Euronet Worldwide Inc (EEFT) 2008 Q4 法說會逐字稿

Greetings, and welcome to the Euronet Worldwide full-year and fourth-quarter 2008 earnings conference call.

This call is being recorded.

Your line is in a listen-only mode during the presentation.

It will be followed by a question-and-answer session.

Instructions will be given at that time.

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.

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

We will present our results for the full year and fourth quarter 2008 on this call.

We have Mike Brown, our CEO; Kevin Caponecchi, our President; and Rick Weller, our CFO, with us today.

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

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

These statements are forward-looking statements.

Euronet's actual results may vary materially from those predicted or anticipated in such forward-looking statements as a result of a number of factors, including competition, technological developments affecting the market 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 US 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 ending September 30, 2008.

Copies of those filings and 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 will turn the call over to Rick Weller, our CFO.

Jeff, thank you, and welcome, everyone.

Let's get started.

Full-year 2008 revenues were a little over $1 billion, up 16% over 2007.

Adjusted EBITDA of $139 million is a 17% increase over 2007's EBITDA of $118.8 million.

Operating losses of $149 million included a $220 million impairment charge, and adjusted operating income of $74.1 million represents a 13% increase over 2007's adjusted operating income of $65.8 million.

Full-year cash earnings per share came in at $1.27, a 2% increase over 2007's cash EPS.

Let me pause and reflect a bit on these numbers.

As we said in our press release, there are six unusual or nonrecurring items included in the Company's results throughout these two years that make it difficult to understand the fundamental state of the business.

Those six items include the goodwill impairment charge recorded in the fourth quarter; gains on third- and fourth-quarter bond repurchases; foreign currency changes in the third and fourth quarters; charges in the first quarter related to our interest to acquire MoneyGram; fourth-quarter 2007's federal excise tax refund; and 2007 full-year [real] results.

I will not comment on the effect of these items.

I will comment -- I'm sorry -- I will comment on the effect of these items, as well as FX, in a later slide.

But in summary, if you were to exclude the effects of these items, other than foreign currency, you will see that the full-year 2008 operating income or adjusted operating income, as we've labeled it here, increased 13% over 2007.

For the fourth quarter 2008, adjusted operating income improved 12% over that of the fourth quarter 2007.

Most of you on today's conference call will likely recall our discussion of all unusual or nonrecurring items, with the exception of the goodwill impairment.

I must say we really struggled with the $220 million charge.

As disclosed in our 10-K, at each quarter, we consider whether there have been any signs or events that would indicate the impairment of intangible assets, such as the loss of a major customer or a regulatory change.

And in the fourth quarter, we undertake a detailed analytical approach to value goodwill and other intangible assets.

This year, we were faced in the fourth quarter with events never experienced, a near-collapse of the worldwide banking systems, dramatic and rapid foreign currency downward shifts against the US dollar and the largest decline in the stock market that any, I might guess, on this call ever experienced.

These events led to the dramatic decline in valuations of companies like Euronet and others in the same group of comparable companies.

So when we perform our asset recovery analysis, we are required to take into account several factors to assess the recoverability of assets.

These factors include future discounted cash flows, comparable sales likely prices we or other parties might pay for a similar asset, and current publicly traded values of similarly situated companies.

Significant to the fourth quarter and carrying over to the first quarter, the publicly traded value of our stock, commonly referred to as market cap, fell below our net book value by an amount approaching 50%.

Considering the severity of the current economic conditions, we were unable to reasonably predict when and to what extent the economy and the related company valuations would improve.

Accordingly, taking all these factors into account, we estimated the fair value of our goodwill and other intangible assets under current conditions and recorded the resulting impairment charge of $220 million.

This impairment charge has no impact on our cash flows or business operations.

Moreover, we believe it has no impact on the fundamental long-term prospects of the Company.

I hope these brief overarching comments help put things a bit in perspective, and as I mentioned, I will cover this more in a later slide.

Let's move to slide number 6.

On slide 6, you can see that in 2008 we continued to post substantial improvements in transaction growth.

This represents a 15% increase in transactions processed over 2007, with similar improvements coming from each of the EFT and prepaid segments.

Next slide, please.

For the full year, RIA processed 16.7 million money transfers.

This represents a pro forma transaction growth of 8% year-over-year.

You can see that transactions originated outside the US grew 38% year-over-year.

And you can see that our dependency on Mexican transactions continues to decline, with strong growth from non-US originations.

Transfers from non-US originations made up 32% of total transfers compared to just 16% two years ago.

This part of the business has more than doubled in the last 21 months.

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

Next slide, please.

This slide reflects our business segment results, as reported.

Let's go to slide 9.

Here on slide 9, you can see our segment results presented net of the unusual or nonrecurring items I previously mentioned.

Briefly, this pro forma FX-adjusted schedule adjusts the reported numbers for the federal excise tax refund, impairment charges, charges related to the MoneyGram interest, the full-year effect of April 2007's RIA acquisition, and importantly, the impacts of changes in foreign currency exchange rates.

I won't cover the numbers for each of these items, given that we've laid them out fairly quickly in the attached detailed schedules reconciling GAAP Op income to the adjusted Op income numbers.

So first, the EFT segment.

You can see that revenues grew 10%, adjusted operating income decreased 1% and EBITDA grew 2%.

The year-over-year revenue improvements were the result of expansions in Central and Eastern Europe and Asia Pacific, and the growth in the number of ATMs under existing contracts with bank customers.

The difference between the revenue growth and the profit growth rates was substantially all related to losses in connection with developing the cross-border acquiring business.

In the Prepaid segment, you can see revenues grew 8%, adjusted operating income grew 12% and EBITDA grew 9%, nice margin expansions.

Our prepaid group continues to benefit from growth in several key markets such as Australia, Germany and the US.

The group has expanded its product offering, taken advantage of competitor weaknesses and expanded its operating margins.

And finally, in the Money Transfer Segment, revenues grew 11% year-over-year, with strong adjusted operating income and EBITDA growth at 34% and 15%, respectively.

I think these expanding margins clearly speak to leveragability of this business.

And only imagine what it would have done if Money Transfer hadn't been challenged with the Mexican headwinds.

Now let's go to slide 10 for some comments on the quarter.

For the fourth quarter 2008, the Company delivered revenues of $255.7 million, adjusted EBITDA of $35.9 million, operating loss of $198.3 million, adjusted operating income of $21.8 million and earnings per share of $0.34, exceeding our guidance of $0.31, largely as a result of additional tax and interest income benefits.

Consistent with my comments on the annual results, the quarter results had four of the six unusual or nonrecurring items -- impairment charge, bond repurchases, foreign currency declines and the federal excise tax refund in last year's fourth quarter.

Rather than commenting on each of these, the slide I discuss later in the presentation where I set out the adjusted op income numbers, I can cover the net effects there.

On the foreign exchange front, many of you know that currencies have slid significantly in the third and fourth quarters.

FX rates took their first significant dive late in the third quarter and had only a few percentage points' impact on the average FX rates for the quarter.

Then after the close of the third quarter, rates took a more severe downturn, resulting in strong double-digit decreases in the fourth quarter as compared to both the third quarter and the fourth quarter of 2007.

To help better understand the impacts of the FX declines, in the press release we set forth the revenue, adjusted operating income and adjusted EBITDA impacts in the fourth quarter as if the fourth-quarter 2008 had FX rates the same as the fourth quarter of 2007.

As the release states, revenues would have increased 13%, adjusted operating income increased 32% and adjusted EBITDA increased 19%.

In this difficult economy, I think you would all agree that these quarterly results on a year-over-year basis are pretty commendable.

Let's move to slide 11, please.

On slide 11, we illustrate quarter-over-quarter transaction growth.

The 11% in transactions year-over-year has been instrumental in the FX-neutralized revenue growth rate of 13% I reviewed with you on the previous slide.

We continued to see transaction growth in both the EFT and prepaid segments.

Slide 12, please.

Similar to the full-year slide I discussed a few minutes ago, you can see how on a quarterly basis our mix of non-US-generated transactions continues to grow.

Whereas for the full year, non-US-originated transactions made up 32% of total transactions, in the fourth quarter, that mix shift continued and now stands at 34%.

And Mexican transactions are now less than 30% of the total mix.

Let's turn to slide 13.

Here on slide 13, we include our segments' quarterly results, as reported.

Next slide, please.

Now, as you can see here on slide 14, we presented the numbers on a pro forma FX-adjusted basis.

The fourth quarter reported results have been adjusted for this schedule to exclude the impacts of the excise tax refund impairment and, importantly, FX changes.

Neither the fourth quarter last year or this year had any impacts from the MoneyGram interest, and both quarters fully included RIA results.

Remember, at the back of this slide presentation, we provide a detailed reconciliation of how we get from the numbers reported to the pro forma FX-adjusted numbers.

I will briefly hit each segment.

EFT, revenues, adjusted operating income and EBITDA grew 14%, 10% and 11%, respectively.

As with the annual growth, this year-over-year quarterly growth is quite impressive, given the current economic environment.

Prepaid.

Revenues, adjusted operating income and EBITDA grew 13%, 27% and 20%, respectively.

This marks the best quarter the Prepaid group has posted in several years.

The growth was the result of expanded product offerings, taking advantage of competitor weaknesses and leveraging the supporting cost structure.

Money Transfer.

Revenues, adjusted operating income and EBITDA grew by 14%, 47% and 24%, respectively.

The revenue growth was driven by transaction growth principally in the non-US markets, while the margin expansions were driven by careful management of foreign exchange rate spreads and cost control.

All in all, as hopefully you can see in the FX-adjusted numbers, all three segments delivered double-digit revenue and profit growth quarter-over-quarter, especially in light of the challenging economies.

Now let's move to a few comments on our balance sheet.

Let's go to slide 15.

Since the close of last year, we've had three key movements on the balance sheet -- cash, debt and equity.

Regarding cash, we've seen it decrease by approximately $85 million.

In really broad brush strokes, we used $145 million to pay down debt and we have generated about $60 million in free cash flow.

The $145 million used to pay down debt yielded a $153 million reduction in debt because we were able to repurchase $70 million of that debt at about $0.90 on the dollar.

With respect to total assets and equity, each were reduced by the $220 million impairment charge we discussed earlier.

Finally, I will point out that our leverage statistics continue to improve.

We are carrying less than three times debt to EBITDA, and on a net basis, less than two times.

I would like to close with a few comments regarding the recent amendment to our credit agreement and our liquidity position.

Slide 16, please.

I suspect that most of you noticed last week our 8-K disclosing the amendments to our credit agreement.

This amendment was necessary to enable us to continue retiring our convertible bonds and have the banks acknowledge the sufficiency of our liquidity position to meet a put of the bonds in December of 2009.

In addition, we didn't know where we would come out on the implied impairment whereby our equity exceeded market cap.

So as well, we asked the banks to allow non-cash impairment charges to be excluded from the consolidated EBITDA and network calculations.

Beyond these three key items, we also were granted certain flexibilities with respect to the 3.5% convertible bonds.

Their first potential put date is more than 3.5 years away, not until October of 2012.

A couple other comments on liquidity.

We have a strong cash position at $181 million, and we have a risk-averse strategy with regard to our cash.

We do not speculate or take hedge positions beyond the few days required to collect from our non-US money transfer agents.

Beyond our cash position, we have approximately $55 million under our line of credit available through April 2012.

Aside from the $70 million in 1 5/8 convertible bonds, in 2009, we have minimum debt principal payment requirements of only $2 million and lease payments of approximately $6 million.

Finally, even with the decline in foreign exchange rates, we expect to generate about $60 million in free cash flow.

With regard to our amendment, the fees on it included a 50 basis point fee, and there were no increases in the spread.

With that, I will turn it over to Mike.

Thank you.

Thank you, Rick, and, hello everyone, who have joined us on this call or on the web today.

Let me start with a few comments regarding the $220 million impairment charge.

As Rick said, we really struggled with this.

I say that because we are all acutely aware of the depressed valuations we are seeing in the stock markets, and I firmly believe there is a significant long-term value in our core business and, in particular, our money transfer business, where the lion's share of that write-off originated.

Let's go on to slide number 19.

As most of you are familiar with our EFT business strengths, I will move on to the next slide, but this is a nice pictorial of our business in the EFT processing segment.

Slide number 20 gives you a snapshot of our 2008 EFT financial results.

As reported for the full year, our revenues grew by 18%, our adjusted EBITDA improved by 10% and operating income increased by 6%.

The slower growth in operating income relative to revenue was a result of the significant expenses we incurred to develop and deploy our cross-border product in 2008.

If we exclude our operating losses in the cross-border investment, the EFT segment's full-year 2008 adjusted EBITDA and operating income would have improved by 18% and 19%, respectively, over prior year's results, consistent with strong revenue growth.

We have a business here that certainly is not broken.

However, as Rick pointed out earlier, on a full-year basis we benefited from higher FX rates.

If we were to neutralize FX, our revenues would have grown by about 10%, while EBITDA and adjusting operating income would have remained virtually flat.

This difference, like I previously pointed out, is almost entirely due to losses from deploying our cross-border product.

If you'll move on please to slide number 21.

As reported for the fourth quarter, our EFT revenues increased by 1%, our adjusted EBITDA and operating income both increased by 1% and 3%, respectively, over the same quarter last year's results despite an unprecedented drop in FX.

Unlike the full year, where FX rates on average were higher in 2008 than 2007, fourth-quarter 2008 compared to 2007 was way dramatically different.

Rates began to fall late in the third quarter, as Rick said, and fell very dramatically in October.

For example, the euro and the Polish zloty declined 4% and 1%, respectively, in the third quarter from the second quarter, and an additional 12% and 23%, respectively, in the fourth quarter from the third quarter.

Similar to our analysis of the full-year results, if neutralized for FX, the EFT's fourth-quarter 2008 revenue, adjusted operating income and EBITDA would have grown by 14%, 10% and 11% respectively.

Let's go on now to slide number 22 to cover the EFT business highlights.

In the interest of time, I won't go through every highlight, but I will address a few.

We signed a number of agreements, including a three-country agreement with a leading Hungarian bank to provide ATM, Card and POS services in Central and Eastern Europe.

We signed a deal with Russian Standard Bank in the Ukraine and Allianz Bank in Poland.

We signed a deal with Citibank Romania for ATM driving and outsourcing, and we expanded our Deutsche Bank agreement in Poland to include ATM outsourcing.

In addition to the new contract signings throughout the year, our EFT teams successively renewed expiring contracts with 10 banks across four countries in 2008.

These contract wins and renewals were partially offset by four contract cancellations during the fourth quarter 2008 and the first quarter 2009.

These cancellations were largely as a result of our bank customers shifting their processing to their parent banks' processing subsidiaries in preparation of sales to raise capital to help their balance sheets in the current financial crisis.

As you are aware, we have more than 100 strong bank customer relationships.

So we view these cancellations certainly as unusual and certainly related to the liquidity the problems that some of these banks have had at the corporate level, mostly in Western Europe, and not reflective of a trend, as evidenced by our 2008 renewals and new contract wins.

In fact, we have now renewed the majority of our 2009 expiring contracts.

Our value proposition -- let's go on to slide number 23 -- excuse me.

Our value proposition as a full-service EFT service provider is further supported by our work in expanding our adjacent product offerings.

This brings me to the end of our EFT discussion.

To summarize, although the investments we've made in cross-border and the continued foreign exchange challenges impacted our 2008 EFT earnings, the underlying growth in our core business is very evident.

I feel very confident about where we are with our EFT business today.

We intend to build on strong relationships which we have with our customers, especially in such unprecedented times, when more banks are looking to us to help them improve their cost structures and get higher returns on their capital.

Our product portfolio has never been stronger, and we have seen customers react very positively to some of our new outsourcing proposals.

A great job by our EFT team, and I look forward to their continued support.

If you will now please move on to slide number 25, here we have a pictorial again of our Prepaid business.

Our Prepaid business made significant strides in 2008.

We expanded our Prepaid retailer locations by 16% and our point-of-sales cash collections network by 9% year-over-year.

But now let's go on and get to the meat of this on slide number 26.

We provide our Prepaid financial highlights as reported for the full year in 2008.

Our annual revenues of $609 million were up 7% over 2007 year's revenues.

Our Prepaid business had a remarkable 2008, and here again, it is helpful to see the real growth in the business by excluding the impairment charges in the fourth quarter '08 and the one-time sales excise tax refund, which was a benefit to us that we received in the fourth quarter of 2007.

Excluding these items, our adjusted EBITDA and operating income for the fourth quarter 2008 improved by 9% and 13%, respectively year over year, clearly illustrating strong bottom-line performance in our Prepaid business.

The FX impacts on a year-over-year basis were not as dramatic for the Prepaid segment.

This was largely the result of the strength of the euro being canceled by the weakness of the pound.

Accordingly, with FX neutralized, revenues would have grown slightly faster at 8%, while growth in adjusted operating income and EBITDA would have remained virtually unchanged from the reported number.

If you will move on now please to slide number 27.

Despite growth in local currency earnings from nearly every market that we do business in, our Prepaid results in the fourth quarter 2008, unlike the full year, were significantly impacted by the rapid strengthening of the US dollar against a number of our operating currencies, primarily pound sterling, the euro and the Aussie dollar.

As Rick discussed on slide 14, if we neutralize for FX, our prepaid revenues, EBITDA and adjusted operating income, which excludes the impairment charges and that one-time benefit we received in 2007 due to the excise tax refund, we would have improved year-over-year by 13%, 20% and 27%, respectively, indicating the underlying strength of our Prepaid business and, in particular, our increased market share in a number of markets.

These are amazing results.

If you will move on now please to slide number 28 and 29.

You will see it was a busy quarter for our Prepaid teams, and I will hit a few highlights for you before we move on to Money Transfer.

We recently signed, as you might have seen a release, a long-term distribution agreement with Vodafone in Australia, strengthening our relationship with that mobile operator.

We partnered with an impressive list of large retailers, including 17 of the top 50 global retailers, such as Carrefour, Tesco, Metro, etc.

And together, they account for about 40% of the 220,000 locations in our Prepaid network.

And their share continues to grow with this quarter's additions, such as Selex, PAM and Abate retail chain groups in Italy; Myer, a leading department store chain in Australia; the Pantaloons Group, one of India's largest organized retailers; and Wilkinsons, a leading general merchandise store group in the UK.

If you will move on now to slide number 29, please.

We significantly expanded our non-airtime products, as well.

We've got quite a lot of infrastructure that is collecting money for Prepaid mobile top-up.

If we can use this infrastructure to sell other products, it is very, very cost effective for us.

For example, our popular iTunes offering is now available at approximately 12% of our 220,000 retail locations across eight countries, making us one of the largest processors of Apple iTunes outside the US.

And we were instrumental in opening up the majority of the new retailers for iTunes' distribution in 2008 through our network of retailers.

It was a significant achievement.

In summary, the division continues to add more stores, more products and transactions, while continuing to gain market share from local competitors.

Our product signings and rollouts in the last few quarters are gaining momentum and have proven to be a huge differentiator when approaching retailers.

I strongly believe we are well-placed to take advantage of the current market environment and continue to put pressure on our weakened competitors.

I would like to thank our Prepaid teams in all the markets for a great year and look forward to them delivering new retailers and product launches, while continuing to focus on cost containment and operating discipline throughout our Prepaid markets.

We will now move on to Money Transfer and slide number 31.

Here we have another pictorial of Money Transfer, kind of where our customers and our distribution is, similar to EFT and Prepaid.

We will now move on to the financials on slide number 32.

On a pro forma basis, including RIA for the full year -- because you will remember in 2007, we only had RIA for three quarters -- Money Transfer revenues increased 13% over 2007 results on a transaction growth of 8%, while adjusted EBITDA improved 20% for the same period.

Excluding the impairment charge, the segment's adjusted operating income increased 40% over 2007 results.

So despite the economic downturn, we were able to grow our Money Transfer revenues at a faster pace than our transaction growth, which is reflective of our continued success in non-US markets.

For the full year 2008, non-US-originated transactions increased by 38%, while revenue improved by 45%, contributing to the overall growth.

Nice leverage there.

The Money Transfer margin improvements were the result of careful price management and cost controls.

As it relates to FX, if you neutralize its impact, revenues, adjusted operating income and EBITDA would have grown by 11%, 34% and 15%, respectively, for this business.

Next slide, please.

On slide at number 33, we highlight the fourth-quarter financials of our Money Transfer business.

Our Money Transfer revenues increased by 9% on a 5% growth in transactions.

Adjusted EBITDA increased 19%, and adjusted operating income, excluding the impairment charge, improved by 44% over fourth quarter 2007 results.

And as you can see, our Money Transfer Segment's strong bottom-line performance, it even outpaced its revenue and transaction growth.

This was a result of continued growth in non-US markets, efficient management of foreign exchange spreads, correspondence costs and operating costs.

And finally, the FX impact.

If neutralized for FX impacts, revenues, adjusted operating income and EBITDA would have grown by 14%, 47% and 24%, respectively.

My congratulations to the entire Money Transfer team for pulling in strong results despite the strong economic headwinds they have had to face.

Move on please to slide number 34.

We've highlighted three important performance indicators of our business.

This slide presents our transactions in three categories.

The first, non-US, which refers to all transfers originating outside of the United States.

Number two, originations from the US to Mexico.

And three, originations from the US to non-Mexico.

So for the fourth quarter, our non-US transactions increased by 24%, while revenues improved by 13%.

The US to Mexico transactions declined by 12% year-over-year.

However, revenues increased by 6%.

This growth in revenue was a continued result of our teams not engaging in irrational price wars in this corridor to drive volume growth and efficient management of foreign exchange spread.

And finally, our US-originated transactions to non-Mexican countries increased by 6%, while our revenues increased by 4%.

Here it is helpful to see the growth of our US business, excluding Mexico, and we are pleased to report positive growth.

The team continued to be successful in tightly managing our margins, which resulted in an 18% increase in gross profits year-over-year for the fourth quarter on 5% growth in total number of transfers.

Slide number 35, please.

In the fourth quarter, we expanded our correspondent network by launching approximately 950 payout locations.

Additionally, we have an implementation pipeline which includes more than 25,000 signed locations for service to 52 countries as of the end of 2008.

In summary, even though this was a very tough year and the outlook continues to look challenging, we feel confident that we have positioned ourselves for growth in 2009.

Slide number 36.

In summary, here is what you can see.

We exceeded our guidance expectations and posted cash EPS of $0.34 in the fourth quarter from 2008 from continuing operations as opposed to our guidance of only $0.31.

We have a strong cash position of approximately $180 million, and we are generating $60 million in free cash flows annually.

We continue to effectively manage our strong cash position, which has benefited us enormously in the current economic downturn by allowing us to opportunistically repurchase some of our bonds, as well as capitalize on the misfortune of certain competitors.

We significantly reduced our debt in 2008, including $70 million in senior convertible bonds and $32 million in term loans, and we are committed to further deleveraging our balance sheet.

Our consistent financial strength is an important competitive advantage.

It not only strengthens our customers' confidence in our business, but it also provides us with flexibilities and opportunity.

We continue to face challenges in our Money Transfer business, particularly in the US to Mexico corridor.

However, the strength of our diversified businesses and geographic markets provides us stability to weather economic downturns.

We also amended our credit agreement to allow flexibility in operations and capital management.

And despite challenging market conditions, our teams across the world have taken advantage of market opportunities and delivered a strong operating performance.

I believe this is a testament to the strength of our people, our management team and our organization.

And I also believe it is a result of our relentless focus on executing our strategy over the last number of years.

I want to take this opportunity to thank the entire Euronet team for their hard work and commitment to our business.

And finally, as we look forward, we expect our first-quarter 2009 adjusted cash earnings per share from continuing operations to be approximately $0.27, assuming currencies remain stable through the end of the quarter.

This guidance reflects our traditional seasonality of the first quarter and the impact of contract cancellations in our EFT segment.

This concludes our presentation portion of the call.

I will be glad to take questions.

Operator, would you mind assisting, please?

(Operator Instructions) Anurag Rana, KeyBanc.

Good morning, everyone.

This is [Adam Josephson] in for Anurag.

The operating margin in the EFT segment was higher than we were expecting at over 20%.

What should we expect along these lines in 2009, particularly given ongoing spending on the cross-border initiative?

Rick, you can correct me if -- or you want to answer it?

You --.

As Kevin maybe has mentioned in the past, actually, our losses with respect to our cross-border initiative are going down every quarter.

We are offsetting the huge expenses we had before we launched with revenue today.

So we are live in -- what, Kevin, five countries right now?

And so as we add -- there are three more big countries to come online and another one or two more -- as we bring these countries online, we are going to have basically effectively similar or less cost, combined with higher revenues.

So that is going to tend to, over time -- over the period of this year, kind of squish down that loss.

So -- and then when you asked about operating margins, I mean, there was a point in our past history where we had operating margins in this segment of 25%, 26%.

We do not believe that it is impossible to get to again.

In fact, that is our goal.

So as we bring in -- as you know, these contracts are extremely lucrative.

We've signed a number of them.

We've announced them.

We are going to bring them live over the second and maybe a little bit into the third quarter of this year.

As those go live, most of that money goes straight to the bottom line, which will improve our margin.

So when you look at all those, I don't want 22% to be the end game here.

I would like it to be pretty much higher than that.

Thanks.

And regarding your Prepaid business, how much more business do you think you can potentially gain in Australia, and where do you envision the bulk of your growth coming from over the next couple quarters?

Well, I would imagine that we've probably garnered most all the retailers we are going to get in Australia, although there are probably a few holdouts that we can squeeze out of that marketplace.

But I think the most important thing in Australia is now that we own the largest segment of that market by far, by far, we want to continue to push more products through that distribution channel, which are very lucrative for us.

There is like that next new EFT contract.

So even though our market share per se may stay the same or just go up slightly, our profitability can continue to increase.

Certainly not quite at the pace of watching a competitor fall down and go dead on us, like we saw over third and fourth quarter, but we see a lot of opportunity in that market.

Because we can now do things and offer products to that market that maybe we couldn't have before because we were in a competitive position where it wasn't as cost-effective to do so.

Outside of Australia, we continue to make gains in places like the US and Germany.

These two markets for us are pretty sizable, and our teams in both of those areas continue to do better.

And we've got Poland, same kind of thing.

We just keep -- Poland just a small starter-up market of a few years ago, and is now really coming into its own.

So I think what you are seeing, the overarching thing, is our competitors are weak or dead.

And we are going to keep punching them while they are on the ropes, and do what we can to continue to gain business.

Thanks very much, Mike.

Robert Dodd, Morgan Keegan.

On the ATM issue, with these contacts that are again called in-house, is this an issue one particular customer?

I would guess it is a big Italian bank, but you can --.

What are the risks that you see to that happening with some other customers doing essentially the same thing?

I mean, some of your other customers also have domestic processing businesses that they can perhaps scale up and sell off as well to raise capital.

Well, for good or for bad, Robert, I think we've gotten hit by about everybody who has got a processing center.

As an example, you've probably read about the travails of UniCredit in Italy.

And those guys have a balance sheet problem.

They have a majority interest in a processor in Italy called SIA-SSB.

They actually have put that entity for sale.

They've gone through a process and so forth trying to raise money to fill in the hole in their balance sheet.

We lost a contract to them.

I mean, we are actually processing for PKO S.A.

in Poland.

And even though the pricing was more expensive and the service was less than what we offer, their parent company made them pull -- even though it was -- to the Polish guys, it was a stupid move -- basically pulled that deal over to the Italian subsidiary to make it look better when they are trying to sell that asset.

And we saw the same thing happening with another one of our contracts in Portugal.

And so I think about every place that is going to happen has probably happened.

And as we look into 2009, we have renewed just about -- the majority of our contracts, and we feel confident we will probably get all of them renewed, but we will have to see what happens on that.

So I think kind of the damage has been done.

Robert, I would add that of those that Mike talked about, they were really standalone processing subsidiaries, as opposed to carving out the operations of your business.

So it wasn't like the sale of a division.

It was more of a separate processing subsidiary.

And Mike said, as we've kind of taken a look at the landscape, those are few and far between.

And the banks clearly were going through some unusual times here.

So we don't see this as being any kind of a trend or that there is another three or four of them stacked behind that.

If anything, as we take a look at how the banks are continuing to try to manage their operating profit improvements and capital structures, is that we may be seeing more inquiries for our service and more opportunity in our pipeline.

So at least that part of the business we feel pretty good about.

Yes, that is the other side of the coin, Robert, is the same crunch that is happening with the parent companies in Western Europe etc.

has -- the same parent companies are going to each of their subsidiaries and saying, I want you guys to cut money out of your budget, to save money.

So for a long time, because of this huge growth we saw in Central and Eastern Europe over the last five years, these bankers have been kind of big, fat, dumb and happy.

There was really not a large impetus for them to do outsourcing, which, as I've said before, is not a politically savory thing to do.

And so now that they are in kind of financial straits, it is pushing a lot more people to our sales groups.

And that is why -- we keep saying it, but we are closing these deals now.

Our sales pipeline is immensely larger than it has ever been before and it seems to keep growing.

So we are over here trying to cut down our normal two-year sales cycle to a year or less, and we might just be doing that.

On the SIA issue, it is on the block; it doesn't make a whole lot of money.

Are you guys interested in looking at that?

No.

Did you hear me hesitate?

Yes -- or no.

I heard the non-hesitation.

On the Prepaid business, you said in Australia you have benefited from Bill Express going away.

One of your competitors in Europe, or basically I guess your largest global competitor, had been having some difficulties.

Let's put it that way.

Yes, we've been crying about that over here.

Are you seeing anything from their customers getting a little nervous about that and picking up -- creating opportunity for you?

Or is that just ticking along kind of same old, same old?

We are not the only ones aware of their financial straits.

We have a company there that originally was trying to -- just two or three years ago, had itself on the block for ‚700 million, and now has a market cap less than 50, I think.

So everybody knows that company does have challenges, and that continues to help us to gain market share from them and from others.

And then once you get past them, you start ending up with a whole bunch of little local guys, and those little local guys are under the same kind of financial pressures, as well.

We find ourselves walking in with a strong balance sheet, transparent record-keeping, great relationships with mobile operators, and it just has made competition for us easier.

As Mike said, one of the things that we've benefited from is the strength of our balance sheet, because the mobile operators are rightfully concerned at this time with respect to the recovery of the receivables, the substantial amounts of receivables that they have in the hands of a lot of these processors.

And so we've found that that has been helpful to us, and we will continue to use those types of balance sheet strengths to leverage our positions in the market.

As an example, Robert, picture you are a mobile operator in XYZ country and you hear about the Bill Express debacle.

I mean, Bill Express basically stuck their creditors with, I think, over 100 million Aussie that they will never collect.

So that makes a mobile operator think twice about giving business to a processor who may not be here.

Right.

One final question, if I can.

On the cross-border, the whole OMV, in this economic environment, if I remember right, you are saving OMV about 100 basis points, which drops straight to the bottom line.

What is your pipeline like?

You've gotten more countries live now.

So are you actually seeing more interest from additional potential customers, or are they still sitting on the sidelines until you get the whole thing going?

Kevin was just with OMV a couple of weeks ago.

I would ask that he answers.

Robert, as you know, we've rolled out five countries.

We are going to roll out four more of the remaining seven in 2009.

The majority of our concentration continues to be on getting this right.

At the same time, we've started to step up our sales activity in this arena, and we are exploring a number of new leads for our services.

Got it.

Thank you.

Franco Turrinelli, William Blair & Company.

Good morning, guys.

Can you hear me?

We can hear you fine, Franco, thank you.

Actually, I sort of have to some extent the same question as Robert.

It does sound as well there right be some assets out there that banks might be looking to get rid of.

But specifically on that and more generally on the apposition front, what is the situation now out there and what is your current appetite for opportunities?

Well, we still see some acquisitions, but we've got to take the reality of our market cap into consideration.

We want to have accretive deals.

We've got a lot of cash, so we can look at some deals.

But we want the strategic kind of investments that will continue to grow for us over the next several years, and not have to wait five years to get that return.

So maybe we are a little bit more shortsighted, but I think there will probably be more opportunities that shake out of this.

And if they present themselves to us, we will take advantage.

But so far, we haven't seen any significant ones, anyway.

Franco, I would add to that, as Mike mentioned, certainly the numbers are kind of difficult to pencil out, especially with market cap as it is.

But beyond that, as you know, the debt markets have been in a difficult position.

And it would be difficult for us to probably put together a transaction that would make good economic sense for our shareholders.

So as you take a look back over the last couple of years, you can see that since the RIA acquisition, we have not done any acquisitions.

So if there is something there that would make sense for us, I think we would have a responsibility to look at it, but we have been pretty cautious and pretty conservative on stepping up on any other deals.

Obviously, as Robert pointed out, you had no hesitation in saying no to SIA.

But I'm kind of wondering if there is an appetite for retaining some of those contracts through some of the asset purchases that the banks might be contemplating.

We are kind of looking at some, and I think this is going to change, because that whole SIA-SSB thing cratered.

And so I think -- basically the whole idea kind of --.

We certainly looked at it.

I spent a lot of time in Europe exploring that opportunity.

The problem with that particular asset was that there was only about 20% overlap with what we do today, and 80% of stuff that is not core to what we do.

And there were lots of other challenges.

So therefore, we walked away from that.

If that asset got broken up and they started to look at selling parts of that asset -- because it's a conglomeration of a bunch of things -- we would certainly be looking.

Switching quickly to Prepaid and then I'll let other people jump on, a two-part question.

Obviously, the exclusive relationship with Vodafone in Australia is important for that market.

Is there any way of leveraging that Australian relationship with Vodafone to do more things in other markets?

And secondly, you've had tremendous success growing Italy.

Are there any other significant markets like Italy that we should be aware of that you're looking at?

And I'll get back into line.

Thanks, guys.

We don't really have any big markets right now that I can think of.

I'm kind of looking around the room to see if I'm forgetting something.

Capitalize on where we are --.

Yes, I think if we just keep -- we've got operations in a number of countries.

If we can just keep gaining market share, taking advantage of weaker competitors and offering a better product set to our customers, I think that is the most cost-effective way for us to grow profits.

Our focus right now on the Prepaid segment is to simply continue to put more products on the existing distribution network.

Franco, with respect to your question of whether we see that we could execute similar agreements with mobile operators in other countries, or that same old operator, I wouldn't expect that we could.

As we've talked about in the past, one of the advantages of what we see across all of our markets with the mobile operators is they don't necessarily talk and act the same across all markets.

And so on one hand, it might say, well that kind of limits our ability to do a similar agreement like this in other countries.

But on the other hand, what happens in one country doesn't necessarily bleed over into another country.

And that just kind of speaks to the strength of our diversity across the globe.

Thank you, guys.

I will get back into line.

Bob Napoli, Piper Jaffray.

Thank you, and good morning.

I apologize -- there were three calls going on at the same time, so I may have missed a little bit -- some of your comments on the EFT business.

I heard Q&A.

But on the contract losses, Mike, overall, your quarter looked pretty good across the board, except for that one item, and essentially you lost 15% of your terminals in those two contracts.

So I missed your discussion about why you are confident that there are not more potential contract losses.

And I heard you talk about your pipeline being very large.

So I (multiple speakers).

I think probably if we were to have guessed two years ago which one of our banks would have processing centers in Western Europe and might offer us a threat at some point in time to take away our business, it would have been the same guys we lost.

So we've always known about these guys, but we offer a better pricing and service model than the parent could offer, which is why nobody ever left and it wasn't until they were strong-armed by their respective parents in Western Europe, because they needed liquidity because they wanted to spin off these divisions, that we lost these guys.

We are kind of out of entities like that.

So that is why we feel comfortable.

Even though they all happened at the same time, they happened in this same crazy quarter where all these banks were upside down with their balance sheets.

So it kind of makes sense I think we've kind of flushed those through.

We've still got a strong pipeline.

And we've renewed over half of all the contracts that are going to come due this year.

And there is a high likelihood we will -- it would not surprise me if we get all of them; that's kind of where we are headed.

So I would say we are still very optimistic.

We view those as rather unique and we don't expect them to continue.

Were there two contracts -- two customers?

There were four altogether.

And put of your top -- say the top 10 customers, what percentage of your revenues does your top 10 customers, after those two losses, represent?

I don't have that number here, but it is a small number.

And just I know that each time we deal with the banks, we give them customer concentrations.

I think Mike maybe have commented in his earlier comments that we've got over 100 customer contracts out there.

So it certainly is an amount that we would rather not see go, but it is not like 10% of our revenue or profits either.

Okay.

It was about 15% of your terminals, but you are saying that they were less revenue per terminal?

Well, once you break it down to operating profit and contribution margin and then you add into it all the other things that we get out of our EFT group, whether it is participation agreements, whether it is the revenues we make off of POS driving agreements, our own terminals, etc., the number starts dropping.

And I'd like to add, like on one of those contracts, the one I mentioned, the Polish contract, they renewed their contract with us for network participation.

It was just the outsourcing fees that we lost.

So we still have a good relationship with that bank and hope to continue to have them as a customer for a long time.

Okay, and what type of termination fees did you get in the fourth quarter, the first quarter?

Very little in the fourth quarter, and we are yet working on what we think that might be in the first quarter.

Okay.

And the money transfer business had some pretty solid trends.

Can you talk at all about the outside the US, the trend that you are seeing in January and February?

How much of a drop-off are you seeing in your growth rates?

Well, you know, the market that is probably getting hit the worst is Spain outside the US.

Although we really took a lot of market share from competitors last year, because Spain's overall transactions were down for the year, and ours were up significantly.

And so the only way that could happen is that we took some market share from some other people.

We've got a really strong brand and have an excellent pricing and service out of Spain.

So we've been able to mitigate a bit of that.

I think we've got to kind of wait and see what happens.

January is, as we know, seasonally always a tough month.

So you don't -- we haven't got quite February done yet.

So I can't tell you what the first quarter is going to look like in any of them, because January is such an anomaly.

But we are pretty bullish overseas.

I mean, that is our growth area.

We are growing really strong in Italy, and we've got -- and a number of our other markets there, as well.

And you had said that you have, I think in your release, that you have 25,000 signed locations.

Yes, we have correspondents signed, contracted with us, that would give us 25,000 new locations for payout.

We haven't got them all connected and live yet, but the contracts are signed, sealed and delivered -- or the contracts are.

Now all we have to do is deliver the actual physical connection.

So you have 75,000 locations and the signed locations increases your business by 25,000?

Yes, exactly.

I'll point out that it increases our payout opportunities by that amount.

We will obviously have to build our business that actually sends transactions there.

So we don't get kind of like an overnight a third in transactions.

But it is significant to, in essence, adding additional product.

Each one of our additional country payouts that we sign up is just like putting additional product on the shelf.

So when we put that product on the shelf, then obviously we've got to do the other kind of things to stimulate and peddle it.

But that is the relative measure of increase in our payout locations.

Thank you.

I think we can probably have one more question, two more questions, something like that.

Operator, is there anybody in line?

Tim Willi, Avondale Partners.

Thank you.

Good morning.

A couple housekeeping questions, Rick, before I ask a couple about the business.

First of all, regarding constant currency and FX, is around $0.06 to $0.07 a quarter or an annualized impact between $0.25 to $0.30 somewhere in the ballpark of sort of what you felt in the 4Q results, if I sort of back into your comments?

Yes, Tim, you may recall back we had one time given guidance for like $0.36 for the fourth quarter, and then we pulled that back in at the end of the third quarter with -- as we saw the currencies drop.

And so somewhere in that $0.05 to $0.06 a share range was the relative difference that we saw there on our numbers.

So from a -- when we are taking a look at kind of like a sequential quarterly basis there, Tim, I think that is a fair way to look at it.

On a year-over-year basis, you can pretty much calculate the percentage difference based on looking at our constant dollar numbers that we presented there.

But roughly, coming off of the third quarter to the fourth quarter, that was in the $0.05 to $0.06 a share range.

Okay.

And then regarding the impact of the canceled ATM contracts, sort of thinking about everything that goes into EFT and your comments about network participation and other businesses, it sounds to me like that might be around $0.02 a share a quarter, around $0.08 on an annual basis.

Would that be -- am I way off base in thinking about the growth (multiple speakers)?

No -- you are directionally correct.

Okay, great.

And then just a question on Money Transfer.

International growth has obviously been great and a very positive part of the story, so I'm not trying to pick on it in any way.

But if we do look at transaction growth versus revenue growth, it would look like there is something going on with the revenue per transaction.

Could you just address the 24% transaction versus 13% revenue growth?

Is it corridor shift?

Is it principal size that has resulted in a divergence between the two?

Anything that you can help with out there?

A lot of it would be FX, Tim.

I haven't sorted through all those numbers, but clearly, the charts that we presented there on the revenue basis, looking at it from period to period, haven't been adjusted for FX.

So you would have to go through it.

We have not seen -- if you just take a look at our local currency base, our euro-based type of numbers there -- that there hasn't been much of a difference in that.

That sometimes can come down a little bit, based upon what the destination country is there.

But for the most part, we've not seen any kind of deterioration in our revenue per transaction in local currency dollars.

Most of what you are seeing there is the impacts of FX in that math.

They are still, on average, more profitable than any US transaction, and have stayed there.

I would have liked the euro and the pound up a lot higher, though.

Then it is going to look better for you.

Sure.

I appreciate you clarifying that.

Just the last question on Money Transfer, then, is you've talked a lot about investing in the network.

And a lot of the margin pressures that we had seen in the earlier part of '08 were just you guys with a lot of discretionary investment.

Much like you fleshed out for us with the cross-border acquiring and the ramp of that expense base to sort of a sustainable investment level, where do you see yourself now with investing in the expansion of Money Transfer?

Are you at an incremental expense number for building that out that will flatten out, or would that actually still be a number that will grow from this point?

As it maybe (multiple speakers).

I would say, looking at the budgets, we shouldn't really see any growth from this point.

We are not anticipating growth this year, any more cost growth past our current level.

So the money that you sort of said to Juan, here's your money to go expand the marketplace.

That was a jump up in '08, but Juan is sort of getting the same kind of money in '09 versus '08.

That would be correct.

Okay.

The results of that are these very lucrative transactions in Europe etc.

Great.

I appreciate the clarification.

Thanks a lot.

I think we can take one more question, please.

Gil Luria, Wedbush Morgan.

Thank you for taking my question.

A couple quick follow-ups on the ATM business.

On the four customers that [walked], were all four of them because of in-store (inaudible) trying to sell the company?

And then the second part of the question, were all four of those a mid-contract cancellation or were they all done at the point of renewal?

Two were mid-contract.

One was on account of a merger, where a much larger bank bought the smaller bank that we outsource for.

And let's see -- and then one at the end.

Also, [were] the same story on insourcing in order to sell or was that just two or three of the four?

Two of the four were -- when I say insourcing to sell, actually, three of the four were insourcing to sell.

Two of those three were -- you might call it insourced, but not exactly.

These were third-party companies, as processor companies owned by the parent company, outside of the bank, that they intended to spin off or still intend to spin off to the market to raise capital.

And then in terms of your plans for further capital structure, do you have any preset plans that you can share with us in terms of how much more debt you intend to buy during the year, how that is going to impact interest expense for the year?

Well, as we said, we have $70 million that remain outstanding under the 1 5/8 convertible bonds.

And given that they have a put date in December of '09, we would feel that is our most important piece to take care of.

That carries with it a 1.58% coupon rate.

And then we have annual deferred fee costs of about $1 million a year.

That related to the whole issue, so about half of that, which is left now.

So you can use that to kind of do your math to see what it would do to impact our cash EPS numbers.

But in summary, that $70 million would be the most important piece for us to pay off between now and December.

Last question.

The $0.27 guidance for Q1, you guided at today's exchange rate or is that constant currency in some fashion?

That is at today's rates.

As Mike said, this is what the number would be, assuming our exchange rates remain unchanged through the balance of the quarter.

Great.

Thank you very much.

Maybe I will make just a couple of closing comments.

And I think if you -- the reason we took a lot of time and showed use some FX-neutral views on our business is because when you look at each of our businesses, all three of our businesses, we've got some really nice growth going on in all three of them.

So as I look forward in 2009, we are very excited about our market positions and the opportunities that we see against us.

Unlike a lot of companies that find their products on a dock somewhere and nobody wants to buy them, that does not seem to be the case with us.

We've continued to grow our market share and our product sets.

We are a message for a lot of banks or other people to save money.

So therefore, this is really an opportunity for us.

We might look back and say this was the worst thing that ever happened to the world in my lifetime, but maybe in a year from now, we might look back and say this was really the impetus for a lot of growth for our Company and also an impetus for a number of our weaker competitors finally to weaken enough for us to continue to gain more business from them.

So I am pretty optimistic as I look forward.

We are going to be very careful with how we spend our money, and we hope to present better results from you as we move forward.

Thank you very much, everybody, for your time and effort on the call.

Bye-bye.

And again, that does conclude today's call.

Once again, thank you for your participation and have a good day.