Euronet Worldwide Inc (EEFT) 2009 Q2 法說會逐字稿

Greetings, everyone, and welcome to the Euronet Worldwide second quarter 2009 earnings conference call.

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 now begin.

Thank you.

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

We'll be presenting our results for the second quarter 2009 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, our 10-K for the period ended December 31, 2008 and our 10-Q for the period ending March 31, 2009.

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 updates.

Now I'll turn the call over to Rick Weller, our CFO.

Rick?

Thank you, Jeff, and welcome, everyone.

Starting with slide five.

For the second quarter 2009, the Company delivered revenues of $248.6 million; adjusted EBITDA of $33.7 million; operating income of $18 million; and cash earnings per share of $0.30.

The year-over-year decreases in these results, as in the last couple of quarters, continue to be driven by changes in foreign exchange rates resulting from a significant year-over-year strengthening of the US dollar to most all currencies.

To illustrate the significance of the FX impact on comparable results, on a constant dollar basis, year-over-year revenues would have improved 11%; adjusted EBITDA 18%; and operating income 33%.

Our cash earnings per share of $0.30 per share exceeded our guidance of $0.29.

Moreover, had FX rates not declined, we would have had another $0.06 or $0.07 per share this quarter, compared to last year's $0.32 cash EPS.

If we move to slide number six -- here, we illustrate quarter-over-quarter transaction growth.

Again, this quarter, the business posted growth in transactions.

The pre-paid segment posted a 15% transaction growth and the EFT segment posted a 6% transaction growth year-over-year.

As of February 2009, announced contract termination transactions have been excluded from the year-over-year comparisons.

EFT transactions would have grown 21%, reflecting the fundamental growth opportunity in the EFT Segment.

Now, to slide seven.

In the first quarter, RIA processed approximately $4.5 million money transfers.

This represents transaction growth of approximately 5% year-over-year.

The business continues to grow through transfers sent to countries other than Mexico.

I think this slide clearly illustrates the continued mix shift to markets other than Mexico, which are growing faster and are more profitable.

Let's turn to slide eight.

While I could mention each segment's reported results, given the significance of FX impacts on year-over-year numbers, we've included, as the next slide, a constant dollar or FX-adjusted comparison.

That's probably a better review.

Let's go to slide nine.

Here on slide nine, you can see all the results have been presented as if the second quarter 2009 had been at the same foreign exchange rates as the second quarter 2008.

Let me start with EFT.

Constant currency revenues, operating income, and adjusted EBITDA grew by 10%, 36%, and 28%, respectively.

Revenues grew 10% year-over-year despite the loss of the contracts we discussed with you in February.

Without those losses, the EFT business would have produced strong double-digit growth rates; margin expansions benefited by lower cross-border acquiring net operating costs; strong growth in transactions on our India cash net shared network; and rate improvements on transactions from our German-owned ATMs.

In the Pre-paid segment, constant currency revenues, operating income, and adjusted EBITDA grew by 13%, 27%, and 19%, respectively.

These growth rates were principally driven by the Australian, German, and US markets, and underscored the leverage of the prepaid segment's transaction volumes.

For the Money Transfer segment, constant currency revenues, operating income and adjusted EBITDA grew by 4%, 12%, and 9%, respectively.

As we noted in our press release, US transactions to Mexico declined year-over-year by 20%; but due to the strength of our business focused on non-Mexico transfers, the division overcame the 20% decline and then some.

Similar to the other two segments, the Money Transfer segment posted year-over-year margin expansions, largely the result of transaction growth outside the United States, where we enjoyed wider gross margins.

All in all, every segment grew and every segment posted expanded margins -- a pretty good quarter.

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

Let's go to slide 10, please.

The only real change in the balance sheet was continued deleveraging.

We used free cash flows to pay down an additional $17 million of debt.

Given these debt reductions, our leverage factors are the best we've seen since October 2005, when we issued $175 million in convertible bonds -- that's almost four years ago.

Our debt to EBITDA stands at approximately 2.5 times, while net debt to EBITDA is only 1.3 times.

We are very pleased with the strength of our balance sheet in this difficult economy.

It has proven to be a competitive advantage for us.

Consistent with our previous communications, we will continue to delever and strengthen our balance sheet.

Thanks for your time.

Now, to Mike.

Next slide, please.

Thank you, Rick, and hello, everyone, that has joined us on the call or on the Web today.

Now, let me start with an overall comment regarding FX similar to Rick's.

Consistent with the first quarter 2009, the declines in foreign currency exchange rates against the US dollar were significant year-over-year, as you all know, and have had a big impact on our prior-year comparisons.

While we've seen some recent improvements in FX rates in the first half of 2009, declines in FX rates year-over-year still were significant.

Accordingly, for a more meaningful discussion and help you better understand the fundamental growth in each of our three business segments, I will discuss our results adjusted for currency in the next few slides.

Why don't we jump here to slide number 13.

This slide represents our EFT results on an as-reported basis.

I'd like to repeat that point that Rick made earlier regarding margin expansion.

As you can see here, while revenues were down year-over-year as a result of FX, operating income and EBITDA were both up, illustrating the margin expansion in our business.

In fact, we've seen margins expand in all three business segments and I'm quite pleased with these accomplishments, especially because it's in such a difficult economy.

If you'll move on, please, to the next slide, slide number 14.

With regard to our business highlights, revenues, operating income, and EBITDA, they improved year-over-year by 10%, 36%, and 28%, respectively, when adjusted for foreign currency fluctuations.

In addition to signing a card outsourcing services agreement with Piraeus Bank in Egypt, we also signed an ATM outsourcing pilot project agreement with the Housing Bank for Trade & Finance in Bahrain.

After rolling out over 100 ATMs during the second quarter in India and China, we now have about 2,400 ATMs under management in India, and 600 ATMs under management in China.

Our current ATM backlog across the globe, it stands at approximately 1,350 machines.

In Poland, we signed a three-year ATM network participation contract with Bank BGZ for approximately 1,900 ATMs.

We also signed network participation agreements in Germany and in the Ukraine.

Moving on to slide number 15.

Our cash net shared ATM network continues to strengthen our value proposition amongst Indian banks and our customers.

We processed approximately 247,000 transactions per day on cash nets in the second quarter of 2009, which translate into 165% transaction growth year-over-year -- well over double.

Take a look at the separate graph on this page.

You can see that it clearly illustrates the success we've had with cash net.

We were confident several years ago when we launched the shared network in such a large market like India, that we would see success like this.

There are two primary drivers behind cash net's increasing transactions.

Number one, our continued addition of member banks making cash net the largest independent shared network in India; and number two, the Reserve Bank of India's mandate that banks provide customer ATM withdrawals at no charge.

In summary, on a constant dollar basis, EFT's year-over-year double-digit growth with expanding margins, especially in light of the contract terminations we discussed in the fourth quarter last year, is a real testament to the strength of the EFT segment, the opportunities, and most importantly, the EFT team -- a great quarter.

Now let's move on to Prepaid on slide number 17.

Similar to our EFT discussions, I'll cover our FX adjusted pre-paid results and business highlights on the next slide.

But briefly, you can see here that Prepaid's margins expanded on an as-reported basis.

Adjusted for currency -- moving on to slide number 18, excuse me -- our pre-paid revenues, operating income, and EBITDA increased by approximately 13%, 27%, and 19%, respectively.

While you can see the margin expansion on an unadjusted FX reported basis here, as you saw in the previous slide, here you can really see the volume-driven profit improvement -- 27% and 19%.

These strong year-over-year improvements are supported by our sales momentum and primary markets where we continue to win accounts from weak or weakened competitors and retain our existing key accounts.

During the second quarter, we renewed or signed major retailing contracts in New Zealand, Australia, Italy, and Spain.

We also signed a contract in the United States with Radio Shack to provide top-up services to 460 mobile phone kiosks located in the United States.

And as part of our product diversification, we have gone live with a successful transport initiative in Australia, removing the need for cash at motorway tollbooths.

This is the first of our wins in the transport vertical in that market to be announced.

Now let's move on to Money Transfer, so we can skip slide number 19 and go straight on to slide number 20.

On slide number 20 again, you can see our Money Transfer financial highlights on an as-reported basis for the second quarter of 2009.

I'll point out that the operating and EBITDA margins improved over the revenue decrease.

As I said earlier, all three segments produced expanded margins on growing transaction trends.

Move on then to slide number 21, please.

Similar to the first quarter, we have highlighted three important performance indicators for our business for the second quarter.

The first -- non-US originated transactions increased by 19%, while revenues improved by 15%, adjusted for currency.

This growth is highly commendable, considering the current economic environment and its impact upon money transfers.

As expected, we continue to experience challenges in the US to Mexico corridor.

Here, transactions and revenues declined by 20% and 23%, respectively, year-over-year.

On the other hand, we continue to see transaction growth in our US to non-Mexico corridors, which increased by 15%, while revenues increased by 10%.

Net-net, our second quarter 2009 money transfer FX adjusted results posted year-over-year improvements in revenues, operating income, and EBITDA of 4%, 12%, and 9% respectively.

While the continued weakness in the Mexico Corridor impacted our results, I'm very pleased to see continued double-digit growth in volumes and in profits from non-US markets, as well as US transfers to non-Mexican markets, which contributed to the year-over-year improvements and the margin expansions in our Money Transfer business.

Additionally, our teams continued to expand our share in profits from non-US markets, while 34% of our total transfers -- so about one-third -- are from non-US markets, these transfers accounted for approximately half of our total gross profit.

Let's go on to the next slide for some overall summary comments on the quarter.

Here on slide number two, in summary, you can see -- number one, our cash EPS of $0.30 in the second quarter 2009 exceeded our guidance of $0.29.

Our Cashnet India shared ATM network is achieving remarkable success and remarkable growth.

Number three -- even with a challenging economy, the EFT and prepaid businesses again posted double-digit growth in revenues and profits year-over-year on a constant currency basis.

Number four -- all three business segments posted margin expansions.

And number five, we continue to see growth in volumes and in profits from -- for Money Transfer.

Overall, I believe this was a very good quarter, and I would like to thank our teams worldwide for their continued commitment to our business.

And finally, we expect our third quarter 2009 adjusted cash earnings-per-share from continuing operations to be approximately $0.32 -- assuming currencies remain stable through the end of the quarter.

This concludes our presentation portion of the call.

Now we would be more than happy to take some questions.

Operator, will you assist us, please?

Certainly.

(Operator Instructions).

Bob Napoli.

Thank you.

Good morning.

Is this the real Bob Napoli?

Yes, it is.

Or how about Bob Napoli, how's that?

Is that a little better?

You would have been in trouble if they had said Robert.

I wanted you to be the first guy on the call.

I mean, we didn't organize it that way, but I wanted to hear your voice, because I do recognize you.

Thank you, Mike.

Good job on the quarter.

A couple of questions.

Your constant currency revenue growth outlook, can you give any -- I mean, 11% in the quarter, would you expect that to accelerate from here?

Well, we -- as you may know, we don't give expectations on other than the cash EPS line here.

In the near-term, we would expect that our growth rates continue in similar fashions here.

Okay.

Were there any termination fees in the quarter or anything like that?

No, sir.

It was a very clean quarter from that regard.

And just on -- if you -- the margins are going up in each of the segments.

If you read the -- your 10-Q's and 10-K's, you would expect margins to be going down.

I guess some of the terminology, you talk about competitive pressures and pricing pressures and the like, but you've been able to increase margins nonetheless.

So, I mean, what -- so, I guess, which is it?

Are the -- essentially, are you offsetting the competitive pressures or are the 10-Q's and 10-K's more kind of being -- trying to be more defensive on a risk perspective?

What is the outlook for margins?

Well, Bob, it's probably a bit of a balanced set of comments in our 10-Q's here.

When we take a longer-term view, we have to believe that there would be pressures on margins, but we've been able to provide the growth that has offset that.

And so, I think as you see in this quarter, each of our segments have grown volumes.

And consistent with the nature of this kind of a business, we're able to leverage a lot of that to the bottom line.

So, I think it really is fundamentally tied to the growth and our ability to leverage that to profits.

Great.

Just last question -- the number of POS terminals was up quite a bit in the quarter.

I'd just like a little more -- you have some color on that, I would like maybe a little more color (multiple speakers) --

You know, Bob, everybody asks this question on first quarter because it's down and second quarter because it's up.

And what we do is when we measure the terminals, it's a combination of two things -- adding new retailers, which we have done; but also, when we are connected to these large retailers like a Tesco or Wal-Mart adds or whatever, we keep track of which lanes they've lit up in that quarter.

And in the Christmas quarter, they light up every lane.

Okay?

So you -- we tend to have a higher count in Q4.

And then in Q1, they'd go back to kind of the normal amount of lanes that they have lit up, so the number tends to decline.

So you've got two things working -- you've got just seasonality going down in Q1 and now it's starting to come back in Q2, and plus we are adding new customers.

I'd just echo the last point Mike made there is, there were some nice additions in a couple of our markets there of new customers.

They were multi-lane type of some additions of some larger multi-lane types.

We'll have to see if those make the same kind of growth.

But in terms of ultimate transactions -- but as Mike said, some good terminal additions in the quarter.

And our next question.

Franco Turrinelli, William Blair & Company.

A quick question for you on the money transfer, if I may, a follow-up.

Looking at the constant currency spreads essentially between the revenue and transaction growth, we're seeing about a 3%, 4% kind of delta between those.

That seems like a relatively benign pricing environment, but I'm wondering if you can give us a little bit more perspective from your standpoint.

The only thing I would say, Franco, is the second quarter is a high volume from kind of the Mother's Day perspective.

It's a pretty competitive kind of a period there.

We felt that it was obviously appropriate to be competitive in that period.

So that's the only thing that's a little bit, let's say, kind of different on a business-as-usual basis.

Okay, but I mean, 3% to 4%, I think, Rick, is relative to prior history -- not bad, right?

In terms of year-over-year pricing compression.

I would agree.

And one thing that we don't see in your results as much as the pure play money transfer companies is the impact of average principal and foreign exchange spreads.

Any color that you can give us on what you're seeing there?

Restate that -- I'm not quite following your question.

Oh, I'm sorry -- just what you're seeing in terms of the average transfer amount and to what extent you think that might be affecting the results in the current economic environment.

Yes.

Clearly, it has had a -- the economy has had an impact on that.

We're seeing lower average send per transaction.

And we've even seen some lower -- especially in the transfers to Mexico, more so here, Franco, is that customers aren't sending as many times per year.

And when they send, they're not sending as much.

We see that that's directly attributable to pressure in the labor markets.

And it's been more so in the US side of the business than in the European side of the business.

A quick one for Kevin, who's quietly in the background here, can you give us an OMV update, Kevin?

Yes.

We had a little bit of a delay in the first quarter with OMV in the rollout, but we are in the middle of rolling out Austria.

And we -- which is one of the two biggest markets.

And that's going exceptionally well.

And we anticipate having Austria completely rolled out by the third quarter.

We'll start Romania, which is our next largest market.

And that will start in September.

And then by year-end, we'll do Germany.

So, this year, we're still on target to roll out three new countries of OMV.

Great.

Thank you.

I'll get back into queue and ask some follow-ups later.

Thanks.

Robert Dodd, Morgan Keegan.

I've got several -- I mean, if I can just focus first on prepaid and then feel free to kick me back into the queue.

You mentioned -- one of the deals you signed is a online top-up with T-Mobile.

Can you give us a little bit of color on the economics there versus a scratch card top-up?

And are the customer demographics completely different for that target?

Or are you worried a little bit about self-cannibalization there?

Actually, this is probably much ado about nothing on this one.

What this does is the margins are the same to us.

What it does do, though, is it gives us just that much of a tighter connection into the mobile operator, which over time, these mobile operators are going to abandon the non-online methodology.

So that just points out the fact that we're one of the major three players in the US; so, therefore, we're here for the long-term.

I wouldn't -- it's probably not worth you messing with, but it is good to point out that it gives us long-term staying power in this marketplace.

Okay.

So just to be clear, this refers to your connection in T-Mobile, not the (multiple speakers) --

Yes, that's correct.

Got it.

On the [TM] deal, independent retailers, you're putting in stuff like POS systems now.

A lot of that stuff in Italy for the tobacco shops was traditionally done under the table for cash that they didn't report.

So what has changed there that you're able to put that through and the retailers are cooperating, rather than [TM], who, I'm sure, would love the deal?

Well, first of all, our focus hasn't been on the tobacco shops.

Our focus has been on the large chain retailers.

And so that's where we're focused.

That segment, just by chance, has not been well-served with a prepaid provider to date.

Our single largest competitor in Italy, which is Lottomatica, they focus on the small tobacco shops.

So I guess what we're trying to do is open up the other one-third of the market, which we believe, over time, could be half or more of the market, as we've watched the other markets, like in the UK and Germany and so forth, once you watch them evolve as -- once you bring these larger chains and groceries stores live, they'll get more and more of the transactions.

Okay, got it.

Thank you.

On Money Transfers, just quickly -- I mean, the US to non-Mexico rebounded pretty healthily; I mean, a double-digit growth again there.

I mean, is that -- I can't imagine it's a rebound in the same customers sending, so this has to be kind of new corridors.

And you highlighted Africa and Southeast Asia as growing rapidly, but I would assume that's the international segment.

I mean, what new corridors are really boosting that US to non-Mexico?

Robert, there's really kind of three things behind that.

It's not really fundamentally any new corridors, but it's expansion of payout agents in some of the existing corridors; it's addition of some good agents in certain of our markets that we feel they have more opportunity available; and it's also some product structurings to make the products more appealing and competitive.

So, it's really kind of a three-pronged approach going to the same corridors.

I have one more and then I'll drop back into the queue for EFT questions.

You've got a relationship in the EFT segment in the Middle East.

I mean, have you given any consideration -- like you tell us what the status is of that being leveraged into the Money Transfer business, if at all?

Because obviously, those are some fairly major send markets.

Yes.

I think that we do recognize that those are very healthy markets, particularly Mid-East to places like India, the Philippines, Indonesia.

We'd like to get in there; to do business in the Middle East is difficult.

So, I could say that we're working on it but we don't have really anything to announce quite yet.

Got it.

Thank you.

Tim Willi, Wells Fargo.

First question, a question on EFT to start with a couple of follow-ups as well.

Could you just talk, if it's possible, to sort of delineate within the margins?

You've got three major operating, I guess, geographies -- Eastern Europe, India, China.

And just talk about the relative margin characteristics amongst the three.

And then just any -- if any one of those regions or if it was -- I think, Rick, you mentioned the OMV investment and cost maybe subsiding that really drove that 400 basis point of expansion.

Yes.

You know what?

I guess what I would say first on the relative margin among those regions, as we've told people before, is that we see better margins out of the European region and a little tighter margins out of the Indian and China areas.

And in this quarter here, we continue to add ATMs in our European front, probably we saw our business grow a little bit stronger in the European front on a year-over-year basis.

As Mike said in his comments, despite the fact that we had announced last quarter certain contracts that had terminated for some kind of unusual circumstances -- and we won't go through that whiney discussion here again -- but I think this just illustrates the volume growth potential that we've seen out of that European market, and continue to believe it's a good market for us.

We did continue to improve our operating costs in the OMV, our cross-border arena.

As Kevin said, we've continued to make rollouts there, that's added to the revenue side.

Our team has been very good at being efficient on the expense side.

So, we really have seen that margin expand -- largely through that expansion of volume in Europe, the cross-border reductions.

And then I shouldn't overlook, as Mike said, we've seen great growth come out of those Cashnet transactions in India.

And those transactions are very good transactions, albeit a small rate per transaction, but a good margin (multiple speakers) [percent].

Yes, I mean virtually 100% flow-through on those babies.

And Tim, the shared networks, you have really good leverage; we have really good leverage on those shared networks.

And when you start to see transaction growth, particularly on the Polish network, and rate increases on the German network, that really flows nicely to the bottom line.

Yes.

That's great.

I appreciate that color.

Just two other questions -- one on EFT and then one on prepaid.

But on EFT, could you or Kevin just talk again about the sales activity and pipelines?

Are they as big and wide as you have been saying over the last several quarters?

Any thoughts about -- it's probably been, geez, maybe three quarters now where we've heard a lot of real positive discussion.

Any sense of finally being able to come close to maybe knocking some stuff down that you can talk about?

Or do you feel like you're still sort of in that stalemate of lots of activity but no visibility on an actual signature?

Kevin, go ahead.

Tim, it's a little frustrating in this quarter that we weren't able to announce more, but the pipeline remains very strong.

In these turbulent times, some of the decisiveness within the banks -- is a little less decisiveness within the banks.

But we still feel very positive about the second half of the year with respect to EFT pipeline, and fully expect to be able to announce some wins.

Great.

And then just on Prepaid and Money Transfer.

Any incremental progress or thought around trying to leverage a portion of that Prepaid footprint into the Money Transfer operation?

We have not made any -- much significant financial successes yet, although we've got a number of endeavors that we're kind of in the middle of, and so we hope to bring some of those things to fruition.

So we're still optimistic that there's some crossover between the retailer footprint of Prepaid and what we'd like to do in Money Transfer.

But I would say, honestly, the amount of money we've brought on that account has been very limited.

We've had a lot more success with the synergies of the EFT contacts that we've had in the emerging market banks and our ability to leverage those to add correspondents.

Great.

I'll hop out and let somebody else go.

Thanks so much.

Gil Luria, Wedbush.

A couple of questions on the EFT business.

First of all, you added a little bit over 100 ATMs in the quarter.

How much is that gross adds versus any losses there during the quarter?

I think we may have de-installed 10 machines for some bank that wanted to restructure or make their network more efficient, but it was virtually nothing.

Great.

And then in terms of the rest of the year and the renewals that are coming up, and customers that you're keeping an eye on, are there other customers at risk of de-installing or discontinuing until the end of the year?

Yes, Kevin, you want to maybe cover that?

As I remember -- or Rick -- I don't think we have any renewals of significance that we have any worry about through the end of the year.

Is that correct?

Yes, nearly everything for 2009 has been re-signed.

And we're actively -- we're actually actively working on 2010 and 2011 contracts.

Great.

And then I think you mentioned it briefly, but in terms of the order of magnitude of the difference in dollars per transaction between India and your European business -- I know even within Europe, you have markets where your per-transaction rates could be four times higher than other markets.

If you look, let's say, at the Eastern European benchmarks -- Poland, Czech -- that are relatively in the same neighborhood, how does the India per-transaction rate compare to those, just order of magnitude?

Yes, we've never had a four-fold differential.

It's been closer to the numbers like around $300 per ATM per month in Europe versus between $200 and $225, something like that, across Asia.

So it's never been four-fold.

Now, on revenues, perhaps, because where we own those ATMs, like in Germany or whatever, then all the revenues plus all the costs are ours, so the revenues are quite a bit higher.

But in our standard operating model for operating ATMs for a bank, we pass those costs to the bank and then we don't necessarily see them.

So, we might just see our management fee per month as opposed to the entire setup costs for running that ATM.

So, I think it's best probably for you to look at this as contribution per ATM per month in a given market as opposed to revenues.

Revenues will throw you way off.

Yes, but if you want to look at it on a percentage basis, I would tell you it's probably in the ballpark of 130% to 160% -- Europe over Asia.

Right.

Got it.

Because in India, you do own the ATMs.

You operate the ATMs, so you're getting a per-transaction, aren't you?

Well, in most all of our agreements, what we get, as Mike said, we get a management fee per-ATM on a monthly basis.

And then we will, at times, get a supplemental transaction fee.

So, think of it a little bit like a cell phone calling plan, where you get $39.95 for 500 minutes and if you go over 500, you get $0.10 a minute or something like that.

That's kind of the structure of most of our ATM contracts, outsourcing agreements, where we have a monthly recurring fee.

We give the banks a bucket quote of transactions and then we -- if they break that bucket, then we have an incremental rate per transaction.

So you really probably ought to look at our EFT business as being more a per-ATM type of business.

But is that also true in India?

Do you get a fee from the banks for that?

Or is there -- or your revenues are based on a per-transaction rate?

It's the same.

Sometimes the mix could be a little bit different on the monthly recurring versus the transaction, but for the most part, it's the same.

Except with respect -- with the Cashnet.

Cashnet is all transaction fee-based because none of those ATMs we own or operate -- or some of them we do, but most of them we don't, where we're just basically a switching center and settlement center between the banks.

So we just get a little bit per transaction.

Got it.

And then one -- the last question is about your margins.

Obviously, all of your numbers on an absolute basis are lower; but as a global company, you have most of your costs fairly well-aligned with your revenue.

Where are the discrepancies in that?

Where are the places where, as the currency stabilizes, you're going to get a benefit to margins because you have more costs in US dollars?

The only -- let's call it non-matched-up expense structures that we have in the business is the corporate expense.

So, we separately disclose what's in that segment.

So, corporate expense together with, for the most part, interest expense, is not matched up; but taxes are matched up and all of the other operating costs are matched up.

Great.

That's very helpful.

Thank you.

(Operator Instructions).

Greg Smith, Duncan-Williams.

On the Money Transfer side, Western Union obviously talked about shutting down some agents because of credit concerns.

And it looked like your numbers certainly didn't reflect any different volume experience than maybe Western Union had.

But did you guys happen to pick up any business from some of those agents?

And did you have any similar concerns?

Nothing remarkable here, Greg.

Okay.

So you haven't seen a change in aging of receivables among agents, where -- any behavior that could be the economy impacting these small businesses?

I mean, we -- what I would say is we see a little bit more aging on the Money Transfer side, not on the Prepaid side of our business.

We try to stay pretty much on top of it, but our business has not seen anything that's got us particularly concerned.

But clearly, some agents do -- have aged out a little bit more here.

We've had to take certain action on some, but nothing that's shown up in our numbers or given us concern on our provisions.

Yes, I mean, classically, these are small entrepreneur shops -- you know, might be bodegas or whatever.

And if you don't watch them carefully, they're going to float you versus the guy who's yelling at them for their money.

So we just have to -- we're just that much more vigilant than we have been.

I mean, we don't have a small group of big agents, so to speak.

I mean, we typically have smaller agents across our markets and so we're not vulnerable to any particular big agent.

So it's been -- we've benefited from having a large number of smaller agents.

Okay.

And then just the Sprint buying Virgin's prepaid business -- any anticipated impact there?

No, none other than we do have a very good relationship with Sprint, with Boost, which is their other pre-paid product.

So, if there are any repercussions or whatever that could -- I think it would be closer to benefits that would accrue to us or nothing.

We do top-up with --

Virgin now.

-- Virgin now.

And as you may know, when Sprint bought Boost -- I mean, Nextel, Boost was an important product of it.

That's where we have the biggest relationship there with them now.

And so, we would probably read it as being a stronger move on the Sprint side into the prepaid side of the market, which quite honestly, we think that the mobile operators have not had as sharp a focus on.

And there's literally millions of subscribers out there that could be added to the mobile operators' networks if they go more aggressively after prepaid.

So, I can't see it as being a negative.

We'll have to see if it turns out to be a really good positive.

Excellent.

Okay, thanks, guys.

Franco Turrinelli.

Thanks for taking my follow-up.

Mike, as you look at your portfolio of products and markets, I'm kind of wondering -- I mean, are there new markets that you need to go into, that you want to go into, of new products?

Or should we expect kind of a relatively stable picture for the next several quarters, with you really just growing in the existing markets and with the current product portfolio?

I would say that we're feeling pretty good about what we have right now.

And we've actually been quite stable for the last, call it, three quarters or so.

But I'd like to add to that, as you know, that PSD directive is coming through in the licensing and so forth in Europe, is becoming a reality.

As that becomes a reality towards the end of the year, it will allow our Money Transfer businesses to enter a number of other markets that, right now, it might be kind of cost-prohibitive to do, based upon the size of the market.

So, we might open up a few new offices in some of the smaller countries in Europe that we don't have covered right now.

But with that exception, I'd say we're pretty happy with what we have.

And the financial realities are pretty obvious -- if we can [be in] more products and transactions across our current markets, they're very highly leverageable -- almost 100% kind of flowthrough on that margin line.

So, I'd prefer to make us bigger where we are than necessarily go into a new market.

Well, part of the reason I ask is but I think if we look at the EFT, the last major new market was Ukraine and prepaid Italy.

And both of those have been extremely successful, I think, objectively.

And so I'm kind of wondering if there's other markets like that that you have your sights on.

Well, I would say that they've -- I wouldn't call them yet extremely successful financially, although we are starting to -- you know, it's kind of funny; you enter a new market, you've got to do a number of commercial agreements, and then that kind of covers your little bit of overhead you've added to that market.

And then extremely successful comes right thereafter.

So that once you cover that overhead, then everything starts falling to the bottom line.

So, you are right, and that's why we're looking at some new markets right now.

But you've got to get that right first deal to walk into those markets.

And if we do, then we'll enter; and if we don't, we can't.

Yes, I see.

Maybe, Mike, if I can add -- one of the things we're focused on is close relationships with our multi-national customers.

And a great way to expand into new markets, Franco, is to do it on the back of a bank that we already have a relationship with, that wants our services in one of their existing countries.

So there's a number of opportunities like that, that we're working on.

And once we get a foothold in that market through an established relationship, that gives us a low-cost opportunity to expand with new customers in that market.

Yes, that makes a lot of sense.

And Mike, I apologize for characterizing those as extremely successful; I should have said moderately successful.

We have a tough standard here.

I'll let these guys be extremely when I see my money come in.

Mike, what's the China update in terms of talking to some of the other provinces and other banks there on the ATM side?

I'm going to let Kevin answer that.

He was just in Asia not a month ago, so.

Yes.

So, China has been a frustrating story through the second half of last year with the Beijing Olympics, and then we got into the holiday season.

And then, first quarter did not live up to our expectations.

And unfortunately, neither did the second quarter.

We rolled out about 42 ATMs in the second quarter.

The backlog continues to be large.

We have put more emphasis -- less emphasis on Beijing and more emphasis on building relationships with China postal and the other provinces.

We believe the fruits of that labor are starting to materialize, and we cautiously predict some success in the second half of the year; but my track record on this one hasn't been great.

So, I want to hedge my bets a little bit.

But I feel -- I'm fairly optimistic about the second half of the year.

Great.

Thank you, Kevin.

Robert Dodd.

Just two quick ones -- well, sort of.

Can you tell us when you annualized the rate increase that you've had in Germany?

And any color you can give us on the scale of what that's done to the constant currency revenue growth would be helpful.

Let's see, we had rate increases in Germany in May -- is that correct?

So, about half the quarter's worth of impact.

We saw a little bit of transaction fall off but not much.

And -- but it's continued to bring basically -- Germany is kind of a weird market, in that where here in the US, if you use somebody's ATM that's not you're own, you see there right on the screen that you will have $2.00 subtracted from your account.

In Germany, that's not necessarily how it works.

You might see on the screen that it might cost you 5 euros or whatever the number is, but your bank may or may not charge that to you; that's really what your bank gets charged, not what you get charged.

So there's this kind of disconnect there.

It's kind of a goofy market.

It has been quite lucrative for us.

So we'll continue to take advantage of that where we can, because we've got some excellently-placed, very convenient ATMs.

And so we'll just -- and as you do this, it tends to help our margins.

Basically, that next new transaction, in EFT and any of our markets, helps our margins because we've got such high flowthroughs.

You know, and that's one of the reasons you look at it.

I mean, as far as the Company goes, sure, we left $0.06 or $0.07 on the table because of the FX declines for year-over-year, so you look at our baseline business -- you know, we're growing; we're growing nicely.

You know?

We beat our expectations this quarter.

We are giving guidance of another $0.02, so that's $0.02 on $0.30; so that's a 6% growth sequentially going into the next quarter.

We're pretty excited about kind of where we are.

Thank you.

One last question I guess for Kevin, if he's just got back from Asia.

Has the YES Bank deal that was signed in India, and the different economics on that, had any impact on the discussions you've had with prospects in India?

Not at all.

I'm not going to say something negative about a competitor, but it's a very small bank.

We have talked with them.

They manage very few ATMs today.

Not quite sure how they're going to get to 5,000, which is what I think I saw the press release around.

But what I think -- but more importantly, I think you touch on an interesting point that's broader than that, which is, one of the other changes with RBI is that they're going to allow third-party folks like ourselves to manage ATMs on behalf of a bank, similar to what we do in Europe.

And so we're calling it -- you can call it white label or brown labeling.

So we are aggressively talking with banks about buying their assets -- or buying future assets on behalf of the bank, and deploying those assets into the market and having them branded or co-branded with them and us.

So that is a new opportunity for us that we are aggressively pursuing.

Okay, thank you.

And Operator, why don't you -- if you have one left, we'll have a final call and question.

We'll take our final question from Tim Willi.

Please go ahead.

Thanks.

Mike, could you talk a little bit just about your appetite for deals, acquisitions?

Obviously, you guys have been very focused internally; haven't really done anything of note that I can remember in the last year.

And just so, you know, in terms of how you view the strategic positioning of Euronet and the legs of the stool and the products -- what are your thoughts about the likelihood of really being an active M&A participant versus just really riding the momentum that you guys have developed internally?

Well, I will tell you that we have probably looked at 15 acquisitions a year for the last 3.5 years, and -- but we haven't really been able to close -- we closed RIA, you know?

And then a couple of very little, tiny things.

So, we still have an appetite to look, but we're not going to overpay for something.

I mean, that's really what it comes down to -- if it's not on sale, I don't think I'm going to buy it.

If I can't get the return on investment, I'm not going to buy it.

So, we're looking for -- the kinds of acquisitions we're looking at are not necessarily new legs on the stool, but they are new products or markets -- new products that could enhance our current markets or new markets with the same kind of products that we do now.

So, we're pretty much keeping our nose to the grindstone just working real hard, and I think our results show that.

And if we do any acquisitions, it would be along those lines.

So, don't expect something brand-spanking new out of the left field, really.

It would have to be something that would be complementary; you know, could continue, in that it was good in its own right, and then also could leverage what we have in one or multiple divisions that we have today.

And so from that commentary, would odds favor smaller deals versus when you did something like RIA, which was quite large or attempted (multiple speakers) --?

Yes, that was a brand-new kind of division, quite large.

And so, odds favor smaller deals then, I guess you'd say.

That sounds great.

Thanks a lot.

All right, thank you.

All right, thank you.

Once again, thank you, everybody, for joining our call today.

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

Bye bye.

Once again, this does conclude today's conference.

Thank you for joining us.