9 million, but we've got to add back Essentis which, honestly, cost money.

There's about $9.5 million would be my rough guess.

And Q2 was $9 million.

So, it looks like it's continuing to ramp up investments in these new product areas.

When can we expect that to level off?

The investment level off even if we don't see the return on revenues?

And then we've got an idea when you might see something like rating out of those new businesses, be it card processing in China separately or whichever way you want to look at it?

Kevin, you want to take a shot at that?

We don't see investments slowing up any time within the next year.

We expect break even in a lot of these markets middle of next year.

However, our investment should not accelerate.

Right.

We're kind of at a level -- we'll need the current level of investment, Robert, to make sure that we deliver into these new countries that we have.

But we should be reaping the assets of actually charging people for transactions here pretty quick.

So, now that we're live, just in one of the smaller countries, Czech, we've got several other countries that are bigger in the pipeline.

As we bring more and more live, at least we can offset those.

They're pretty much static investments, a static level of investment with some offsetting revenue.

In China we're expecting to break even first quarter of next year.

And then that's been, as you know, that's been a pretty significant sap on our resources as well in China.

But we've got enough in backlog and we've got enough momentum now, we're finally to the point now in China where we can point to 500 ATMs and say, "By God, we know what we're doing here." And people are paying attention.

Right.

Got it.

And then on the money transfer business, if we listen to competitors, you're seeing plus pricing.

You obviously saw average revenue per transaction up, but you've cut out some of the Mexico transactions.

And gross margin's up in Mexico.

Yet overall margins are down.

Tell us what the outlook there is on margins and what you're seeing on pricing, how you expect that to play out.

You just kind of the weighted average.

Right now, about 55% of our transactions are generated in the US.

The other 45% outside the US.

When we purchased RIA, it was 85%, 15%.

So, a lot's changed.

We've grown our international business absolutely, very significantly since over the last five, six quarters.

So, as long as we can continue to grow that international segment like we are, where the margins are thicker, that makes us look good.

But the reality is that the US to Mexico and to some extent also to Latin America is not a real impressive market right now because our economy is in a slowdown, in case you haven't noticed.

And my bet is we've got to just kind of tough it through this period until we can see housing starts come back and so forth.

Because when that happens, when construction jobs happen, then we're just going to see a lot more transactions.

The nice thing is the pricing has firmed, allowed us to actually move up a little bit in pricing, but there's just less transactions going on for us.

That's kind of my point.

If you look, international's growing significantly faster.

You mentioned that it's higher margin.

Yet, margins -- EBITDA margins, not op margins.

EBITDA margins here are down sequentially and year over year.

Robert, we know we've got a winning lottery ticker here overseas.

We are doing a significant amount of investment there to continue to see the growth.

And to see the numbers come in as they have despite the fact that we're putting in lots of stores in some of these markets where you can't have agents like France, Germany, et cetera, where it's very expensive, we continue to grow our agent base, opening up new markets.

These are expensive endeavors.

But the nice thing is the underlying growth of that business is strong enough to support that and to kind of mask the fact that we are putting a significant amount of money, pouring it back into expanding that business.

Alright.

Thank you.

Our next question comes from Bob Napoli from Piper Jaffray.

Please, proceed with your question.

Thank you.

Good morning.

Good morning, Bob.

Mike, the Cross-Border business, the investment in the quarter -- what was the investment in the quarter and when -- do you have, I guess, a new competitor now in global payments coming into that market?

It seems like competition may be getting tougher.

I was wondering what your thoughts are on that business.

You have the one large customer and I think you need at least a few more to be able to get just to break even.

Maybe give us some outlook on how much you would invest and how excited you are about that business?

In answer to your first question, we spent about $1.4 million in that last quarter in the Cross-Border endeavor.

We never expected to be competitor-less in this endeavor.

But we are first.

We've got a great name, blue chip kind of customer that we expect to roll out into 12 countries.

We're only live in the first one.

So, as we bring more and more of these things live, then, obviously, the value, our value to them adds plays and also it allows us to go out there and get additional business.

We would expect it would take a good three customers for us to get to that point where we're starting to make some money on that endeavor.

But you notice also in Brussels, kind of capital of European stuff, they had their big card symposium, and we got acquirer of the year for our technology and for our implementation.

So, that just shows you, we are -- the stuff I was bragging about the last couple of quarter as far as the hard work we've done and the technology that we have, has been validated by third-parties.

We just got to get out there now, sell more of it and implement more of it.

There's really two components of it.

One is having the solution, the other is to have the local country operations to be able to support it.

We've put a lot of investment in the solution which we've talked about extensively.

Now we're starting to be able to leverage our position in all of these different countries.

It takes both aspects to be successful in this and we think we have a nice head start there.

Okay.

And so you would expect for the next several quarters probably that same level of loss out of that business investment, out of that business?

That's right.

Right.

Okay.

Just on the EFT, on the ATMs, it looks like if you take out the Cardtronics ATMs, you added 619 net ATMs in the quarter which would be a 26% annualized growth rate.

Is that right?

It's pretty close.

I didn't check exactly that set of numbers but it's in that zip code.

You're right.

Is that a trend that you're -- is that an unusually large number?

It's pretty strong growth.

Are you -- ?

If you take a look at our historical performance, we've grown our ATMs about 24% to 26%, 27% a year.

We also shared, I think, with you and with all the people in the market that each of the last two years, we've grown our -- of that, let's say, roughly 25% growth in ATMs, about 14% of that growth came from ATMs under existing contracts with customers that we had and the others came from addition to, new contracts in there.

So, if you take a look at what's in our backlog and what we see as our prospects in both the Central and Eastern Europe as well as in the Asian markets, we feel pretty good about the, and as Mike says, our backlog -- not our backlog but our pipeline continues to have good, strong names in it with good, strong ATM counts.

Albeit we are always careful to say -- we can't tell you exactly when these things will squeeze out of the pipeline, but we feel pretty good about it.

So, we have historically here grown those ATMs by about 25% a year.

There's nothing on the horizon that would tell us that we would expect that that trend is going to change here.

And, now that I'm listening to you numbers, Rick, we have 1,400 ATMs in backlog and 10,000 ATMs altogether.

That pretty much backs up what you said.

We've got about 14% growth just in backlog to be installed over the next 12 months or so.

And the additional growth is going to be new contracts.

Okay.

What was the benefit from currency in the quarter?

It was pretty small on a sequential basis.

1% to 2%.

What about just year over year?

About the 7% range.

Very good.

On the money transfer business, the reason you got into that business, I think, was the ability to cross-sell some of the other products.

Are you seeing -- what kind of progress have you made in that regard?

Yes.

It's twofold.

We recognize that we could leverage our EFT business to get more payout locations.

I mentioned to you earlier some of the numbers behind that.

That's been successful and will continue to be so.

We have begun cross-selling to our -- two things.

Number one is we're selling our prepaid products now across all our stores around the world and are starting to sell them into the RIA agent.

And on the flipside of that, we've got a pilot now going in the UK and e-pay, our largest market for prepaid where we're allowing people to do card-based money transfer transaction from our e-pay terminals at our stores and some selective agents with this pilot.

So, we're finally getting that organized, out there for people that feel that and we're still excited about it because we have about 200,000 doors and 400,000 POS terminals I'd like to leverage.

Yes.

Big box retailers and small guys alike.

The Australia, the prepaid business there, Mike, what kind of -- can you quantify kind of what you think the revenue opportunity is from your competitor?

I'd prefer not to quantify, but we're in a really good mood.

Okay.

We obviously -- some of that and we've been getting a lot of questions on trying to give some clarity and some understanding to that.

That's a lot behind us giving another quarter's worth of guidance here to help people try to understand that we do see some lift and some benefit coming from that.

We are throwing in new terminals now basically as fast as we can.

We've got all hands on oars down there and they are rowing as fast as they can.

Just the opportunities there are wonderful because they had about the same market share we did before their collapse.

And so, I want to see how much of this we can take before someone else gets their hands on it.

Thanks.

Last question.

Essentis.

What was the revenue for Essentis?

$3 million, roughly.

Okay.

Per year?

Per year.

No.

Per year would've been about $14 million.

$15 million.

In that ballpark.

Thank you very much.

Thanks, Bob.

Next question?

We have a follow-up question from Mr.

Tim Willi from Avondale Partners.

Please, proceed with your question.

Thanks.

Rick ---

I don't know how you got in the queue, Tim.

But I'm happy to answer.

I appreciate your patience.

Could you at all frame the sort of adjusted cash EPS at Essentis?

It looks like maybe it was $0.01 when you sort of went through your add back of discontinued ops in the quarter.

Is that sort of a way to think about what the contribution would've been 3Q, 4Q?

Yes.

It's not a full $0.01.

It's about $400,000 or so of 55 million shares.

It's four-fifths of a penny.

Yes.

Something like that.

Okay.

And then, two other quick things.

On the Chinese market, the western banks, I guess, have been given more powers now to actually issue debit cards, not just offer a checking account.

I'm just curious if that is something that you think is an incremental, or at least maybe more of an incremental, but another step forward in terms of ATM growth, signing more contracts, or more rapid deployments with your western banks that are customers in that market.

Any thoughts around that?

Yes.

We are helping multinational banks get through that approval process in China.

So, that's a new value-added service we're offering for our multinationals with the absolute intent of them putting out more cards to use on ATMs that we're driving for them in China.

So, we see it as -- to your exact point, Tim, we see it as upside opportunity for us.

More cards.

In our experience with the government and the regulatory bodies in China has been really, really important.

So, we've earned a lot of goodwill with a lot of these multinationals in helping them get through that process.

Okay.

And then, Mike, obviously, there's a lot of exciting stuff if you talk about the markets and what you're doing.

Every quarter there's lots going on and lots of exciting stuff.

Yet, really, when we get done with this year, if you come in within these two guidance parameters you've put out for 3Q and 4Q, we're effectively going to be looking at a Company that EPS growth would be markedly below what people would expect relative to top line performance and how you talk about these markets.

I guess, could you give, even though you don't like to give full year guidance or even more than one or two quarters out, could you just, again, could you give us any kind of thought about trajectory of earnings power on Euronet and when and to what degree we should see a pickup?

I think we've had these conversations over the course of last year.

I know things change and there are opportunities you can't pass up to invest in.

But, we're basically working on two years here of low single digit earnings growth for a Company that must people would think should be substantially higher.

Anything you could pass on there?

My mom used to say, "You give your kid an inch and they take a mile." So, we've given you now an extra quarter of guidance and you want four.

But --

I don't want any kind of guidance.

I just want thoughts or whatever.

Actually, I would say I'm with you.

Right there.

I'm dissatisfied with the rate of growth and bottom line over the last year, year and a half or so.

We've gotten hit by a number of things kind of outside our control and some within our control.

We have consciously made some investments.

Some of those investments cost a little bit more than we expected.

But the nice thing is, we've kind of flattened our investment line.

We're starting to see some of these investments come to fruition.

If I would've told you a year ago that we would still have 500 or so more ATMs to install for China Post, that would've been surprising for me.

Those roll outs took a little bit longer than we expected.

But the nice thing is, as we roll into this last half of the year, we've got a lot of green lights in front of us.

We kind of look at and we've got the China stuff is going to continue to expand and get to break even.

We have kind of capped our investment now, you might see, as far as the rate of investment in Cross-Border.

We're rolling those things out.

We've been keeping our nose clean and working the business in a very conscientious way for a lot of years now.

We're watching competitors in the prepaid segment, they've been stumbling, falling, and crashing.

And we're going to take advantage of those opportunities.

And you haven't seen anything yet as far as what we can do in markets, like Australia, for instance.

And then our other competitor in Europe has got financial woes as well and you can see those when you read about our other big competitor for prepaid in Europe.

So, I see a lot of things starting to line up in our favor.

Finally, we're getting these stars going the right way.

We do have one star still going south and that's our southern neighbor, Mexico.

Until we get a better economy there I don't think we're going to see Mexico pull out.

They might stay flattish.

But that's the only thing on my horizon that's not exciting for the next several quarters.

So, I would expect our earnings momentum to continue to accelerate over the next three, four, or five quarters.

Okay.

Thank you very much.

Our next question comes from [Mike Hussey] with Mid-Continent Capital.

Please, proceed with your question.

Hi.

Mike, in talking about the impact of the lost UK contract and then the investment in the merchant acquiring, you said something to the effect of -- I'm not quoting you exactly right, but you said away from this, the core EFT business is still performing really well.

My question is how can you characterize 2,300 ATMs as not being core?

You mean how can I really discount the fact that we lost the UK contract?

Yes.

You can't.

Here's the deal.

We have 100 contracts right now.

We've never lost one.

We just lost that one.

We don't have - -that was the first.

And it was kind of a unique contract, too, because all we do is data switching and it was not lost to a competitor but basically in-sourced due to an acquisition of a larger entity that had 30,000 ATMs.

What we're just trying to point out is, don't get me wrong, I don't want to lose a single frigging ATM ever.

And I'm not happy with it when it happens.

But I think it is worthwhile to point out that we have 99 other contracts spread out across lots of different countries and our baseline business with them exists, has grown very nicely other the last year.

And so, I'm not saying that this is good and I'm not trying to parlay the blame somewhere else.

Our numbers are our numbers.

At the end of the day, our cash EPS is our cash EPS and that includes anybody who falls out and anybody that comes on.

I'm not going to try to shirk my responsibility.

But we do have an underlying strong business there with EFT.

Okay.

Do you have any more contracts with this customer?

No.

This was BankMachine.

We've talked about it in prior calls.

Was bought by Cardtronics, the US based processor slash ATM owner.

They have 30,000 ATMs under management on their system.

They bought these couple thousand ATMs in the UK through acquisition and it made sense for them to take it under their own roof.

It's kind of a -- it's a unique deal.

Every other contract we have is with a bank, not with a third-party deployer.

Unrelated, have you had any kind of contact with the folks at MoneyGram in the last three or four months?

No.

We have not other than we must get ten resumes a week coming over our transom because basically the value of everybody's options, stock, and everything else at that company has gone down the toilet since their market caps dropped from $2.2 billion to $71 million.

So, we don't have any direct contract, but we seem to b e getting a lot of their people who want to move.

Alright.

Thank you.

There are no further questions in queue at this time.

I'd like to turn the floor back over to Mr.

Newman for closing comments.

Actually, I'll make the closing comments, Jeff.

I just want to thank everybody for getting up early, listening to our conference call.

We look forward to talking to you in about 90 days.

And we'll be giving you more updates as we go through the quarter.

Thank you very much for your time.

This concludes today's teleconference.

You may disconnect your lines at this time.

Thank you for your participation.