Euronet Worldwide Inc (EEFT) 2009 Q3 法說會逐字稿

Greetings, and welcome to the Euronet Worldwide third-quarter 2009 earnings conference call.

Today's conference will be recorded.

(Operator Instructions)

It is my pleasure to introduce your host, Mr.

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

Thank you.

Mr.

Newman, you may begin.

Thank you.

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

We will present our results for the third-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 give our 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 or services, foreign exchange fluctuations, and changes in laws and regulations affecting Euronet's business.

Additional explanation of these factors and other factors affecting the Company's results are set forth from time to time in Euronet's periodic reports filed with the US Securities and Exchange Commission, including but not limited to our Form 10-K for the period ended December 31, 2008, and our 10-Q for the period ended June 30, 2009.

Copies of these filings and other periodic 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, our CFO.

Thank you, Jeff, and welcome, everyone.

Starting with slide 5.

For the third-quarter 2009 the Company delivered revenues of $264.8 million; adjusted EBITDA of $38.6 million; operating income of $22.1 million; and cash earnings per share of $0.34.

The year-over-year decrease in revenue, as in the past several quarters, continues to be driven by changes in foreign exchange rates resulting from a significant year-over-year strengthening of the US dollar to most all other currencies.

To illustrate the significance of the FX impacts on comparable results, on a constant-dollar basis year-over-year revenues would have improved 2%; adjusted EBITDA 22%; and operating income 35%.

The cash EPS of $0.34 exceeded our guidance of $0.32.

About half of this $0.02 was due to improved FX rates throughout the quarter, and the other half was due to better results across all segments.

Moving to slide number 6.

Here we illustrate year-over-year transaction growth for the quarter.

Again this quarter, the business posted growth in transactions.

Each of the EFT and Prepaid segments posted 8% transaction growth year-over-year.

Now to slide 7.

In the third quarter RIA processed approximately 4.5 million Money Transfers, representing a transaction growth of approximately 5% year-over-year.

As illustrated by this slide, the business continues to grow through transfers sent to countries other than Mexico, markets which are growing faster and more profitably.

Non-Mexican transfers now make up 76% of our Money Transfer business, compared to 68% this time last year.

Turning to slide number 8.

This slide represents each segment's reported results.

As I mentioned earlier, FX rates had a significant impact on year-over-year comparisons.

To that end we have included as the next slide a constant-dollar comparison.

Since the constant-dollar view will provide for a cleaner analysis, let's go to slide 9.

As you can see on slide 9, all results have been presented as if the third-quarter 2009 had been at the same foreign exchange rates as the third-quarter 2008.

Looking first at EFT, constant-currency revenues, operating income, and adjusted EBITDA grew by 9%, 71%, and 49%, respectively.

Despite the loss of contracts mentioned in last year's fourth-quarter earnings release, revenues grew 9% year-over-year.

Without those losses, in the first months of the year the EFT business would have produced strong double-digit revenue growth.

The strong gross margin expansion was driven by organic expansion in owned and outsourced ATMs; lower cross-border acquiring net operating cost, resulting from more terminals, more transactions and less cost; strong growth in transactions on our Indian Cashnet shared network due to more ATMs in the network and consumer-friendly regulatory actions; and favorable market conditions improving rates on transactions from our German-owned ATMs.

In the Prepaid segment, constant-currency revenues remained flat; and operating income and adjusted EBITDA grew by 17% and 12%, respectively.

Transactions grew by 8% year-over-year.

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

The flat revenues were largely the result of reduced mobile operator commission rates in the UK, which were pushed down to retailers.

The push-down of these commission rates allowed the Prepaid segment to maintain its constant-dollar gross margin per transaction on transaction growth, thereby driving the 17% and 12% expansions in operating income and adjusted EBITDA, respectively.

In the Money Transfer segment, constant-currency revenues and adjusted EBITDA each grew by 4%, while operating income decreased by 10%.

As we noted in our press release, transactions to Mexico declined year-over-year by 23%.

But due to the strength of our business focused on non-Mexico transfers, the division overcame the 23% decline -- and then some.

While adjusted EBITDA expanded consistent with revenue growth, operating income was down 10% year-over-year, largely due to increased depreciation and amortization related to the addition of more Company-owned stores.

Finally, corporate and other expenses were up approximately $1.2 million largely due to increased incentive accruals driven by strong results.

Let's go to slide 10, and I'll close my review with some observations about our balance sheet.

The only real change in our balance sheet from the prior quarter related to increased levels of cash, where at September 30 we had approximately $220 million of unrestricted cash compared to approximately $160 million at June 30.

Approximately $25 million of this increase was from our $39 million adjusted EBITDA, less taxes, interest, and capital expenditures; and the other $35 million was due to timing differences on collections and payments.

This $35 million timing difference reversed shortly after quarter-end, netting to approximately $185 million in cash.

As you also likely read in our press release, unless the price of our common stock appreciates substantially before December 15, 2009, the holders of $44 million of debentures may put them to us to repurchase.

We have sufficient cash on our balance sheet to meet such a put.

Finally, as you can see in our leverage stats -- see that our leverage stats continue to improve through a combination of increased EBITDA and reductions in debt.

I'll also point out that in the net debt to EBITDA multiple of 0.7 times, it would increase to 1.0 times with unrestricted cash at $185 million rather than the $220 million, still representing a strong improvement in leverage stats.

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.

This is Mike Brown, slide number 11.

Thank you and hello to everyone joining us on the call or the Web today.

I would like to begin with an overall comment regarding foreign exchange rates.

Consistent with the second-quarter 2009, the decline in foreign currency exchange rates against the US dollar were significant year-over-year and have had a big impact on prior-year comparisons.

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

So if you wouldn't mind please, skip on to slide number 13.

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

Compared to last year our profits were negatively impacted by the loss of three accounts that we communicated earlier this year.

Those customers contributed almost $3 million in gross profit to the third quarter of 2008.

Since the terminations, however, our teams have signed many new contracts; renewed several others; achieved strong organic growth in key markets; and efficiently managed costs, all resulting in these strong quarterly results and demonstrating the resiliency of this business and our market opportunity.

If you move on please to slide number 14.

During the quarter EFT's revenues, operating income, and EBITDA improved year-over-year by 9% -- unbelievably 71% and 49%, respectively, when adjusted for foreign currency fluctuations.

These EFT results are quite impressive.

I think it is worth repeating Rick's earlier summary of the fundamentals behind this business expansion.

First, improved cross-border product performance.

Second, strong performance on the India Cashnet shared ATM network.

Third, improved market-driven rates on our German-owned ATMs.

And fourth, organic expansions in owned and outsourced ATMs with our current customers.

In this quarter we signed several new ATM network and outsourcing agreements with banks including Barclays Bank in Indonesia, Citibank in Slovakia, and a global framework agreement with Barclays Bank.

We renewed agreements with Societe Generale Montenegro in Serbia, Barclays Bank in the UAE through our joint venture.

And we extended our agreement with Volksbank in Bosnia.

After rolling out 137 ATMs during the quarter we now have about 9,500 ATMs under management, and our current ATM backlog stands at approximately 1,500 ATMs.

We also opened the Euronet Global Development Center in Pune, India.

This center will provide cost-effective, high-quality, and scalable IT-enabled services for all of the Euronet Worldwide business.

Move on now please to slide number 15 as we continue with our EFT highlights.

Our shared ATM network in India called Cashnet continues to strengthen our value proposition among Indian banks and their customers.

We processed over 290,000 transactions a day on Cashnet in the third-quarter 2009, which translates into a 109% transaction growth year-over-year.

In our cross-border product we completed the Austrian rollout, marking the 50% completion milestone of total terminal rollouts.

Romania is scheduled to start in November; and we will pilot Germany in January, followed by the rollout of the remaining four smaller countries later in the year.

Additionally, we expanded our offering by signing a loyalty switching add-on service for the OMV platform.

We have continued to add to the number of terminals on this platform, and we are pleased to see that transactions are exceeding both ours and OMV's expectations.

Our ITM software team continues to add new customers, as evidenced by our third-quarter wins.

And we continue to provide more value-added services through implementing dual cards for Polbank ATMs and adding new CRM software on ATMs for mBank and MultiBank in Poland.

In summary, on a constant-dollar basis EFT's year-over-year growth with strong margin expansions is a real testament to the strength of the EFT segment, the opportunities, and most importantly the EFT team.

A great quarter.

Let's move on to Prepaid; please go to slide number 17.

Similar to our EFT discussion, I will cover our FX-adjusted Prepaid results and business highlights on the next slide, slide number 18.

As mentioned previously, when adjusted for foreign currency fluctuations in the quarter Prepaid's revenues remain the same.

Operating income and adjusted EBITDA, however, improved by 17% and 12%, respectively, year-over-year.

I do want to point out that although Prepaid revenues were flat year-over-year, largely due to mobile operator commission rate decreases in the UK, the decrease was passed through to our retailers.

This resulted in minimal impact on our Prepaid gross profits.

Our Prepaid segment has grown from being one of the largest international distributors of prepaid mobile airtime to becoming a leading provider of payment services and technology.

The Prepaid division launched a new name and a global brand identity in the third quarter, epay; you can see that little logo there.

The new identity provides the division with a worldwide retail brand known for quality, service, and consistent products.

As a testament to our growth and expansion, during the third quarter in this segment we signed major retailer contracts in most all of our key markets.

I won't mention each item on the slide, but as you can see our Prepaid teams have been very busy.

Next slide, please.

Slide number 19.

We continued to expand our independent retail channel by signing Italian consumer electronics retailer CHL for distribution of mobile top-up.

In India we added 7,250 locations through new and continuing processing agreements with sales partners.

We also increased productivity through additional telco products in New Zealand and in the UK.

And consistent with our strategy to leverage the strength of our cash collection network, we added yet more non-mobile content.

Key third-quarter highlights for the non-telco products included transport; prepaid debit; stored value; bill payment; digital wallet; digital content; and pay-TV agreements.

Now let's hand a congratulations to our Prepaid team for last quarter.

Now let's go on please to slide number 21 for our Money Transfer highlights.

As you can see, our Money Transfer financial highlights as reported for third-quarter 2009 were -- revenue increased by 1%; adjusted EBITDA stayed flat; and operating income decreased by 16%.

These results were impacted by FX as well, and I will cover that on the next slide.

Please move now to slide number 22.

As in the last two quarters we've highlighted three important performance indicators of our business.

For the third quarter, non-US-originated transactions and revenues each increased by 21% adjusted for currency.

This growth is highly commendable, considering the current economic conditions around the world.

As expected we continued to experience challenges in the US-to-Mexico corridor.

Here, transactions and revenues both declined by 24% year-over-year.

We continue to see transaction growth in our US and non-Mexico corridors, which increased by 11% with an increase in revenues.

Net-net our third-quarter 2009 Money Transfer foreign-exchange-adjusted results posted year-over-year improvement in revenues and EBITDA of 4% each, while operating income decreased by 10%.

The difference between the adjusted EBITDA and operating income is due to the cost of adding Company-owned stores.

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

Additionally, our teams continued to expand our share and profits from non-US markets.

While 38% of our total transfers are from non-US markets, these transfers accounted for more than half of our total gross profit.

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

First, our cash EPS of $0.34 in the third quarter of 2009 exceeded our guidance of $0.32.

Our Cashnet India shared ATM network continues to achieve remarkable success.

Our EFT segment posted very commendable results.

And we continue to see growth in volumes and profits from the Money Transfer segment.

Even with the challenging economy, the EFT and Prepaid businesses again posted double-digit growth in profits year-over-year on a constant-currency basis.

Overall, as I reflect on the third quarter, our $0.34 matches the highest cash EPS historically reported by Euronet.

This performance is especially significant to me in light of the difficult global economy.

These results are a reflection of the commitment and the dedication of our Euronet employees around the world.

With this level of employee dedication and building on the strength of the third quarter I'm even more excited about the fourth-quarter prospects.

To that end, we expect our fourth-quarter 2009 adjusted cash earnings per share from continuing operations to be approximately $0.37, assuming currencies remain stable through the end of the quarter.

At that level we will post new highs for Euronet.

This concludes our presentation portion of the call.

Operator, we will be glad to take questions now.

Would you please assist?

(Operator Instructions) Franco Turrinelli, William Blair & Company.

Good morning, Mike, good morning.

A couple of questions for you if I may.

First I wanted to take you back to one of the earlier comment that you made.

Could you tell us a little bit more about this global framework agreement with Barclays?

I am kind of curious to see what that really means in practice.

Actually, Kevin was recently in Asia and talked to some of these guys firsthand.

I will let him answer.

Yes.

Similar to what we do, Franco, with Standard Chartered Bank out of Singapore, we have cut a global framework agreement with Barclaycard to process their ATMs across nine countries, including Africa.

You still have to go and negotiate each contract with each regional bank in each country.

But given that we have got this global framework agreement signed, that provides incentive for each of the various countries to work with us.

And we are in the process of negotiating with them on several countries as we speak.

Does this have a potential to be of a similar scale to the Standard Chartered agreement?

It does.

Well, congratulations on that; that's terrific.

One other quick question.

Thanks for all the very helpful disclosure.

Are you able to give us a sense of how much the impact of the lower commissions was in Prepaid?

It is not exact.

When you say lower commissions, what you are probably -- were you referring to just the revenue number or the commissions?

Yes, yes.

Just to kind of give us a sense of how much of an impact that had in the quarter.

Franco, it was about the difference between the FX-adjusted rate and the transaction growth rate.

So if it had been -- okay; we can back into that.

Is it -- should we expect -- was this in place for the whole quarter?

Or will there be a greater impact in quarters to come?

No, it was for the full quarter.

And your sense is that this is -- rates have stabilized at a new, low level?

We would expect that.

I mean it seems like it's every couple of years or something like that, that there tends to be some type of a rate adjustment.

So we would expect it, and certainly in the UK, to be the case.

Thank you.

Let me let other people get into the line and we'll come back at the end.

Thanks.

Robert Dodd, Morgan Keegan.

I hope you can hear me okay.

Can you give us an idea?

Given when we look at the EFT business with Cashnet, all your terminal driving OMV, etc., which are not really related to the ATM account per se, what percentage of EFT revenue, profits, whichever one you want to look at, is really driven by the ATM count rather than transactions?

Because obviously that used to be the historical model.

It seems more like it is shifting away to other sources of revenue rather than just raw ATMs.

Well, we have in rough numbers right now about 2,600 ATMs that we own out of 9,500.

So that is a little less than 7,000 of those 9,500 ATMs are really you might say not transaction-based.

Right.

And the remaining 2,600 are a little more transaction-based, although there is a little bit of a blend there in Poland because of our shared ATM network.

As far as -- I don't think I've got broken out here the percentage of our total EFT revenues by driven ATMs versus other sources.

I don't think I have that number.

Roughly speaking -- and I don't want to put you guys on the spot here.

But is it still, other than that, is Cashnet India --?

Well, it's interesting because if you really consider the shared ATM network, what we do is we sign network participation deals with banks.

So in those kinds of agreements the banks actually do commit to kind of minimum levels of revenues to us.

It's not purely transaction-based, although there are transaction-based kickers as you get further in the year and you get close to the end.

I would still say that a good three-quarters of our -- Kevin or Rick, argue with me -- but I'd say about three-quarters of our number at least comes with the standard kind of driving per ATM per month or minimum.

You are directionally correct.

Okay, got it.

Thanks, guys.

That's Rick's nice way of saying I'm not exactly right, but he won't embarrass me in public.

Which is I think appropriate.

On the OMV side if I can, if we go back two quarters I think the target was to get the bulk of this installed and live this year.

Certainly I think the original plan, if I remember right, was to get Germany live this year.

That seemed to have slipped a little bit.

I mean I know this has been a pattern with OMV dragging their feet.

But has anything changed on that, that it seems to be more early 2010 now?

So, Mike, do you want me to take that?

Yes, go ahead, Kevin.

So we are done with our development.

So all the work that we had to do on our end is now complete.

We had a terminal issue with OMV in Romania that caused a bit of a slip.

OMV has elected to do -- they want to do Romania before they do Germany.

So the delay with the terminal in Romania has caused the overall schedule to slip by about four months.

But we are on track.

Romania will be started in November; and Germany, we will start the pilot with Germany in January.

And both countries are expected to be complete by early second-quarter 2010.

So with the countries that we have live today and when you add Romania and Germany into the mix, we will be 90% done with respect to the total available POS terminals.

Thanks, got it.

One thing you have noted in the past, I think you said you needed three OMVs to get this product to break even.

Given transactions running ahead of expectations and you seem to have cut some cost, is that still the case?

Or is it now maybe two?

It's one.

Okay.

Thank you.

Also, I would like to add there you might have noticed too that we signed a loyalty product with them.

So what we are now doing is going back to OMV and adding additional services onto the contract to make even the original value proposition more -- or the original offering to them more profitable to us.

So you've got that, combined with better transaction rates, make it easier for us to hit that breakeven.

So the impact OMV will have on us next year will certainly be less than what it was this year, which was a significant improvement over the previous year.

And depending on transaction volumes and how quickly all these things roll out, we expect it would take about one more contract to be at our breakeven point.

Got it.

One final question if I can.

On the PSD/strategy with the Money Transfer business, are you talking about owned stores and continuing to expand that?

Obviously dragging on D&A.

What is the view as to what impact PSD is going to have, which obviously kicks in in a couple of days, on your decisions as to where to open stores versus an agent model?

Well, obviously what that does it allows us to use the agent model in a couple of these countries where we have henceforth been unable to do so -- i.e., Germany and France.

But we are actually excited about the development, because it will allow us to develop that agent model there.

You combine that with our early entry with stores, and we believe we will have a real strong value proposition for those markets.

In addition, we like it because it allows us to get into the other 13 countries or so that we are not in now across the EU, with very limited licensing hurdles to get through.

So all in all we are excited about it.

But you will see a little bit more on the agent side now, particularly in Germany and France, than you have seen.

Okay.

Thanks, guys.

Bob Napoli, Piper Jaffray.

Thank you, good morning.

The OMV business, can you tell us how much the difference last year to this year, with the loss that you had in the third quarter from OMV last year and the loss you had from OMV this year?

Bob, I don't have that third quarter just top of my mind here.

But for the total year we were in the $7 million ballpark; and as we have said before, we will be in the $3 million to $4 million ballpark this year.

Obviously the numbers continue to improve as we move throughout the year.

I just don't happen to have that number on third quarter top of mind.

Okay.

And they are improved from two reasons, Bob.

One is just for obviously cost -- being able to not do as much R&D and on the cost side.

And then second is we've got offsetting revenues this year.

Okay.

How does the backlog look for signing new customers?

What kind of reception are you getting on the marketing front for the cross-border product?

Actually, Kevin, you want to answer that?

Yes, we continue to be focused on delivering OMV.

We are talking to other fuel distributors and fuel card processors at this point in time.

Okay.

Question on the US Prepaid business.

Can you give a little update on what your strategy is there?

As you look at your markets for Prepaid, which markets do you feel like you have the most (multiple speakers)?

Well, the US is one of our -- I have mentioned it before, maybe on the last call; I didn't mention it this call.

But it's probably one of our four topic expansion markets for Prepaid.

We are doing -- we've done quite well in Australia, in Germany, in the US, and in Poland.

The US continues to open new opportunities for us.

We have watched the demise of one of our competitors occur about a quarter or so ago, and that has helped us.

In addition to that our value proposition continues to get better, with more and more products and more significant contracts that we have been able to get from chains and individuals.

So US I would say is definitely a focus area for us, because the growth rate seems to be pretty substantial over the last couple of quarters.

And we hope it will continue through next year.

Are you much more diversified in the US than you are globally on products and prepaid types of products?

Probably our number of SKUs in the US is more than any market and maybe even by 20% more.

We probably do more different things in the US than any other market.

Okay.

It's just because that is the way of the world in the US, and it has given us some best practices and ideas to take overseas.

The nice thing is the overseas guys now have given us some good ideas now to take to the US.

So it has been a really good cooperative work with all the countries.

On your Prepaid -- I'm sorry, your ATMs, you have 1,500 in backlog.

Can you remind you me what you had last quarter?

And what deal do have for the growth of ATMs?

Have you lost -- are there any other contracts that you are worried about losing at this point?

I think we have pretty much -- we are not really worried.

We are always worried that at some point way in the future somebody is going to cancel a contract.

But we don't have any over the next six to nine months of significance that concern us.

We are going to -- the 1,500 in backlog is probably not too far off of last quarter's number.

I can't remember that exactly.

But as far --

About 1,350, Mike.

Okay, okay.

So we are up in little bit.

The nice thing is we are closing some deals.

We haven't closed any super-big deals, but we are closing small deals.

And that added to the EFT performance substantially this quarter over prior quarters in this year.

It's just as I mentioned through just the organic growth of adding new contracts and new ATMs on current contracts.

Last question, India.

What is the revenue out of your EFT (multiple speakers)?

We don't share that revenue number.

Thank you very much.

Tim Willi, Wells Fargo.

Thank you and good morning.

A couple questions.

First one is could you just, Kevin or Mike, give us an update on China in terms of deployments and any commentary around backlog and sales timing?

Yes, I will take it.

Yes, pass that off.

Yes.

So the situation in China was a little bit disappointing in the third quarter.

We did not roll out as many as we hoped.

We are working on -- we continue to do two things.

We continue to work with China Postal on a local level; and we are working on a rather large opportunity with them as we speak and hope to be able to announce something next quarter.

Okay.

Then second question on Prepaid.

Transaction growth seemed to drop off.

I mean, still very commendable; but last four quarters I think were generally pretty solid double-digit.

Do you feel that the 8% to 9% transaction growth we saw this quarter is more an issue of just the difficult comparisons after you have been getting some pretty notable market share?

Or did you see something materialize within any of your major economies where people just sort of pulled back on purchases of airtime?

Just trying to understand (multiple speakers).

It is really the former not the latter, Tim.

We have told everybody before we had -- it is just great when you watch your competitors go belly-up on you.

So until you lap that event you look like all the numbers are considerably better than the prior year.

So nothing has really gone wrong; we just happened to have a couple of guys die off in that prior year.

So we are looking at the current numbers as the growth rates moving forward, subject to a big fall over again.

And you think --

We are kind of back to good old organic growth as opposed to just kind of stepwise change.

Okay.

Then thinking about the margins in that business, which continue to move up, the way you account for revenues because of the commissions -- obviously it works it if the portion of revenue that is commissioned is eliminated to a degree, as it was this quarter.

It just naturally helps your operating margin on a reported basis.

That's correct.

So if we think about the improvement in the margin year-over-year -- and I'm sure this is not an exact science.

But any way to just help us understand how much of that year-over-year margin improvement would be driven by the inherent scale rather than accounting convention?

Tim, I think if you just take a look at the absolute dollar movement, that is the best way I could say, as opposed to the percentage.

Okay, great.

And then last question, Rick, just on housekeeping.

Regards to the debt buyback.

Can you remind us how many underlying shares will be removed from the share count towards the end of December if you execute on that?

About 1.3 million, I believe.

Okay, sounds great.

So basically that $44 million worth divided by the $34-ish a share that is the convert price.

Okay, that is great.

Thank you.

Gil Luria, Wedbush.

Thank you for taking my question.

Can you tell us what the sequential growth was from the second to the third quarter on a constant-currency basis?

It looks like you're year-over-year constant-currency growth accelerated from 11% in the second quarter to 2% in the third quarter.

Can you tell us what apples to apples the Q3 over Q2 '09 is?

I don't have that top of mind.

I am sorry, I --

Do you mean (multiple speakers) constant currency?

Q2 to Q3?

Yes, this year we basically went from $0.32 to $0.34 without currency.

So that is $0.02 on $0.32; call that 6% growth in absolute.

And then in constant currency --

It would be roughly 8%.

Yeah, okay, 8%.

On the revenue line?

Yes.

Okay, 8% growth on a revenue line?

Yes.

Okay.

Then also just looking at things on a sequential basis, in the Prepaid business it looks like in spite of the gains that you have from your competitors' market share gains from weakening competitors in a couple of different places, your transactions were almost flat on a sequential basis -- even though seasonally it looks like over the last few years you actually had a decent amount of growth Q2 to Q3.

Is there something there that -- again, you talked earlier about the year-over-year effect.

But on a sequential basis you would expect that those gains would help you grow transactions.

Is there a reason why that didn't happen this year?

One of the -- and I have to look and just confirm a couple things.

But one of the bigger things is in one of our markets we had a wholesale transactor, a party that we sold wholesale PINs to; and that customer went out of the picture in the third quarter.

So while it took out a fair bit of transactions, it didn't take out much of anything of profits or margin.

Got it.

Then finally on EFT, you have a little chart on page 15 for the India transactions.

How much of the 9 million new transactions you had in the quarter came from India?

The 9 million of growth in the sequential basis in the EFT transactions, how much of that came from India?

I think -- did we not average around 240,000 or so transactions a day in Q2, Rick?

That's about right.

Yes, Kevin says; it's not top of mind for me, Mike.

Q2?

Have to do some quick calculations here.

I thought it was around like 250,000 jumping --

It was 250,000.

We averaged 250,000.

(multiple speakers) So it increased about 40,000 a day.

40 a day per day times 30 days, or times 90 days.

1 million transactions.

Yes.

Got it, thank you.

Greg Smith, Duncan-Williams.

I don't think you gave what the FX impact was to EPS on a year-over-year basis this quarter.

I didn't give that.

As a matter of fact, Greg, I didn't actually calculate that.

So I don't have that number with me.

Okay.

No problem.

Then, Rick, you mentioned consumer-friendly regulatory actions I think helping you guys out.

Can you give some more color on that?

Yes.

As you may recall, in prior periods we talked about the RBI action to allow consumers to get free transactions through the ATMs.

And so that --

RBI is Reserve Bank of India.

So that is driving more and more customers to use the ATMs.

But since we are in the shared network, we charged the fee to the bank who issues the card.

So that type of encouragement by the Reserve Bank in India is pushing more and more customers to use ATMs in that country.

Okay, excellent.

Then with your Global Development Center in India and the ability to consolidate a lot of your IT development, any way to quantify what type of benefit you will get from that going forward?

I don't know.

I mean my answer is we hope to continue to save more money.

But I don't know if we should quantify that.

It's two things.

A, save money; and second, accelerate the development cycle by doing 24/7 engineering.

I would tell you, Greg, that certainly there is a way to quantify it.

But what we would like to see is that we are more responsive by having a concentration of IT experts that, as Kevin said, we can do it 24/7.

So we expect that it has got more opportunity to grow the business as opposed to big cost savings.

Okay.

Then wondering if you guys have any status update you can give on the contracts on the EFT side that you had lost, that sort of went to in-house processing entities that banks were looking to sell.

Any update that you know about on those (multiple speakers)?

It didn't go exactly to in-house.

It went to a sister organization that was owned in their home country, that they owned like 40% 50% of.

The contractor is still there.

We don't see them coming back to us for a while, because I'm sure they have signed good contracts.

But we continue to have discussions with those banks to see if there is other things we can do with them.

Okay.

Then just --

But it's not something I'm going to hold my breath for.

But I mean the reality is, from what we understand, that contracted sister entity charged more than we did for less services.

Because the full intention there was to make that sister entity look better than it really is in a market environment.

Okay.

Then just one last one.

If the economic environment improves globally outside of the obvious Money Transfer, how will a better economic environment directly impact Prepaid and EFT?

Well, I mean, our average Prepaid transaction -- just as an example -- I think is down about 6%.

Our average Prepaid top-up is down about 6% over what it was at last year -- or under what it was last year.

So let's just say we got back to zero again, and that would imply that we have made commissions on 6% more revenue.

Now I am not sure if that 6% means they go more frequently for lesser amounts.

We've got such astounding transaction growth it is hard for me to sort through all those permutations.

But in general, good economics benefits us.

And you are right; where you're going to just see a slam dunk is on the Money Transfer side.

You put more unemployed people to work, and then more immigrants will come take their places, you know.

Yes.

Great.

Thanks, guys.

David Parker, Lazard Capital Markets.

Good morning.

On the EFT side you mentioned that you experienced some fee increases in the German market.

Were those increases specific to that market, or could you roll those out to other markets as well in different regions?

No, they are specific to Germany.

Germany has always had a unique kind of structure there.

The market has allowed us to do that for the time being, so we will take advantage while we can.

Okay.

Then you also highlighted that the organic expansion from your current customers was pretty robust.

Are you actually seeing an acceleration in that organic expansion?

Or is that just continued stable trends that you've seen in the past few quarters?

You know, we signed some deals early in this year that were able to go live in the third quarter, which we saw a direct benefit of.

We also have a number of agreements where, as you get later in the quarter, banks start to get towards their -- kind of past their minimum number of transactions in a year; and so we get kind of transaction kickers.

So it is just basically growth in both areas.

I think, David, to add to that is we have -- our team in Poland has done a very good job at continuing to push network participation agreements.

These are kind of pseudo-outsourcing, where we in essence sell the rights to use our ATM.

Kind of like a PLUS or Cirrus or whatever type of a network, but not quite the same thing.

So as those banks expand, as there are new bank entrants in the marketplace -- especially what we would call more facility-less, or less brick-and-mortar type of banks -- then they look to us to get access to customers through our ATM network out there.

So our team has done a good job there.

That is just all continuing to build with market growth in those markets.

Great, thank you for that color.

Just a final question on the Prepaid side.

How comfortable are you in your ability to continue to pass that commission or any commission change on to the retailer like you did this quarter?

That is what -- most every one of our contracts actually provides for that.

And we have been pretty -- I mean we have pretty much implemented that through our entire history.

If you have been listening to our calls for the last five or six years, about every time this happens we pass the bulk of this on to the retailer.

Great.

There was only time we didn't, and that was a few years ago related to Spain.

It was a unique set of circumstances where we were getting a supplemental kind of a benefit or margin on that.

But as Mike said, we have generally followed that same practice throughout our ownership of Prepaid.

Great, thanks, guys.

Good quarter.

(Operator Instructions) Franco Turrinelli, William Blair & Company.

I have a number of follow-ups if I may.

Actually first just to go back to that previous question.

What are the Prepaid commission rates in the UK now?

How low have they gone?

I think it is a spread between 6% and 6.5%.

Okay, so it is still at a reasonable level.

Yes, a fairly high number.

I don't know what the magic, worst-case kind of number could be.

But they are starting to push it to the point where the large retailers -- who we really effectively get more of a transaction fee from to process, as opposed to a split of the commission -- where it will get to the point where they will threaten the mobile operators that they just won't sell their product.

So that is the nice thing, is we are really not fighting this battle and don't need to.

And at 6%, 6.5%, Mike, there's plenty of --

I don't know what the magic number is.

I mean maybe we are at as low as it can go or close.

I am not sure.

Right.

But I mean it certainly seems that there is plenty of money there for you to split with your (multiple speakers).

Oh, yes, there is, there is.

So, Mike, did we hear this right?

You said that non-telco applications to Prepaid is now about 10%?

I think we are running around that number.

I have been hearing 10% to 11%.

Is it still the case that that number is significantly lower in the US, which means it is higher outside the US?

No, you've got it backwards.

The US we do more non-telco stuff than any other market.

You are right, I apologize.

So do you see that getting to 20%, 25%, 30% of your transactions?

We have an internal goal over the next several years that is higher than that.

Great, thank you.

So what we have created here, Franco, is an enormous cash collection network.

We have got -- basically the killer-app was mobile telephony; that kind of pays the freight for having all these terminals out there and all the telecom and all the processing.

Every time we add another kind of product on there, it's -- you know, marginal revenue equals marginal profit.

So every time we can think of something, we do it.

And we are thinking of more and more things all the time and actually bringing these to third parties that have not considered the cash collection mechanism as a part of their retail strategy.

Where there has been a lot of retailers who have been forced to use a credit card only strategy, and then we are bringing new ideas to them.

Franco, it is tough to find anything as ubiquitous as mobile phone top-up.

But this area of lottery, this area of transportation, the area of bill pay are segments of the market that are large and have a lot of transactions.

On slide 19 we gave some examples of what we are doing in some of the countries, and our strategy is to replicate those successes in the others.

So we have had some success in Australia and in London on transportation.

Then we take those successes and those ideas back to the US, and we get our US teams working on those same sort of opportunities in the US.

And vice versa.

Could you give us an update on Ukraine, Kevin?

How that is going and maybe if that experience is suggesting some other markets that might be opening up to you.

Yes.

So, the Ukraine at the beginning of the year we were a little gunshy with the political unrest that was going on and the very, very tough economic situation that the country went through.

I am actually headed there next week.

We are going to look at some of our strategies.

That is still one of the key markets that we are looking at expanding to, along with several other countries in Central and Eastern Europe.

Okay, so you feel there are several other countries that you can be headed to for --?

Yes, our goal would be to repeat of the huge success we had in Poland -- or we have had in Poland; continue to repeat that success in a few key markets in Eastern Europe.

Great, thank you, guys.

Josh Elving, Feltl and Company.

Good morning.

A couple questions.

One, I just wanted to follow up on Franco's question on Prepaid.

I don't know if I missed this, but just looking sequential quarter, Prepaid revenues were up I think 6% and you had relatively flat transactions.

I was just wondering if there was something specific that drove the revenue per transaction?

I think Rick hit it.

In a couple of the markets we found ourselves making a little bit of revenue on a per-transaction basis but doing wholesale distribution to other distribution chains and channels.

So as that dried up, then the huge amount of transactions that that equated to -- even though they were tiny margin per transaction -- kind of dropped out of the equation.

So we lost a little bit of revenue and a lot of transactions.

But in doing so actually this cleaned up some of the distribution in a couple of our markets to make our other distribution more profitable.

So that is why your profit kind of netted out even though transactions ended up dropping.

Okay.

Also there was a little bit of FX in there too.

Okay.

Then just a question on your strategy as far as Money Transfer is concerned in Europe.

You talked a little bit about higher expenses associated with the rollout of store-based locations.

Now PSD should give you the ability to expand more of an agent model, which I think was discussed.

What -- why did you have a strategy or why have you had a strategy of building out -- I guess deploying the capital to build out store-based models when the PSD regulations are changing so soon?

First of all.

Second of all, do you consider transitioning, I guess potentially even exiting, store-owned -- or excuse me, Company-owned locations and transitioning to a full agent model with the stores that you do currently own?

You know, we've got about -- out of our 13,000 locations we have got about 150 or 60 stores.

So we truly do have the agent model.

But what is important in a number of our markets we have found out is we need to have some flagship stores in some flagship marketplaces in cities.

You can surround those with a whole bunch of agents.

But at the end of the date you can't -- we have found that it is very effective to have a hybrid model here, for a couple of reasons.

I mean, it looks good.

Second is those stores can also provide those agents with a place to deposit their cash, so that we don't have to have expensive CIT.

So there is a lot of other kinds of reasons why you might have -- you might almost call it a hub-and-spoke or a sun-and-planets kind of approach to a given market place.

That makes sense.

Okay.

Then can you give us a sense for what kind of location growth you had in say like the France and Germany regions in the quarter?

About in the quarter maybe four stores.

Did you mention how many -- and maybe I missed it.

Did you mention how many agent locations you rolled out in non-US or in the European?

We haven't (multiple speakers).

No, we didn't mention that.

Okay.

And probably just -- we'll give you that in total; but we have got a very successful European endeavor right now and probably are not going to share much competitive information with the market.

Okay.

Then -- actually, you know what?

I think most of my questions have been answered then, other than that.

Thank you very much.

And with no further questions in the queue, at this time I would like to turn the conference back over to our speakers for any additional or closing remarks.

No, I don't have any extra remarks, but I just want to thank everybody for taking the time.

And I look forward to talking to everybody after the close of Q4.

Thank you very much.

This concludes our presentation.

We appreciate your participation.