Euronet Worldwide Inc (EEFT) 2010 Q4 法說會逐字稿

Greetings, and welcome to Euronet Worldwide fourth quarter 2010 earnings conference call.

At this time, all participants are in a listen-only mode.

Later we will conduct a question and answer session, and instructions will be given at that time.

(Operator Instructions) As a reminder, this conference call is being recorded.

It is now my pleasure it introduce your host, Mr.

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

Thank you, Mr.

Newman, you may begin.

Thank you, Sayed.

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

On this call, we will present our results for the fourth quarter and the full year 2010.

We have Mike Brown, our CEO, Rick Weller, our CFO and Kevin Caponecchi, the President of Euronet on the call.

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

Statements made on this call that concern Euronet's or its management intentions, expectations or predictions of future performance are forward-looking statements.

Euronet's actual results may vary materially from those anticipated in such forward-looking statements and the results of a number of factors including conditions in world financial markets and general economic conditions, technological developments affecting the market for the Company's products and services, foreign currency exchange fluctuations, the Company's ability to renew existing contracts at profitable rates, changes in fees payable for transactions performed for cards bearing international logos or over switching networks such as card transactions on ATMs and changes in laws and regulations affecting the Company's business, including immigration laws.

These risks and other risks are described in the Company's filings with the Securities and Exchange Commission, including our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

Copies of these filings may be obtained on the SEC's EDGAR websites or 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 under any circumstances.

The Company regularly posts important information to the investor relations section of our website.

Now I'll turn the call over to Rick.

All right, thank you, Jeff, and welcome, everyone.

I would like to begin with the fourth quarter results on slide five.

After completing the financial highlights for the quarter, I will then move to an overview of the full year financials.

For the fourth quarter 2010, the Company delivered revenue of $283.8 million, adjusted operating income of $21.8 million, excluding the impact of a $71 million non-cash goodwill impairment charge in the epay segment and adjusted EBITDA of $39.5 million.

The goodwill impairment charge relates to epay acquisitions in the UK, Spain and Romania which largely reflect the challenging economies of these countries.

In cash EPS for the fourth quarter of 2010, we came in at $0.40 which exceeded our guidance of $0.39 per share.

This better than expected cash earnings was a result of solid performance across our three segments and a couple of cents from the closing of open tax years in some countries.

This couple of cents per share in tax benefit is as well reflected in our cash earnings effective tax rate of approximately 26% for the fourth quarter.

We would expect the full year rate to be about 30%.

These tax benefits were more than enough to offset the headwinds of about $0.01 a share from foreign currency movements that took place from the time we gave the fourth quarter guidance to the end of the year.

All in all, a good solid quarter.

I will discuss the operating results in more detail when I get to the segment reporting.

Let's move now to slide six.

On slide six, you can see continued momentum in transaction growth in the EFT segment and epay segment.

Transactions increased in EFT by 12% and in epay by 27%.

Increases in the EFT segment were driven by expanded ATMs under management and higher utilization of our Indian Cashnet network, ramp up from OMV rollout and the transactions from a small acquisition in Serbia completed in December 2009.

Epay transaction growth was attributable to the epay Brazilian acquisition completed in September 2010, increased mobile popup processing in the Middle East, India, Italy, Germany and non-mobile, offset by volume declines in the UK, Australia, Spain, the US and Poland.

Moreover, in the fourth quarter this year, we also saw a little stronger seasonality driven by non-mobile products such as gift cards.

Now, to slide number seven.

In the fourth quarter, we had processed 4.9 million transactions which represent 7% growth over the prior year.

You can see the growth is coming from transfers sent to countries other than Mexico, most of which originate outside the US.

That being said, US transactions grew by 2% in total, despite facing headwinds in Mexico where transfers declined by 6%.

We continue to be encouraged by the overall momentum in volume for the money transfer segment, particularly for non-Mexican transfers.

As you may have noticed, our transaction mix has been steadily shifting away from Mexico since our acquisition of RIA in April of 2007.

This is a reflection of significant growth in non-US markets that don't generally send to Mexico combined with volume declines to Mexico, although these appear to have flattened recently.

Mexico has -- now represents less than 20% of RIA's transfers.

So, I'm sure that you recognize that developments related to Mexico are less important than the rest of the world where we operate.

Let's turn to slide eight.

Slide eight includes a review of our fourth quarter reported results by quarter.

As you can see in this slide, FX fluctuations did not have a significant impact to the results of the Company when comparing to the same year -- to the prior year, same quarter.

However, the operating losses that included a $71 million impairment charge and $700,000 charge related to the value of an acquisition contingency -- contingent consideration, both of which were incurred in the epay segment.

As I mentioned earlier, the non-cash impairment charge related to the epay business in the UK, Spain and Romania, which faced economic challenges during 2010.

Let me pause a minute to reflect on this impairment charge.

The way the accounting works here, when we acquire a business, we have to allocate the purchase price to the country acquired, not the business at large.

In the case of our epay acquisition, you might recall that we acquired epay and another UK processor for about $100 million.

We allocated over 80% of that purchase price to the UK.

Then, when we look at future discounted cash flows, we measure those estimated cash flows to the assigned purchase price.

Net-net, the majority of this write-off relates to the UK business.

This write-off might then imply that our acquisition in epay didn't pay off.

Quite to the contrary.

Our cash on cash returns on the business acquired and the adjacent countries we expanded into using the UK platform have produced for us over the eight years since acquired approximately $170 million after tax, yielding an after tax return on investment of approximately 20%.

So, we've more than recovered the purchase price and are still producing approximately 18% annual after tax returns from those countries on the original investment.

So, the write-off is more to do with the way accounting works rather than the economic value created by the business or expected to be produced in the future.

Back to the impacts of FX.

Since the next slide includes FX adjusted results, together with adjusting operating income to exclude the goodwill impairment, I will focus my discussion of segment results on slide number nine as it provides a more clear picture of changes in the business at a segment level.

Slide nine.

Beginning with the EFT segment, revenues decreased 4%, adjusted operating income decreased 28% and adjusted EBITDA decreased 19%.

The margin declines were primarily due to the negative impact of the Polish interchange fee reductions announced earlier in 2010.

Some one-time revenue benefits recognized in the fourth quarter 2009, discounts given to certain customers upon contract renewal and certain network agreements that did not renew at the end of the term.

These impacts were partially offset by value-added service offerings which have been gaining traction across this segment and from cost efficiencies achieved by the EFT team.

Now to the epay segment where revenues declined 1%, adjusted operating income and adjusted EBITDA increased, each by 9%.

Revenues were down largely due to, as described in prior quarters, mobile operator rate decreases which were passed along to retailers, the conversion of certain customers to transaction fee arrangement rather than a commission-based arrangement and transaction declines in certain economies, economic challenged countries, most notably, the UK and Spain.

These revenue decreases were almost fully offset by increased transaction growth in the Middle East, Germany, India and Brazil, which was acquired in September of '10.

Epay's 27% transaction growth, fourth quarter this year over last year came largely from countries that operate on a transaction fee model where we get a small fee per transaction, but at high margins.

And Brazil, where the average revenue per transaction is about half the overall average of epay because the average gross value per top up is about half of what we see in Western Europe, Australia and the US.

Growth in these markets results in a fairly significant change in the mix of transactions.

That mix drove the change in our average revenue per transaction in the fourth quarter 2009 of $0.83 to $0.64 in the fourth quarter 2010.

However, while the mix has had a significant impact on the revenue per transaction, it had little impact on the gross margin per transaction as seen in the $0.16 per transaction in the fourth quarter last year to the $0.15 gross margin per transaction in this year's fourth quarter.

The penny margin per transaction as well was the result of mix, most notably from India and the Middle East, where we make a gross margin per transaction of a couple cents compared to the mid to upper teens in the more developed countries.

Working its way down to the Op income and EBITDA lines, this transaction growth, together with the addition of Brazil, drove the 9% year over year improvements.

For the money transfer segment, revenues grew by 9%, adjusted operating income increased 74%, and adjusted EBITDA increased 22%.

Revenue growth is primarily due to volume increases outside the US.

This is a function of an expanded network for send and receive agents, more countries where we originate transfers and more countries where we transfer money to.

Mike will cover this later in more detail.

In addition to achieving revenue growth, the money transfer team was able to effectively manage operating costs which contributed to an impressive bottom line result for the quarter.

Corporate expenses decreased, largely due to lower incentive compensation and fewer professional fees.

Now let's move for brief comments on the balance sheet to slide 10.

Here on slide 10, you will see cash increase slightly versus the prior year and debt decrease by approximately $35 million, which related to the repayment of amounts borrowed on the revolving credit facility as of December 2009.

When viewing the cash balance on a year-over-year basis, the minimal change is essentially explained by free cash flow generated during the year used to pay down the revolving credit facility and purchase epay Brazil in September.

As referenced in previous calls, there are no debt obligations coming due in the near term.

Our revolver runs through April of 2012, the first put date on the $175 million convertible bonds is October 12 and the $127 million term loan has an April of 2014 maturity date.

We currently have no balances outstanding on our revolver.

Let's go to slide 11 to discuss the full year results.

Full year 2010 revenues were a little over $1 billion.

Adjusted operating income was $76.8 million and adjusted EBITDA was $143.6 million, all of which were relatively flat compared to 2009.

Full year cash earnings per share was $1.36, a 4% increase over the prior year.

Foreign currency fluctuations did not have a significant impact on the full year financials when compared to the prior year.

Let's now move to the next slide as I will discuss the full year results in greater detail when I get to the segment reporting.

Here on slide 12 and the next slide, you will see a full year view of transactions for each segment.

For purposes of this discussion, I'll skip over these slides and move to slide 14 as trends discussed in the fourth quarter are effectively the same for the full year.

Slide 14.

On this slide, you will see the impact of various items in operating income that distort the comparison on a year-over-year basis such as $71 million epay impairment charge in 2010 previously that I talked about earlier, EFT contract termination fees of $4 million received in early 2009 and a $10 million goodwill impairment charge recorded in early 2009 in the money transfer segment.

The adjusted operating income excludes these items, thus providing a more clear picture of what changed in the business.

As such, I will center my discussions on the full year results by segment on the next slide, slide 15.

Here on slide 15, we have provided a view of the full year adjusted to neutralize the impacts of FX and remove the non-recurring unusual items such as impairment charges and contract termination fees.

Without repeating all the puts and takes, we covered in each of these in previous quarters.

I'll attempt to give you a pretty high level summarized view of the year.

In EFT, 2010 was significantly marked by the lowering of interchange fees in Poland.

That had a lesser impact on revenue, but since it was all rate, it had a more dramatic impact on the bottom line.

In epay, the first three quarters posted year over year declines, largely the result of challenging economies in the UK and Spain.

However, as we reviewed a few slides back, the fourth quarter came in with operating and EBITDA improvements, driven by growth in Germany, India, Middle East and the acquisition of Brazil.

And finally, in the money transfer segment, the full year finished consistent with what we've been reporting the last three quarters, strong European growth, offset by modest Mexican transfer declines.

The overall net growth in transfers drove the 39% and 13% expansions in Op income and EBITDA respectively.

This concludes my comments.

Thank you, and now I'll turn it over to Mike.

I'd like to welcome all who have joined us on the call and over the web, and I'll point out that I am participating today remotely from Europe where I'm visiting a number of our key operations.

As highlighted in Rick's review, we exit the year with delivery of solid results, exceeding guidance with adjusted cash earnings per share of $0.40 for the quarter on a reported basis.

I am pleased with our fourth quarter results, particularly with the growth in the money transfer business and significant efforts within our EFT and epay segments to expand our network to new high growth markets.

This year was not without challenge.

The global economy continues to struggle with recovery, a condition that incents all who compete in the segment to think alternatives for profitability and growth.

I am pleased with the resiliency of the management team to deploy options to address competitive challenges that occur during the year, all while maintaining focus on executing our growth strategies.

But with challenge comes opportunity.

We're making adjustments to offset the impacts of lower interchange fees, including lowering our operational costs and expanding our products and services.

We also anticipate changes in the dynamics of these markets as a result of these new rates.

Lower interchange rates will drive out weaker competitors.

Some will be looking for partners for survival, which will create opportunities for Euronet.

We also believe the strength of our brand can drive additional scale, as well as improve our ability to attract banks with lucrative value-added services and opportunity for ATM advertising.

With that as a back drop, I'll go into more detail behind each of the business results in our EFT segment over the next few slides.

Let's go on to slide number 18 where we'll start with the EFT processing segment.

On slide 18, we provide the highlights of this segment which is our legacy business, which we established 16 years ago.

This is a condensed overview of the breadth of our EFT business.

The slide here is for handy reference, so I'll move on to the next slide, (inaudible) segments financial highlights, Next slide, slide number 19.

On slide 19, we reflect EFT segment financial results on an as-reported basis for the quarter.

Rick took us through the financial highlights for all the segments a few minutes ago, and I won't dwell on each point ,but will say that the tone of the year was significantly influenced by the Polish interchange fee and the 2011 reduced German fees.

ATMs under management increased 11% and transactions grew 12%, representing the fundamental growth of this segment.

We believe the interchange fees -- or interchange rate challenge experienced in mid-2010 and the reduced Germany fees will prove to be a temporary setback as we continue to focus on the long-term fundamental growth and our value propositions for the EFT segment.

Please move to slide number 20.

We show our segment financial results on an as-reported basis for the entire year.

Our revenues decreased by 1%, our Op income decreased by 21% to $38.1 million, or 13% if you exclude contract termination fees recorded in early 2009.

Drivers behind the decreases in revenue, adjusted Op income and adjusted EBITDA are consistent with those discussed previously, largely the Polish interchange fees and contract revenue discounts.

Let's move to slide number 21 for a discussion of the EFT business highlights for the quarter.

Slide 21.

I have spoken before about the importance of scale in the ATM business.

Over the next few slides, I will discuss what we've done to expand our EFT business through new and renewed agreements with banks and retailers, as well as talk a bit about what we're doing to grow our revenues by deploying new products that complement the core business.

Here on slide 29, we review the successes we've had in finding new agreements to expand our ATM, point of sales card network and outsourcing services.

Notable agreements during the quarter include new network participation agreements with Citibank in Poland and mBank in the Czech Republic, a new agreement with Postal Beijing where we have assumed operation of another 40 ATMs and an outsourcing agreement with HDFC Bank in India for deployment of 100 ATMs under what we call in India a brown label transaction pricing model.

This agreement, the HDFC one, reflects a shift in the business model there from a lower margin managed services type arrangement to more favorable arrangements were Euronet is paid on a per transaction basis.

In addition, we are very pleased with the recently announced agreement with UkrSibbank, a subsidiary of Bank BNP Paribas for the purchase of select ATMs in Ukraine.

This greatly expands our geographic footprint from Kiev to the other four largest cities.

As part of this agreement, we will acquire bank-owned off site ATMs in two phases.

This agreement will more than triple our existing installed base in that market.

We also signed a three-party agreement for processing transactions with the UAE exchange and MaxBox Middle East.

This arrangement provides more than 1.2 million UAE exchange customers with acceptance of credit card payments of approximately 22 banks, as well as bill payment and remittance acceptance at kiosks in almost 80 locations

In a new outsourcing agreement with Ushindi Mobile Money in Kenya, we will provide prepaid card management services, point of sale driving services, as well as host to host connections.

Ushindi is targeting the unbanked population with these services.

Lastly, in our ITM software business, I'm pleased with the team's signing Landbouwbank, Suriname as a new client, our seventh client in Suriname.

In addition, we completed a successful pilot and launch of a mobile banking product with the Bank of Maldives where we provide the connectivity between the banking systems and the mobile providers in that market.

The successful launch of our mobile banking product has resulted in additional sales to other clients.

Move on, please, to slide number 22, and I'll take you through our efforts to renew agreements with our EFT segment customers, as well as talk about the deployment of new products.

With respect to contract renewals this quarter, we signed various agreements for network participation and outsourcing with Citibank, Bank BPH and Deutsche Bank in Poland, Komercijalna Bank and UniCredit Bank in Serbia, as well as an agreement with Polbank for the processing of dual credit/debit cards at Euronet ATMs.

These typically are longer term renewals and in this case, cover a large portion of our network in these countries.

For new product deployment, I've included several examples here on the slide of where we have been successful signing new agreements for our value-added services.

These include new agreements to expand services with UniCredit, Raiffeisen and IDBI Bank, an agreement in Slovakia to provide [CUV] point of sale, mobile top-up and bill payment services.

We also signed a new pilot agreement with Citibank in Poland to provide CRM on selected Euronet ATMs

It's important to recognize the trend towards value-added services in these markets.

Banks are assessing the cost of owning and operating their own ATM networks, and are expressing interest in Euronet's value-added service offering.

In addition to advertising, our value-added services can include CRM, currency conversion, mobile top-up, bill payment, foreign remittance payout and ATM to ATM money transfer.

We expect continued growth in these types of products.

Now, let's turn onto the next slide, please.

I'd like to wrap up my comments about the EFT segment on slide number 23 by summarizing changes in the deployment of our ATM network during the fourth quarter.

As I mentioned before, there is an enormous cash-based economy out there, and we virtualized that cash for our under served customers through our ATMs.

We have almost 11,000 ATMs deployed at the end of 2010,which reflects a 2.5% growth versus the third quarter and an 11% growth for the year.

During the quarter, we expanded into new markets which now include Romania and have at lease five new countries where we're planning to opportunistically target value-added services through IAD's deployment.

For deployment in strategic markets, we exited the year with more than 850 ATMs under management in China and approximately 3,000 ATMs in India.

Our ATM backlog at year end stood at approximately 1,150 units.

Our sustained focus on growing the ATM network translated into favorable transaction growth for both the quarter and the year at 12% and 13% respectively, and we continue to see good transaction growth on our India Cashnet shared ATM network, a 20% growth over fourth quarter last year.

On January 15, 2011, the new surcharge model went into effect in Germany.

We implemented the new structure by setting a range of surcharge fees, depending on the characteristics of each ATM.

Based on early experience, we continue to believe the impact of this change will result in approximately $0.03 per share per quarter.

We are now focused on how we will improve our cost structure and leverage other emerging opportunities in Germany.

Finally, I'd like to address the status of our cross-border project with OMV.

We have reported progress against this project rollout for some time.

At this time, I'm pleased to report that the project is generally complete.

Deployed in nine countries, OMV has two more small countries to deploy in the future pending certain OMV operating conclusions.

Moving forward, we will be looking to achieve scale through expansion across the OMV retail network in other countries or the addition of other key customers.

I'll probably not make OMV a key point in future slides unless we see some further developments, because we've pretty much got that thing working really well for us.

Now, let's move on to slide 25.

Here we highlight some key facts about our prepaid segment, epay.

We've seen good growth in our global prepay network in 2010 and during the year, we worked aggressively to expand the number of direct relationships we maintain with multi national and independent retailers, and we continue to grow the number of partnerships with mobile operators.

In addition to retail expansion, we are executing a strategy to develop and deploy a broad range of non-telco projects -- products ranging from software and digital products to gift cards and transport products.

All of you have heard of a lot of these before, we'll talk a little bit more about them in a minute.

But first, let me review our financials.

Here on slide number 26, you've got the financials on an as-reported basis for Q4 2010.

For the quarter, the epay segment was not materially impacted by fluctuations in foreign currency exchange rates, delivering reported revenue growth that is essentially flat to last year with a 9% increase in both adjusted Op income and EBITDA to $13.9 million and $18.4 million respectively.

This was largely a result of the acquisition of epay Brazil and other increases that Rick described earlier.

Our profits expanded faster than revenues because we benefited by strong growth and transactions with strong margins, but low revenue.

On slide number 27, epay's full year financials are presented on an as-reported basis.

Drivers for full year variances are consistent with those described in the previous quarter.

And as such, let's just move onto slide number 28.

On slide number 28, I'll discuss what we're doing in the epay segment towards our product expansion strategy.

During this quarter, we signed and implemented agreements for software, gaming and digital products with several substantial global brands.

We launched the distribution of Microsoft Office in Australia, New Zealand and the UK.

iTunes at Mueller drug stores in Germany and Austria and also signed a distribution agreement with Bwin, a provider of online gambling in Italy.

I have to pause for just a moment and talk about how we view the opportunities pertaining to software and digital product distribution and how our payment network is ideally suited to accept payments and transmit authorizations for the sale of a variety of software and digital products.

Software companies have historically distributed their products through the printing of disks and shrink-wrapped packaging.

You've seen it all at the Best Buys down the street.

This provides for a quick distribution of product, much like scratch cards in the mobile top-up market.

But again, like scratch cards, it involves a lot of packaging, logistics and shrinkage costs.

So, in an attempt to improve their costs and reduce shrinkage, software companies have begun to recognize the value of our network of retailers and our point of sale distribution capability.

For instance, the software company can, through us, sell the rights to their software.

We can inform the software company of the paid sale, and the customer can access the software through the activated point of sale pin.

Moreover, the retailer is no longer burdened with the inventory purchases and the use of valuable shelf space, shrinkage and inventory management.

It's a win-win-win for the software company, the retailer and us, much like it was just for the scratch off cards as I mentioned before.

Now to continue, I'll describe some other products launched this quarter.

We launched several major agreements for gift card products including the gift card mall for the Bavarian lottery, the Giftbox product in three leading retailers in Germany, the [Experience Boxes in DIA] and Carrefour branded supermarkets in Spain.

In the US, we had our first transport product win with the Florida turnpike SunPass covering reload, account balance and transponder distribution services at approximately 2,000 locations in Florida.

Lastly, for our telco product wins this quarter, we completed a deal with the UK's leading mobile top-up distributor, launched agreements with two new MBNOs in the US and signed new agreements with MBNOs Ortel and Tuenti in Spain.

You can see that we continue to make good progress introducing new products, we have a leverageable ability and advantage from existing relationships with retailers, a broad selection of global content and a great number of multi country mobile operators, all of which contribute to the continued expansion of our partnerships.

Move on to slide 29, please.

Here on slide 29, I've included some of the successes we have achieved in expanding and renewing our retail partnerships during the quarter.

You will recall that last quarter we highlighted our acquisition of epay Brazil, which was completed on September 1.

As such, this was the first full quarter of operational results which included the addition of 1,500 new independent locations -- no, actually, it's 15,000 new independent locations, and 100 new bill payment locations in that country.

In Germany, we extended a contract with Rossmann drug stores.

In Australia, we completed point of sale activation capability with JB Hi-Fi, the leading electronics retailer in that country.

Back in the second quarter, I mentioned that I expected to see continued success in Italy during the remainder of the year, in particular, for growth with multi store, multi lane retailers.

During the fourth quarter, we signed or extended agreements for prepay products with two large Italian retailers, Grupo Poli and Billa, and added 325 new direct independent retailers, as well as a host to host distributor agreement with Magna Carta.

Finally, in Spain, we signed several important agreements.

One with the petro services association for the sale of mobile services at 150 points of sale and another as a contract extension with Eroski, covering the sale of products in 300 supermarkets.

Now, let's turn to slide 31 to complete today's discussion with the results of our money transfer segment.

Now, with regard to our global money transfer network, it now reaches 134 countries with over 10,000 -- I'm sorry, with over 110,000 locations.

We are the third largest person to person money transfer Company in the world, and we are well-positioned for expansion in many of the world's high growth markets.

As was the case in 2009, the global economy remained challenging in 2010.

Over the course of this year, I provided details of where we grew our network relationships in new countries and new locations to include Europe, Asia and Central America.

In North America, two of the more significant long-term agreements included 7-Eleven and Cash Store Financial.

These are agreements that cover more than 6,500 network locations in the US and Canada.

On the next several slides, I will explain our progress in the fourth quarter.

Jumping to slide number 22, we have summarized the financial highlights for the money transfer segment.

For the quarter, revenue growth was strong, achieving 6% for the year, which translates to 9% on a constant currency basis.

Operating income improved to $3.9 million, which is a 70% increase, and adjusted EBITDA increased by 18% versus the previous year.

The business benefited from our continued efforts to expand the global money transfer network by growing the number of agents and payout locations, which helped to diversify our revenue sources.

Slide number 33 includes the full year 2010 highlights.

Here we have transfers up 7%, revenues up 5% and adjusted Op income up 39%.

These increases were driven by the same factors influencing the fourth quarter, more agents, more markets and more payout locations.

On slide number 34, we look at the growth in the money transfer volumes.

As I mentioned a few minutes ago, this quarter we saw positive increases in our consolidated transactions and revenues, a 7% growth in transfers, a 6% growth in revenue, or 9% adjusted for constant currency.

The good news is that the non-US transfers grew at a healthy 17% over the previous year.

The non-US transfers now account for 43% of all transfers, up three percentage points from a year ago .

On a previous slide, I described our success in expanding our network footprint through the European payment services directive.

The corresponding growth in our sending agents and receiving correspondence is a significant driver of our growth.

Consistent with the 6% growth in the US and non-Mexico transfers shown at the bottom of the chart, I'll point out that we saw very favorable growth trends in other Latin American countries to include Guatemala, the Dominican Republic, Honduras, Panama and Venezuela.

We continue to be successful in balancing growth in other corridors, thereby reducing our historical dependency on Mexico in this economy.

Lastly, I'll mention the growth in non-transfer products sold through our money transfer network.

These products include bill payment services, money orders, prepaid debit cards and check cashing services.

We will continue to focus on these complementary products for our money transfer customers who find them useful, convenient and value-added.

Jumping now to -- or turning to slide number 35, we can talk about our efforts this quarter to expand our worldwide money transfer distribution network.

In this discussion, it's important to point out that as our money transfer business grows internationally, we are becoming increasingly less dependent on the US to Latin America transactions, benefiting from strong corridors in Europe and Asia.

During the fourth quarter, we leveraged European PSD to extend our money transfer network into two additional countries, bringing the total to nine where we have Asian agreements in place.

Beyond that, we also launched service in Turkey, Zimbabwe, Azerbaijan and South Africa during the fourth quarter.

In addition to expanding into new countries, I'm pleased with the money transfer segment's work to further penetrate countries where we are already doing business.

During the quarter, we launched 17 new correspondents in 13 countries with more than 1,144 locations.

This was accomplished through agreements with Ukrgasbank in Ukraine, the Metropolitan Bank in the Philippines, Agrobanka in Serbia, as well as a number of other banks in Central America and the Caribbean.

Increasing agent productivity from these new relationships will contribute to growth in future transaction volume.

Overall for the year, we grew the number of money transfer locations to over 110,000 adding 5%, or approximately 5,000 locations in the fourth quarter alone.

Now let's go on to 36 for some summary comments about the quarter.

Slide number 36, you can see that we posted our adjusted cash EPS of $0.40 a share in the fourth quarter of 2010, which exceeded our guidance of $0.39.

Our teams have responded effectively to the economic challenges, as seen in these results.

The anticipated changes in our business due to lower interchange charges in Germany are in line with our previously announced expectations.

We're developing and implementing new product solutions to drive our growth in our EFT and epay money segments.

Our money transfer segment remains on a positive growth trajectory.

We have a strong cash position and continue to generate free cash flows of approximately $70 million annually, and we have no near term debt obligation.

And finally, we expect our first quarter 2010 adjusted cash EPS from continuing operations to approximate $0.31, which assumes currencies remain stable through the quarter.

This guidance reflects our traditional assumptions for seasonality in the fourth quarter and the impact of lower ATM withdrawal fees in Germany and the continued softness in the epay UK and Spanish markets.

This includes the presentation portion of the call.

At this time, Kevin, Rick and I would be glad to take some questions.

Operator, will you please

Thank you.

(Operator Instructions) First question comes from Chris Shutler from William Blair .

Hi, guys.

Good morning.

Good morning.

In the e-pay segment, maybe you can talk quickly about the non-mobile revenue in the quarter and where you stand there in terms of what percentage of e-pay revenue is now non-mobile.

And I know in the past, Mike, you've set some pretty aggressive goals internally for getting that non-mobile part of the business to ramp up as a percentage of the total.

So, where do you stand today, and is there some kind of an inflection point that we should look for over the next year or two?

We were doing pretty good there, Chris.

We were at about 10% up until the fourth quarter of last year, and then we had a full quarter of e-pay Brazil.

And so now e-pay Brazil doesn't have any non-mobile right now.

And so what that did is it brought our numbers down to around 9%.

So, we need to -- because we had all those transaction that didn't have any offsetting -- we had spent no time because we didn't own it, adding additional content.

Right now, Rick, correct me if I'm wrong, but we're at about 9% and our goal is to continue to grow that.

What our goals are, they are aggressive.

I think that when you look at all the things that we're doing, we could -- over the coming years, we could have non-mobile content approach 20% to 30% of our business.

But it's going to take a lot more deals to close and education of the retailers and also bringing Brazil now online doing the same thing.

Did I get that about right, Rick?

Well, we -- pretty close.

We're actually a couple percentage points better than that.

We continue to have good growth--.

Are you looking for the year or quarter?

That would be for the quarter.

Okay.

So, we were in the low double digit ranges for the quarter.

That continued to be driven by some of these gift card products that we talked about, things like iTunes and that.

So, we did -- our setback occurred really at the point of acquiring Brazil, but now we've continued to move that number back up.

Before--.

Part of that is just the seasonality of fourth quarter where you're doing an inordinate amount of gift cards.

Right, right.

Okay, that's helpful.

And then on the EFT segment, could you maybe give a little bit more color on the magnitude of the discounts that were given on renewal in the quarter?At least if you can't quantify it, some color on how those discounts may have looked relative to past discounts.

And then I guess a follow-up to that is on the non-renewals in the quarter, any additional color that you can give there.

With respect to the discounts, I don't think our discounts are necessarily much different than they have in the past.

I'll tell you what, though, has changed is in some -- in several of our agreements, we've given discounts commensurate with selling new products, a lot of these value-added services that we've focused on for the last eight or nine months.

And so I remember one of our larger customers in Central Europe as an example, it looked like we would have to give them a -- I can't remember what the number was of 10% or 15% or something like that kind of discount, but that was more than offset by the value-added services that we are installing as we speak.

So, I would say pretty much consistent with our past.

As these banks -- you've got to remember, these are emerging markets.

Banks are in lots more ATMs, and so as they look at it, when a renewal comes up, and don't forget, we have about, on average about five year agreement.

About 20% of them come up every year.

And by the time five years have gone by, they've got a lot more ATMs than they started with, so we have to give them a little bit of a discount.

We want to just keep wrapping our tentacles around them by just giving them great service and lots of new products.

And I'll tell you, the bank -- if there wasn't -- we didn't mention it in there, but if there is a silver cloud in this whole banking crisis, it's that banks are very interested in value-added services because they're revenue generators, and it isn't just a discussion of how much money am I charging you to operate your ATMs cost effectively, but what revenue and new customers can I bring to you.

Okay.

And then in terms of the non-renewals, I'm assuming those are some smaller deals, but what were the one or two reasons that you were given why those people may have taken it to a competitor or in-house?

Chris, those were taken in-house.

They were smaller, as you observed, and what the bank customer shared with us is just that they were optimizing with other parts of their business.

So, they happened to have processes or operations in other countries, so it was just aligning it and optimizing it with other parts of the business.

Nothing to do with quality of service or things like that.

And we still have an opportunity to potentially go after those on a broader scale, but nothing unusual in those circumstances.

Okay.

That's helpful.

And then just the final one for me on the -- also on the EFT segment.

Just as you think about that business over the next few years, if you exclude some of the noise in terms of Poland and Germany and just look at the true run rate that you expect from the business, what's kind of a fair top line and operating income growth number to use for that segment?

I think -- maybe instead of using top line, we can talk about bottom line and probably our op income growth in that kind of, mid-teens is kind of our target.

Okay.

Thank you.

Thank you.

Our next question comes from Robert Dodd from Morgan Keegan.

Hello, Robert.

How you doing?

Kind of on that topic sticking with EFT, the mid-teens target is a pretty good growth rate compared to a lot of process and growth rates.

But compared to the market opportunities you guys have in India, China and elsewhere, is there -- can you give us any color, any visibility in terms of, is there an inflection point that could drive an acceleration there?

Obviously, India and China alone, there's big opportunity, but there's been red tape, banks dragging feet, et cetera.

Can you give us a little more color on how that market's actually developed?

Well, China has only got 850 ATMs in it right now that we operate.

We just signed them for 40 more.

It could be enormous.

Our major customer has got 9,000 ATMs.

We're negotiating with another large customer right now to start doing some work for them, so it is exciting.

I was -- when I said that kind of growth rate, I was -- I think the reality is when you exclude the Germany and as Chris said, if you exclude Germany and Poland, perhaps those growth rates could be even greater.

But that is a pall over us through this year, because until we lap Germany in January of next year, we're going to have to deal with that.

What we're trying to do is get to bring back all the lost margin and then grow at that kind of mid-teens on forward.

But you're right, there is more possibility in there.

To be frank, I think I see more opportunity in EFT right now as far as growth from our current run rates than I've probably seen in four years.

And you can see that -- I mentioned two whole slides full of contract renewals and new signatures.

We haven't got all those guys implemented yet.

I think this is indicative of strong leadership that we have in Europe and their ability to close more deals, and it's just accelerating.

Okay, got it, right.

Just moving on to e-pay, you highlighted again, you continue to see some commission reductions.

And I realize you pass a big slug of that on through, but are you seeing those reductions across the board, or are you hitting kind of floors in some market?

Like maybe is the UK bottoming out on commission, or is it continuing to shrink or are you seeing the commission reductions, more so in places like the US maybe where commissions have been structurally higher in the past?

It's not just commissions.

It's really their economy.

The -- I bet you if the UK went and did its analysis on itself, the ARPU is down.

And because we get a paid a commission on ARPU, it doesn't matter what we pass on.

Even if the commission stays the same, we make less revenue and that's really what's got us.

I think when we looked at the numbers the last time, it was -- the UK was down around 5% or 6% in revenues.

And so until those economies start to get a little bit of life back in them, we're going to -- we have to see this flattish market.

But we offset that by very strong growth in Germany, strong growth in the US consistently, we've got, of course, Brazil which is humming.

And so you only see a piece of it because we've got three good offsets.

Right, right.

And then if I can one more on the switching of the last business, the money transfer side, obviously, you've been gaining share there, gaining some agents.

Can you give any color, do you have an easier, so to speak, time competing for agents against -- well, step back a second.

Are the majority of your agents new to money transfer, or are they competitive wins?

And then second to that, is the recent strategy from some of your big competitors of buying out super agents so they can be closer to the agent?

Is that making it harder, or do you think it's going to make it harder to take agents from them when there's a direct connect instead of a middle man in the way for you to kind of play off against?

Well, you probably have seen, we've done two things.

We've grown our market shares through both of those ways, through stealing and providing a better service and better value proposition to our competitor's agents and we basically -- it's a competitive win.

But in several of these countries that, that we've been able to jump into because of PSD, there just aren't very many agents out there.

And we have classically been the agent model where our two largest competitors have classically not been .

They've been more of a super agent model.

And I think just buying the super agent isn't necessarily going to save their bacon.

And this is very much in our DNA, and they're going to have make it part of their DNA, and it never has

Fair enough.

Thank you.

Thank you.

Our next question comes from Gil Luria from Wedbush Securities.

Hi, Gil.

Thank you, good morning.

Just one quick question.

The Brazil e-pay business, it sounds like it is doing well, it certainly was doing well when you guys bought it with an about an $11 million a quarter run rate.

Were you able to increase that in the fourth quarter?

And as you get opportunity to introduce new products there, what's the potential to grow that part of the business?

I don't -- Rick, I can't -- I don't know the financials of that, they're not in front of me.

Could you answer the first part of his question?

Yes, no, we gained a little bit of momentum because clearly, the fourth quarter's got a little bit of seasonality in it.

But it continued its progression, so we didn't see a change in the growth trajectory coming through the fourth quarter, which is really just our first full quarter of ownership in the business.

And in terms of new product and things like that, you can see that we already started talking about doing bill pay and stuff like that there which wasn't there previously.

So, some slight increases, again, going into the fourth quarter, both seasonally and consistent with their historical kind of growth rates and the addition of some new product.

Great.

Thank you.

Thank you.

Our next question comes from Greg Smith from Duncan Williams.

Yes, hi, guys.

You guys mentioned seeing some consumers shift away from prepaid plans in some markets.

Can you just flesh that out, what's going on there and is there some sort of long-term trend that could hurt you there?

I'm not sure if it's long-term, but there are -- in some markets, we see shifting to prepaid plans and other markets shifting a little bit away.

What we've seen, as the iPhone has entered into a couple of markets, that's sucked a few prepaid guys out and made them into post paid customers.

So, we kind of get a mix of that.

I'll tell you, mostly what we're seeing, though, is just in our weaker markets, it's just weaker economies.

And it's these mobile operators giving away a lot more, you might call it minutes for the same amount of pounds or whatever.

What they're doing is they're competing with each other only on price, so then that drives the average of ARPU down across the whole marketplace.

As smart phones become more pervasive outside the US, is that ultimately a positive or negative, do you think, for your business?

Actually, it's going to be positive because the one thing that's already started and has been very positive for the US is the fact that as the smart phones now are becoming -- are in the cost range for a prepaid customer, prepaid customers are saying, well, I can afford the phone, but I can't afford EUR68 a month for Internet.

So, they've got this phone that's only half utilized.

So, what's probably going to happen over there, and I've already seen a little bit of instances of some people talking about this is these all you can eat plans like you see in the US are coming, and when those things come, the average ARPU actually goes up because you're giving that prepaid customer with all you can eat plan a lot more value add than just talking and texting.

He can look at his soccer scores and he can do other things, surf the Internet.

And so what we've seen in a lot like in the US, we've seen where ARPUs of $35 turn into ARPUs of $50.

So with that, and the fact that we do get a percentage, as smart phones have dropped in price and as the European guys start to do these all you can eat plans, that should be nothing but beneficial.

Now, that hasn't quite hopped the water yet, but we're starting to see a lot of people talking about it.

Okay.

And can you give us an update on the 7-Eleven rollout with RIA?

We're still looking at Q2 for the rollout of that, so we haven't rolled any out yet.

Q2 was our -- was what we told you what we saw in that last quarter, and we'll give you an update net after -- we will be a little closer by the time we do Q1, which will be towards the end of March, we'll be able to give you a little bit of idea of how close we are to it.

Okay.

And then lastly, Mike, can you talk a little bit about sort of the acquisition outlook?

Any areas you may be specifically looking at and what we could maybe expect over the next 12 months from you guys?

Well, as usual, we look at things.

I tell you, turns out we kiss about 10 times as many frogs as we've found princes.

So, we just -- at the end of the day, we've got to find something that makes sense strategically, is going to continue to grow for us and also is at a reasonable price, and get all three of those things.It's difficult.

So, we've got the cash in the bank.

We've got the $70 million we produce every year.

We've got other ways to finance things if we need to, but we -- at the end of the day, we've got to find the right candidates.

Okay.

Thank you.

Thank you.

Our next question comes from Jason Deleeuw from Piper Jaffray.

Hello guys, thanks.

On the guidance of the $0.31, there's some seasonal aspects there.

There's also the Germany impact.

For the Germany impact, are you assuming that it's going to be even each quarter throughout the year, or is the impact going to be largest in the first quarter?

Could you guys start to offset some of that negative headwind as the year progresses?

That is a good point, because seasonally, Q1 in general is weak for ATMs anyway, because nobody goes to the ATM in January at all.

They start to butter up to it a little bit more in February and are finally back on the horse by March, but that is a piece of it.

Although we've kind of said, just for the sake of simplicity, we've divided it, said it's about $0.03 or a little bit more per quarter.

So, it might be a little bit more in Q1 due to that, but not substantially.

Okay.

That's helpful.

And then on the acquisitions again, just want to touch on that.

It sounds like there may be some opportunities in Germany with EFT with the new rate structure.

Are you seeing any princes there, or are they all frogs?

How big an opportunity do you see?

Well, not only in Germany, but in the rest of Europe, we're seeing other opportunities.

But you've really got to -- what we've found out in Germany is because of the high interchange fee, there are a lot of companies that had networks of ATMs that wouldn't otherwise have been profitable, had it not been for the high interchange.

So, now that the interchange has dropped in half, you might say, on average, it isn't interchange anymore, it's surcharge.

You've really got to take a hard look at these groups of assets to see if they'll ever make money.

So, some of these frogs aren't even worth the kiss.

Okay.

And then on the non-mobile products, I just want to touch on that again.

The margin profile, sounds like the growth margins are higher.

Can you size that up versus the mobile products?

Can you give us a sense of how much higher?

And then as the non-mobile products -- it seems like they're going to continue to grow as a percentage of e-pay revenue.

Can we expect to see the op income margins for this segment expand?

Is that going to be a driver of margin expansion for the segment?

Usually on average, the non-mobile products have higher net margins to us.

So yes, you probably could, as we get more and more of these products in.

Now, every one of these products has a different profile, and those profiles even change by country .

But I'd just say in general, we'd probably keep a little bit better.

Maybe in some cases substantially better on these non-mobile products than we do on mobile.

And one of the reasons too is it's just kind of economies of scale.

The mobile operator, there's three of them, they basically pay your freight, they do millions of transactions.

But you get a new guy in here who doesn't do near that volume, he's going to have to pay a little bit higher price

Okay.

And then my last question, US to Mexico in the money transfer business, it looked a little soft there, down 6%.

Yes, well I'll tell you, I'll give you a little color on that.

We--.

Okay.

We would have been at exactly flat, but in beginning of Q4, we lost an agent that had multiple locations that was very heavy to Mexico.

It was a competitive loss to a company much smaller than us.

It hacks me off, it hacked everybody off, somehow we let that bank slip out of our hands, and I don't intend to let that happen too often.

So, that -- had it not been for that one loss, it would have been about flat for the quarter.

That's why Mexico went down.

All right.

Thanks for the color.

Yes.

Operator, we're now about eight past the hour.

If we could take one more question, then we'll draw it down after that.

I'm showing no questions at this time, sir.

Okay.

Great.

Mike, if you want to wrap?

Yes, I'd just like to, on behalf of Kevin Caponecchi, Rick Weller and myself, I want to thank everybody for taking the time to listen.

We're always available, and thank you very much.

Bye-bye, see you next quarter.

Ladies and gentlemen, thank you for participating in our conference.

This concludes our program for today.You may all now disconnect, and have a wonderful day.