Euronet Worldwide Inc (EEFT) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Euronet Worldwide second quarter 2011 earnings results conference call.

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

Later, we'll conduct a question-and-answer session and instructions will follow at that time.

(Operator Instructions).

As a reminder, this conference is being recorded.

I would now like to introduce your host, Jeffrey Newman, Executive Vice President and General Counsel.

Sir, you may begin.

Thank you, Stephanie.

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

On this call, we'll present our results for the second quarter 2011.

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

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

Statements made on this call that concern Euronet's or its management's 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 as a result of the 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 abilities to renew existing contracts at profitable rates, changes in fees for transactions performed for cards bearing international logos, 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 via the SEC's Edgar website 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 Weller, our CFO.

Thank you, Jeff, and welcome, everyone.

I will begin with the second quarter results on slide five.

For the second quarter 2011, Euronet delivered revenue of $279.8 million, operating income of $18.8 million, and adjusted EBITDA of $37.4 million.

Our cash EPS of $0.35 was in line with our guidance, despite a bit of headwind from FX rates.

As has been the case in some previous quarters, second quarter 2011 results were impacted by currency exchange rates, which affects comparisons to prior year.

To this end, we have also presented our results to eliminate the favorable impacts of stronger foreign currencies against the US dollar.

You can see the total Company impacts on this slide and in our earnings release.

I will discuss the specific impacts when I review the changes on a segment-specific basis.

Let's move to slide six, please.

On slide six, you can see a quarter-over-quarter three-year trend in transaction growth for our EFT and ePay segments.

Again this quarter, the business posted strong annual growth in transactions across all segments.

EPay segment transactions grew 29%, driven by double-digit growth in Germany, Italy, the Middle East, and India, and volumes from our September 2010 Brazilian acquisition.

Offsetting these strong growth rates were declines in transactions in the UK and Australia where economic and competitive landscapes remain challenging.

The EFT segment transactions grew 18%.

Countries leading the growth included the Ukraine, the Czech Republic, Poland, Romania, China, and India.

A special note in Poland.

We saw a very good organic growth in transactions, driven by both the expansion of ATMs, and the banks' encouragement of customers to use off-net ATMs because of the lower interchange fees now charged.

I guess there is a bit of favorableness for our business following the reduced Polish interchange rates.

Next slide, please.

On slide seven, we show quarterly trends in Money Transfer, as well as the mix of US and international originated transactions over the last three years.

In the second quarter, we processed approximately six million transactions, which represents a very strong 13% year-over-year rate of growth.

Within that mix, nontransfer-related transactions accounted for about 12% of the total Money Transfer transactions.

This strong transaction growth is largely attributable to transfers originating outside of the US.

Non-US transactions grew 22% in the second quarter of 2011 versus the prior year.

I'd also point out that we saw stronger results from the US originated transfers.

Not a victory yet, but we certainly like the direction it's going.

The chart on the right illustrates the positive transaction trends split between US and Non-US locations.

Internationally-originated Money Transfers account for 42% of total volumes in the second quarter of 2011, comparing very favorably to 38% the same year -- the same quarter of last year.

Let's go to slide eight.

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

As you can see on this slide, all segments reported nice double-digit operating income expansions.

As you may recall from our earnings release and my prior comment, FX played a bigger role in the second quarter comparisons to the prior year.

All three segments were affected with some variation and impacts to revenues, operating income, and adjusted EBITDA categories between the three.

On the next slide, we have included the results adjusted for FX changes, which provide a better picture of business changes period-over-period.

As such, I will focus our discussion of segment results relative to FX adjusted amounts on the next slide.

Let's go to slide nine, please.

Here on slide nine, I'll cover the segment highlights starting with EFT.

In EFT, revenues decreased 2%, operating income increased 1%, and adjusted EBITDA increased 3%.

While on the surface you might think that this flattish set of numbers year-over-year doesn't look too impressive, however, many of you that follow us consistently will quickly recall the Polishinterchange rate reduction that went into effect in the second quarter last year, and the change in the bank charge fees in Germany to a surcharge model that went into effect at the beginning of this year.

The annual effect of these two events was about $15 million reduction to both the top and bottom lines.

Accordingly, for the EFT segment to come back within a year and recover those lost profits is very significant, demonstrating the resilience of both the EFT team and the markets we operate.

Had these reductions not occurred, EFT's operating income would have grown approximately 27%, providing a good illustration of the earnings growth prospects for this segment.

All in all, simply a great quarter for EFT.

Mike will provide more in-depth discussion when he reviews the business highlights in just a few minutes.

For the ePay segment, revenues grew 2%, adjusted operating income grew 26%, and adjusted EBITDA grew 20%.

Revenue growth of 2% in the quarter continues to be influenced by an increased mix of lower yielding transactions from certain markets like the Middle East and India, offset by reduced transaction volumes in higher yielding countries like Australia and the UK.

We saw very nice non-mobile transactions that contribute substantially to the 26% growth in operating income.

This quarter's results, I think, -- in this quarter's results, I think you can see that non-mobile's contributions are really beginning to make a difference.

For Money Transfer, revenues grew 13%, operating income grew 7%, and adjusted EBITDA was unchanged versus the same quarter last year.

As I mentioned a few minutes ago, Money Transfers transaction growth was largely attributable to transactions -- to transfers originating outside of the US, where we benefit from higher per transaction revenues and margins.

Some of that margin benefit was offset this quarter as a result of increased cost associated with RIA agent and retail store expansion and the operational launch of our channel partner 7-Eleven.

Another very strong expansion quarter for the Money Transfer team.

Let's now move to slide ten for a few comments regarding our balance sheet.

On slide ten, you can see the highlights of our balance sheet.

The net increase in unrestricted cash of $5 million reflects strong operating cash generation, timing of interest and tax payments, CapEx, and favorable working capital improvements.

Total debt remains essentially unchanged.

The revolver expires in April 2012, and although we don't have anything borrowed under the agreement, we do have approximately $50 million of letters of credit issued to mobile operators that would expire along with the revolver.

We are confident that we will be able to extend and expand this agreement before the expiration at terms acceptable to the Company.

There are no other debt obligations coming due for the next 15 months.

The first put date on the $175 million convertible bond is October 12, and the $126 million term loan has an April 14 maturity date.

And as the ratios show on this slide, our credit stats continue to improve along with our free cash flow production.

With that, I'll conclude my comments on the financial results for the second quarter and will hand it over to Mike for further comment on each segment.

Thank you, Rick, and thank you to everyone who has joined us on this call or over the web.

To begin with, I want to talk a little bit about the momentum of our business this quarter.

Back in June, I had the opportunity to bring my global leadership team together into a planning meeting in Spain.

Our objectives were to review the performance of the business, prioritize the opportunities for expansion, as well as to assess the effectiveness of efforts to address certain business challenges.

In 2010, we were dealt a bad hand with the announcement of the ATM fee changes in Germany and the reduction of the Polish interchange rate.

Over the course of the year, I spoke to you about our plans to address these challenges, specifically with a strategy to focus on managing costs and aggressively expand our Value Added Service product portfolio to provide enhanced capabilities throughout our ATM network.

My team worked to develop and execute these plans, many of which are now beginning to favorably impact our revenues and operating income.

In June, I was energized by the depth of innovation and creativity being demonstrated by the team.

Our Company is doing so much that is exciting and innovating in so many ways and winning so many deals around the world.

We've built good momentum and our efforts are paying off; you can see that in the numbers.

I'll now review some of the details with you in my discussion of the business highlights, beginning with EFT on slide number 13.

On slide 13 here, we reflect the EFT segment financial results on an as-reported basis with revenue up 8%, operating income up 12%, and adjusted EBITDA up 14% for the quarter.

Rick took us through the financial highlights for EFT a few minutes ago, so I will not repeat those comments here.

On an FX adjusted basis, revenue operating income and adjusted EBITDA were essentially flat versus the same period last year.

ATMs under management increased 16% to over 12,000 units in the second quarter 2011 versus the previous year.

You heard earlier that we have aggressively expanded our ATM network in China, India, and Poland.

It is also interesting to note here that we are seeing growth in Poland from the banks that are offering free of charge ATM transactions after the Polish interchange fees were reduced.

Both are favorably contributing to the 18% growth in our transactions in the second quarter.

Lastly, it helps to put into perspective that in the EFT segment, we've overcome that $15 million annual hit from the Polish and the Germany rate changes by doing an excellent job developing incremental products and incremental contracts with new banks.

I'll speak to examples of this in the next few slides.

On slide number 14, we list a number of accomplishments pertaining to new contracts for ATM expansion, outsourcing, and network participation agreements in our European markets.

For EFT, our independently-owned ATM networks have played a key role in advancing the growth.

During the quarter, we expanded our independent European network from five countries to eight countries to include Greece, Croatia, and Romania.

This entry into new and strategic markets positions Euronet as the most geographically diverse and fastest growing independent ATM deployer in Europe.

We are experts in the deployment of these independently-owned ATMs.

Moreover, we have a unique expertise in knowing the nuances of the different country requirements.

This is no small task.

This expertise enables us to rapidly bring our ATM networks live and it gives us a significant competitive advantage.

In addition to the multi-phased outsourcing and merchant-acquiring deal with Loyal Bank in Hungary, we also have an agreement to deploy Euronet ATMs for International Currency Exchange, you've seen it maybe in the exports as ICE, foreign exchange bureaus in the Czech Republic and in Poland.

And we sign a network participation agreement covering approximately 2,200 of our Euronet branded ATMs with Sygma Bank.

We also inked two agreements with Citibank.

The first one in Slovakia for enabling contactless card payments on their POS terminals, and the second in Hungary for deploying ATMs under the Citi brand.

The Hungarian agreement also includes Value Added Services.

There were a couple of contract renewals that I will mention.

The first was an extended long-term contract with all Piraeus subsidiaries in the Balkans, Cyprus, and Egypt for credit, debit, and POS outsourcing.

We also signed a two-year extension of the outsourcing agreement with BCP/Millenniuim in Romania that covers approximately 70 ATMs.

Now, let's move onto slide number 15, and we will review some of the new agreements in our Asia/Pak operations.

First, we signed a five-year agreement with Kotak Bank where we will act as a second service provider for outsourced managed services for their ATMs.

We're continuing to expand our network in China and have a new order for Postal Hubei Branch to take over 67 ATMs to be rolled out next quarter.

In Pakistan, we saw a lot of activity.

We sign a new agreement to provide managed services for MNET, which is the second largest local switch in that country, that includes six member banks.

We launched outsourcing services for the Muslim Commercial Bank to provide driving of over 600 ATMs, debit card management, and gateway services, and went live with these ATMs in the driving and the card management services for Barclays in Pakistan.

And finally, Euronet obtained the PCI-DSS certification for our processing center in Pakistan, which makes us the only payments company in that country to have such a certification.

While these positive developments in Pakistan do not carry the EFT segment when it comes to profits right now, they do demonstrate our strategy to be a first mover in large and growing markets, and they allow us to leverage our expertise to quickly build relationships and market share.

Moving onto our software business in Bangladesh, we obtained a large license agreement with an existing customer to provide software for credit card processing and other card connections.

Other agreements include an ITM software agreement with a bank in Indonesia, as well as several software agreements for issuing and acquiring.

We are beginning to see a lot of interest in issuing and acquiring for card associations, like AmEx, Diners, Discover, and China Union Pay, beyond the two dominant players.

Lastly, we signed a contract with ATOM Associates in the UAE for developing kiosk bill payment applications and interfaces.

ATOM is the parent company of MaxBox, which the is deployer of these kiosks in the United Arab Emirates.

Move on, please, to slide number 16, and I'll conclude my comments for the EFT segment with a review of our successes ofsigning and launching Value Added Services in this second quarter.

First, I'd like to remind everyone of the important position that Value Added Services has in our EFT strategy.

Value Added Services are additional services that can be offered directly to consumers through our existing ATM network or to a bank's outsourcing customers.

Examples include pre-paid mobile top-up, dynamic currency conversion, fraud management, bill payment, customer relationship management, ATM Money Transfer payout, and ATM advertising and cardless transactions.

These services are increasingly more attractive to banks that are now seeking new ways to increase profitability and defray the cost of owning and operating their own very expensive ATM networks.

Let's look at a few examples.

We have a new agreement with Alior Bank in Poland for the deployment of Euronet branded deposit terminals and Value Added Services across our shared ATM network, which will allow Alior to make dynamic lending opportunities available to its customers.

There are also signed agreements to provide Value Added Services to Unicredit Bank in Ukraine and Komercijalna Bank in Serbia.

Finally, we signed a sponsorship agreement with Unicredit Bank for Value Added Services on Euronet's independent ATM network in the Ukraine.

We've launched a number of promotions across our ATMs that generate additional transactions and revenues for us from our bank customers and for our bank customers.

Examples include a "Withdraw and Win" lottery promotion and a recurring mobile top-up promotion, both on our independent ATM network in Poland.

There is also a cardless redemption promotion with Kraft Foods where the cash prizes are paid out to winners at over 2,200 Euronet branded ATMs in Poland.

The last Value Added Service launched was an iPhone application that we used to help customers locate ATMs in Poland.

Similar to the other promotional goals, the intent here is to stimulate transaction growth by making it easier for customers to find ATMs, and of course, ATMs with our brand.

So to sum is all up for EFT, we have had a very productive quarter, growing our ATM network by 9% versus the previous quarter, and almost 16% versus the same quarter last year.

Our ATM network now exceeds 12,000 units.

This was all the result of significant work from our EFT team, and I certainly do commend their efforts.

Now, let's move on to slide number 18 where we can review the business highlights for ePay.

On slide number 18, we reflect the ePay financial results on an as-reported basis for the second quarter, with revenue up 14%, operating income up 41%, and adjusted EBITDA up 34% versus the same quarter last year.

On an FX adjusted basis, revenue was up 2% versus second quarter 2010.

Operating income was up 26% and EBITDA up 20% for the same period.

We've already talked about what is happening in our ePay business in markets like the UK and Australia where competitive and economic pressures are impacting our results.

Really, the way we beat these challenges in the short-term and in the long-term is with non-mobile Value Added Services.

During the second quarter, we began to see the benefits of our strategy pay off in Europe, specifically in Germany, the largest market there.

In addition to good growth and mobile top-up volumes, we've also been very successful in growing a mix of non-mobile product sales.

Now, let's move on to slide number 19 and we can review the business highlights for the ePay segment.

On slides number 19 and 20, we've included some of the significant agreements to expand our core mobile business in several countries.

You can read through the list and I'll highlight a few that are more significant.

In Spain, we renewed our contract with Dia, which is a large supermarket chain with 3,000 locations.

The agreement included the addition of calling card and internet payment products.

I'll take a moment here to mention some of the great cross-selling that we are beginning to see in Spain between our ePay and our Money Transfer segments.

Now, most all ePay products are being sold across the RIA agent network in that market, and that translates into more sales and also into a better value proposition for the Money Transfer agents.

In Italy, the team had another successful quarter, signing 435 new direct independent retailers.

Similarly in Poland, we will add 147 retail shops and 15,000 points of sale through a contract for mobile top-up with Kaufland.

We do business with the same retailer in Germany, and I always love to point out that we are a successful team and when we pull a retailer away from a competitor, it's especially sweet.

Great job team.

On slide number 20, I'll continue in Australia where we've launched mobile airtime with Travelex, a foreign exchange and electronics payment provider.

And we've also listed a number of other contracts that we signed in Germany, including the Bela grocery store chain, Electronic Partners, the German lottery, Euronics, a big electronics retailer there that has 800 points of sale.

In other countries, we signed a contract to distribute iTunes in 140 outlets in Switzerland and we expanded our Middle East presence.

The agreements represented on the previous pages should give you a good idea how successful the team has been in expending our retail distribution.

This is our core asset, and it leverages both mobile and non-mobile sales.

Now, let's turn to the next slide and review the non-mobile product highlights for this segment, on slide number 21 here.

As I've discussed before, our product strategy includes the expansion for mobile top-up to new, higher margin offerings that include the distribution of digital content, online video games, transport and ticketing, bill payment services, pre-paid debit and gift cards, as well as electronic payment services for lotteries.

This ability is a value differentiator for ePay and allows us to continually expand our value proposition for our retail distribution partners.

In the second quarter, we saw the best illustration of the benefits of this strategy in Germany, where growth in the mix of non-mobile product sales drove a discernible improvement in the operating income.

Prepaid gift cards represent a good portion of the current non-mobile product offerings in ePay.

In the second quarter 2011, we won a contract with Hagebaumarkt, a large do-it-yourself chain in Germany with processing of 300,000 closed-loop gift cards.

We also launched the first web solution for closed-loop gift cards through independent pharmacies in Germany.

In new Zealand, we were awarded a contract to produce and process gift cards for Exxon-Mobil.

And we launched processing of gift cards through Boots, a large pharmacy chain in the UK.

This quarter we were awarded a contract with Myer, a retailer in Australia, which is kind of similar to Target here in the US.

And expanded the distribution of our gift card malls to 350 BP convenience stores.

We also added the Adrenaline gift card to our gift card mall offering in Australia.

Adrenaline is on online supplier of unique gift offerings with credit and pre-paid online purchase capabilities.

We also won several contracts that include the distribution of digital content in Italy, Australia, and New Zealand, and we launched Microsoft Xbox across Australia and New Zealand.

And here in the US, we even launched a ticket voucher program with Major League Baseball Association in Euronet's hometown market, Kansas City.

Go Royals!

In summary, our ePay segment really showed us that we can continue to expect growth across our markets.

Non-mobile is and will increasingly be a major contributor to our growth and profit.

Now let's move to slide number 23 and we can begin our review of the Money Transfer business.

Here on slide number 23, we reflect the Money Transfer segment financial results on an as-reported basis for the second quarter with revenue up 21%, operating income up 19%, and adjusted EBITDA up 9% versus the same quarter last year.

On an FX adjusted basis, revenue was up 13% versus the second quarter 2010, operating income up 7%, and EBITDA was about unchanged for the period.

This was another good quarter for the Money Transfer segment.

This business, and this segment here, has benefited from our continued efforts to manage and expand the network of agents and payout locations, which are continuing to diversify our revenue sources and promote steady growth in this segment's results.

During the quarter, we saw 13% growth in transaction volumes to six million transactions.

Our non-US Money Transfer volumes grew 22% and continue to be a very important part of the growth equation for this segment.

On the next two slides, I will go into more detail about what we're doing to further expand our network reach in support of continued transaction growth.

On slide number 24, we review the changes in our send and payout network, correspondent to locations during the second quarter.

Our Money Transfer payout network reaches 133 countries now and, coincidentally, has 133,000 total send and payout locations.

This quarter, we added three new countries to our network, Croatia, Kosovo, and Tanzania.

During the quarter, we launched 24 new correspondents in 12 countries that together account for more than 6,000 locations.

In southern and eastern Europe, the team had significant accomplishments, which included agreements with Novabanka in Bulgaria, Bosnia and Herzegovina, and also with NKO in Russia and Kazakhstan.

In Africa, we signed an agreement with La Poste in Senegal and already launched 157 of the 200 locations in that country.

Senegal, a former French colony, is one of the top corridors in Africa and represents a significant growth opportunity for our business in Europe.

In addition to what was launched this quarter, we also signed agreements with 16 new correspondents with a combined network of over 1,200 locations.

I'm very pleased with the progress made in our Money Transfer segment this quarter.

Now, let's move onto the next slide.

On slide number 25, I'll speak to the transaction growth in the Money Transfer segment.

The last slide, we talked about where we were sending to and where we were sending from.

As I mentioned a few minutes ago, in this quarter, we saw positive increases in our consolidated transactions and revenues.

13% growth in transactions and a 21% highly leveraged growth in revenue.

Consistent with previous quarters, we saw continued strength in non-US transfers, up 22% this quarter versus the previous year.

International transfers now account for 42% of all transfers, up from 38% one year ago.

We also saw more resilience in the US transfers, which were up 5%.

It is difficult to conclude if this uptick in US transfers will sustain itself, but weare certainly encouraged that we had an entire quarter that we were up 5%.

As you may recall last quarter, we discussed the growing importance of our Value Added Services in the Money Transfer segment.

These products include, for example, the RIA branded pre-paid debit cards, bill payment services, check-cashing services, currently exchange, and ePay mobile top-ups.

We're seeing good response from our customers for these types of products.

We are also happy to announce the rollout of Bill Payment and Money Transfer services in the 5,500 7-Eleven stores, along with the launch of the new RIA Card.

We believe that 7-Eleven is a unique opportunity for our business in the US and we look for great potential there in the future.

So to summarize, the Money Transfer segment continues to do a great job in signing and launching agreements to expand our global agent network, which is directly contributing to the sustained growth in international transfer volumes and revenues.

Money Transfer's success is all about more originating sites, more send sites, and more products and RIA delivered again on all three fronts.

With that, let's turn to slide number 26 for some overall comments for the quarter.

On slide 26, you can see that we posted cash earnings per share of $0.35 in the second quarter of 2011, compared with our $0.35 guidance, and up from the first quarter of this year's $0.30.

The business achieved earnings expansion on both an as-reported and constant dollar basis.

We saw transaction growth and profit expansion across all three business segments.

EFT has overcome the impacts of the rate changes in Poland and Germany and has aggressively filled the pipeline with new agreements for both ATM network and Value Added Services.

EPay continues to grow the core of mobile top-up business and is beginning to see the results of expansions through its non-mobile products.

Money Transfer continues to take advantage of strong international transaction growth and has seen resilience in its US transactions.

All three segments delivered solid results.

We continue to have a strong cash position and no near-term debt obligations.

And finally, we expect our third quarter 2011 adjusted cash earnings per share from continuing operations to approximate $0.37, which assumes that currencies remain stable through the quarter.

This concludes our presentation, and we will now be glad to take questions.

Operator, can you assist us, please?

(Operator Instructions).

Our first question come from Tim Willi from Wells Fargo.

Your line is open.

Thanks.

Good morning, guys.

A couple questions.

First, Mike, in the Money Transfer business, you mentioned some of the expenses just associated with rollouts, etc.

Could you give us any thoughts on just how long those expenses, etc., will weigh on the margins associated with 7-Eleven and other product launches.

Is this just a couple of quarters or is this something that might go on a little bit longer than that?

Yeah.

The 7-Eleven launch was a pretty expensive launch because we were in 5,500 locations.

We had to send out all the marketing materials and etc., etc., you know, to launch that.

So that now is fully launched, so we will see those expenses taper off really quickly.

The other growth in expenses that we have, is we have opened up some stores, which will have a continued amount of expense and we have, you know, aggressively expanded our sales force, particularly in the US and particularly actually in Europe, where we see huge growth.

You saw the 22% growth in transactions in Europe.

So what you'll see is Q2 is probably a high point and we should see some tapering off that.

But the results of those investments are pretty obvious, just with the numbers in this segment.

And to have a 5% growth in the US, we've been talking to you about 20% plus growth in Europe now for almost two years running.

But now to see the US come alive, these investments are paying off very nicely.

And just two other quick questions, one on ePay and one on at EFT.

Just in the ePay business, can you frame for us the sort of relative revenue mix and then maybe -- I don't think it's been asked, could we talk a bit about the EBITs or EBITDA contributions for non-telephony if it's a way to think about that because it seems like you called it out as being a big driver of what was a pretty strong quarter.

Yeah.

That's a good point.

In fact, over the last several calls, I would say two and a half years ago that that number of contribution was darn near zero, maybe 2% or something.

And as far as our EBIT contribution for Value Added Services and ePay, that number has grown quarter by quarter.

Our last quarter was about 12%.

This quarter is 14%.

It continues to grow.

It's high-margin products that we get paid a little bit more for them.

They set right on top of this infrastructure that basically mobile top-up pays for.

So that's why you see such -- you know, you see the fast drop to the bottom line there.

And so we want to continue to grow that.

14% now, let's hope for more next quarter.

Is that the EBIT contribution or the revenue contribution?

That's the contribution.

Well, gross margin.

Gross margin.

Okay.

Last question on EFT business.

Should we view sort of where we're at right now on EBITs and EBITDA as sort of the base rate from which the business builds in terms of its profitability?

Yeah, absolutely.

We're not -- I mean, this is what we're doing right now.

There's no like one times or anything special in this quarter.

We have basically just punched our way out of the corner from those two rate changes.

And, you know, as you can see by the numbers, we're growing and expanding our business.

Yes.

Great.

Thank you very much.

Our next question comes from Chris Shettler from William Blair.

Your line is open.

Hi, guys.

Good morning.

Good morning, Chris.

I was hoping you could give a little bit more color on the Poland commentary from earlier.

And sounds like banks are encouraging customers to use off-network ATMs.

Just what exactly is happening on the ground and when did you start to see some of the trends take place?

Really kind of started this quarter.

But what's -- as you remember, what happened there in Poland is the domestic interchange fee was dropped by about two-thirds.

And that, you know, hit us a lot as far as our revenues.

But what that also does to the smaller banks is it makes it very inexpensive for them to allow their customers to go to off-branch locations, because in the old days, it would have cost that bank $1.45, and now it only costs that bank $0.45.

So banks are now encouraging their customers to go to like our network, which is bank independent, to do their transactions because this bank only has to reimburse us $0.45 for that.

What's happened then, the result is that our transaction volumes have gone up, and as a result our revenues have gone up.

We've also done -- Kevin just reminded me, too, I mean, we've done promotionsourselves to get people to understand that our network is different than a bank-owned network.

We mentioned in here that we have the Nestle -- or the Kraft Foods promotion.

We've had other kind of like little lottery kind of promotions at the ATMs.

I mean, our ATMs are the best branded, the best located in Poland.

And we're doing fun things on them for customers, so if they have a choice, they're going to probably withdraw money from our ATMs versus some boring bank's ATM on the corner.

Okay.

Thanks, Mike.

And then nice uptick in the ATM count this quarter.

Hoping you could maybe give us a little bit more color on -- it sounds like a lot of those are in Romania, Greece, Croatia, places like that, but I'd be curious --

The results, though, I think in this quarter -- Kevin, correct me, didn't we get the MCB ones in Pakistan live in this last quarter?

Yes.

So 600 of those, that growth, was just in Pakistan.

Okay.

With MCB, which is a great bank.

It's something like the number two bank there in Pakistan.

They're a nice dynamic forward-thinking bank.

And we hope to do a lot more things with them in that huge market.

Any reason to think that the profitability of those machines or just the profitability of the machines that you're adding in general would be different than your core base of ATMs?

You know, it depends on where we put them, Chris.

We've mentioned before that we get highest profits in the ATMs that we add in Europe.

And then the next most profitable one is China.

And lastly is India, although India and China are pretty tight.

So it just kind of depends on where we'll close the deals.

We've got more deals to be closed in Europe than anywhere else, so probably that number isn't going to change much, at least for the next couple of quarters.

I can see what's kind of in our -- call it our sales funnel, you know, and themajority of those are in Europe where we get the highest margins.

Okay.

Then just one other one.

The corporate expense this quarter was $8.9 million versus $5.5 million last year, and just hoping that maybe you could break out that $4.4 million difference.

Sounds like a little over $1 million was stock-based comp, but then what was the remainder of that difference?

It was transaction fees, some professional fees for transactions that we've looked at, as well as increased incentive pay, because we're accruals for bonuses.

We had last year -- unfortunately, our bonus numbers last year were zero.

And we continue to be at or above our expectations here, too.

So it looks like we're on track for a little better paycheck this year.

Okay.

But if we were to look at that expense over the next few quarters, would it be similar to the current -- so the second quarter number or will it dip back down?

It will be down a little bit, especially on the stock-based comp.

Okay.

Thank you.

And then we had a little bit of cumulative catch-up on the incentive pay, so thatnumber would relax itself a little bit in the next quarter.

Okay.

So down maybe a couple million dollars?

Oh, that might be a little strong.

Okay.

Maybe $1.5 million.

Okay.

Thank you, guys.

Yeah, just for your information, Chris, when we do our bonus accruals every quarter, we really try to assess where we are versus the aggressive bonus targets that we have.

And if it doesn't look like we're going to get there, then we don't accrue, but if we have a really good quarter, then -- and it makes it more likely that we might have a bonus this year, then we would begin to accrue.

But if we hadn't accrued the prior quarter, we've got to accrue kind of two quarters worth.

Okay.

Thanks.

Our next question comes from John Kraft from D.A.

Davidson.

Your line is open.

Good morning, guys, and congratulations on all the activity.

Thank you.

It's finally nice to have, you know, kind of a butt-kicking quarter here that we're coming out of the doldrums of having rate changes thrust upon us.

We can now actually do some business and go out there sell and make money.

You know, so it is kind of nice.

Yep.

Well, on that note, it's certainly interesting to hear your commentary on how the banks are acting in Poland.

I guess it's obviously a little early maybe in Germany, but given what has happened there with just the ATM fees, can you talk about maybe some early indications of how the consumer or bank behavior has changed there?

The banks really are behaving no different, because really when you put things in perspective, there are very few ATMs that are not owned by banks in that market; it's something like 2,500 ATMs out of 55,000, something like that, Kevin?

Yep.

So there's just -- we're kind of -- we're just not a large enough of a factor for the banks to deal with.

As far as the consumers, we're pretty much tracking with our estimates of where we thought the revenues would go.

What we'll see, as we move forward, is customers now have to do a surcharge.

And so -- and they have to agree to it, where in the old days, they mighthave gotten charged for it, might not of, but the banks certainly did.

So we'll have to see where those trends go.

Some of the customers are -- they might look at the surcharge and they might abandon that transaction or some of them might continue.

So we'll just kind of see how things work.

But we don't expect upside.

Yeah, I don't expect our German numbers to improve like in Poland because that truly was instigated by their banks there.

And you've got to understand, too, in Poland there is -- how many ATMs?

12,000 ATMs, something like that.

14,000.

14,000 ATMs, andyou know, we're like 2,500 of them.

So we're a significant --

Almost half the off branch.

Yeah, and half the off branch, so we are a significant part of the ATM infrastructure in that market.

So when a bank says, "Hey, why don't you go to Euronet ATM" or "We'll give you free access to that network," it makes a difference in that market.

Gotcha.

That's helpful.

And back to the 7-Eleven launch, that's up live now in those 5,000 locations?

Yes, it is.

And any early indications there?

Is it something that people are responding to?

And where are they?

You mean where are they --

Geographically.

Well, 7-Elevens are everywhere.

No, I mean that predominantly US?

Oh yes, I'm sorry, they're all in the US.

All US.

Okay.

And just a housekeeping for Rick.

As far as the tax, I don't know if you made some comments about the next couple of quarters, but you were -- your tax rate was a little bit higher this quarter.

What are you thinking for the next couple?

Yeah.

It was just slightly higher.

I wouldn't say it was a lot there, John.

So I would tell you I would expect it to be reasonably the same.

It might be up another percent or so.

But, you know, as you work through your math, you'll see that 1%, 1.5% wouldn't make a huge difference.

But I would say it might be up another 1%, 1.5% at best.

Gotcha.

Thanks, guys.

Thank you, John.

Our next question comes from Robert Dodd from Morgan Keegan.

Your line is open.

Going back to the ATM count, you put in slightly over 1,000 ATMs.

Can you give us any color on what -- you mentioned that the Pakistan number, I mean, 600 there.

How many of them were owned ATMs versus outsourced ATMs?

There's about 300 of those that were owned ATMs, Robert.

And it was -- I don't like to correct Mike much, but it was about 200 ATMs in Pakistan.

That we've only got live so far?

Yeah, we've only got 200 live.

Okay.

I stand corrected -- 600 potential, 200 live.

Right.

Right.

That's the -- I think if I remember right, the second best number that you've ever put up.

You've put up a 1,200 add in the second quarter of 2004 if you go back, way back when.

Is it an indication that the markets are finally kind of unfreezing in terms of -- the banks to actually deploy?

Certainly, we've been talking to everybody over the last couple of years.

With the banking crisis for about two years, almost no banks in Europe added any ATMs.

And so now that they're -- they received all their bailouts, etc., etc., these banks are feeling a lot more aggressive, and they're starting to put in more ATMs across our current contracts, plus we ourselves are doing it, too, because we'll make up for the fact that banks are still kind of slow on the uptake.

These markets that we're in, don't forget, they're developing markets and these markets are way under-penetrated with respect to ATMs.

So when we drop some ATMs in these markets, they get immediate attention by customers because they need that infrastructure.

So but between the banks themselves recognizing that they can kind of turn on their business plans again in us, we, in our own strategies, we see good growth.

Right.

And that kind of leads me to the second part of the question.

I mean, when -- obviously, we go back a few years, many years, you had one data center in Europe.

Now, off the top of my head, you've got Hungary, India, China, Pakistan --

Well, yeah, so let me just tell you kind of where we are and why we are.

When it comes to everything in Europe, we basically have one processing center for the EFT business, that's in Budapest, etc.

We also, because of national laws, are required to have our own data center in India and in China.

So those are the other two.

The other processing centers that we mentioned sometimes are not ours in total; they're maybe ours in a joint venture that we have invested our talents in, so this would be in places like Bahrain, in Pakistan -- and is there another one, Kevin, I might be forgetting?

And I think that's about --

And then the only other thing is that like in some of these countries, in Pakistan might be a good example, they may not allow processing out of India, for example, because of --

Right, for obviously reasons.

So really those other processing centers outside of our three major ones, are -- we don't even own 100% of them, they're with a joint venture to get around the political realities of those markets.

But we also have closed down -- I mean, we used to have a processing in Serbia, we've consolidate -- and also Greece, and consolidated both those into the Hungarian processing center.

Right.

Just extending that question.

When we look at China, obviously, when you went in there, it was a big data center, big market, etc., it took a while longer to reach, you know, to get covering cash flow than originally expected.

I mean, how are you looking at these new markets now in terms of -- you know, what level of confidence do you have to have in rapid pay back on a data center or JV formation?

Well, just to put it into perspective, the Pakistan deal was profitable damn near the first day we turned on.

Okay.

The expansion in these markets we're seeing --

I mean, we really kind of -- we've been there, done that so many times now.

We enter into agreements that are good.

They usually don't take long to start covering their own expenses.

And we're paying more surcharges on each one --

So we put more services on them, as Kevin just mentioned, and in combination with that, we don't go into a market kind of blank like we did with China.

I mean, China was a bet.

We had 100 ATMs as a pilot project, or 90 ATMs as pilot project and then wanted to grow the business, and, you know, we're up to about almost 1,000 ATMs now.

When we went into Pakistan, we had an anchor tenant kind of to start with, and that was MCB.

And so we knew that we could get our nut covered with just the first guy, so the second, third, and fourth guys are all going to be gravy.

All right.

Thank you.

Uh-huh.

Our next question comes from Gil Luria of Wedbush Securities.

Your line is open.

Good morning.

Good morning, Gil.

In your Money Transfer business, and now that you're up and running at 7-Eleven, based on the business there that you're displacing and the kind of functionality and futures that you're adding, in the Money Transfer business already has nice growth, how much incremental growth do you think you could get from them in the next year?

Well, I mean, we have pretty strong expectations for Money Transfer.

I mean, let's not forget that we get over half our transactions from the US and a littleless than half or call it 60% -- 40% of our contribution from the US.

With the US now growing for the first quarter that we've been able to say that since really for a long time with 5% growth, this is very exciting.

Because what we've had is basically half of our business has been declining every single quarter for the last three years.

And the only reason the Money Transfer numbers have been positive is because of the great strides we've made in Europe.

So with the US, you know, starting to come online, that's a very exciting for us because then we don't have that anchor around our neck as we're swimmingacross the river, and so we can add that contribution to the strong growth that we keep seeing quarter after quarter in Europe.

So we would expect, you know, we would hope that this continues.

Like I said, one quarter maybe isn't enough to tell us for sure, but it was a quarter full of growth, not just a month.

How much does it increase your send locations in the US?

How many existing send locations did you have before you went live at 7-Eleven?

We haven't specifically stated that number, Gil, just for competitive reasons.

We find that it's difficult to discern what everybody has in terms or origination sites out there.

But you could -- I think it's fair to say that 5,500 would represent a very substantial amount in relationship to what our existing send sites are.

Great.

And then on the EFT business, can you give us an update how much of the ATM count is in India and China, how much of the business is in those countries?

It seems like that's still a big, big source of growth.

Roughly 25% of our machines are there in those countries.

Yeah.

I'm guessing around 3,500-ish total ATMs.

What percent of the contribution of either revenue or EBIT is coming from those countries?

Of revenue -- well, I would tell you that on the revenue side, it would be smaller than that, as we've always said, that those countries would be smaller revenue and profits in relationship to the number of boxes over there.

But I prefer us not to go any deeper than that, Rick, just for competitive pricing reasons with our customers.

But as we mentioned, we make the most profit on average for running ATMs in Europe, and that number is probably 15% to 20% higher than what we can get in Asia, so when you're doing -- call it a corner of your boxes in Asia and a little bit lower number, you can kind of do the math.

Sounds good.

Thank you very much.

Thank you.

Our next question comes from Michael Saloio from Sidoti & Company.

Your line is open.

Hi, Michael.

Hi, how are you doing?

Just one quick question.

I appreciate the color on non-mobile growth at ePay.

Could you give us any sense of how the core mobile top-up business is trending as far as what the pricing has looked like and maybe volume loaded in the legacy regions?

Yeah, I think as we said in our notes there that we had seen expansion in both the core mobile and the non-mobile.

Matter of fact, the substantial volume of the transaction growth was in the non-mobile -- I'm sorry, in the mobile space.

So, you know, those numbers continue to grow for us, and as you know, we acquired the business in Brazil, which is a very strong mobile growth market in that it still has a very high concentration of scratch cards in the market.

And so I think that the relative health of that business continues to do nicely.

If anything, the biggest impact on the pricing, if you will, when you look at the numbers on like a revenue per transaction is more to do with mix than it is with pricing.

We did see some additional mobile operators lower the commission rate, of which we pass that through to the retailers.

And so if I kind of take a look at the margin per transaction on a year over year basis, our margins per transaction held in pretty strongly, down a little bit because of mix, but not down much because of price.

So the pricing has held in there pretty nicely, we pushed most of that decrease or damn near all of it through to retailers, we continue to have good fundamental growth in the mobile business, and we have good growth prospects, whether it's in the places like Brazil, or as Mike commented on, Germany, you know, really good growth again here.

And some other markets that we mentioned in there, whether it's the Indias, the Middle East, and the Italian markets, all posted good growth.

Great.

That's really all I have.

Okay, well thank you very much.

Operator, it's after 9AM, and for good manners, I think we'll end approximately after an hour here.

I would like to thank everybody for taking the time to speak with us today on the -- or listen to us on the call or on the web, and I'll look forward to talking to you in about 90 days.

Bye bye.

Ladies and gentlemen, that does conclude today's conference.

You may all disconnect, and have a wonderful day.