Euronet Worldwide Inc (EEFT) 2012 Q2 法說會逐字稿

Greetings and welcome to the Euronet Services WorldWide second quarter 2012 earnings conference call. At this time, all participants are in a listen only mode. Later we will conduct an answer and question session. (Operator Instructions). As a reminder this call may be recorded.

It is now my pleasure to introduce your host Mr. Jeff Newman, Executive Vice- President and General Counsel for Euronet WorldWide Services. Thank you, Mr. Newman you may begin.

Thank you, Sam. Good Morning and welcome everyone to Euronet's quarterly results conference call. We will present our results for the second quarter 2012 on this call. We have Mike Brown, our CEO, Rick Weller, our CFO, and Kevin Caponecchi the President of Euronet Worldwide on the call.

Now Before we begin, I need to make a disclaimer concerning forward-looking statements. Statements made on this call that concern Euronet's or it's managements 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 a number of factors including conditions in the world financial markets, general economic conditions, technological developments effecting the market for the Company's products and services, foreign currency exchange fluctuations, the abilities company -- the Company's ability to renew existing contracts at profitable rates, changes in fees, payable for transactions performed for cards bearing international logos over the company's networks.

And changing in laws and regulations effecting the Company's business including immigration laws. These risks and other risks are described in our 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-Q. Copies of these filings may be obtained via the S.E.C.'s Edgarwebsite or by contacting the Company or the S.E.C. Euronet Services does not intent to update these forward-looking statements, and undertakes no duty to any person to provide any such update under any circumstances. The company regularly posted important information to the investor relations section of its website. Now I'll turn the call over to Rick Weller, our CFO. Rick.

Thank you, Jeff. And welcome, everyone. I will begin my comments for the second quarter on slide 5. For the quarter revenue was $302.4 million. Operating income was $19.9 million, and adjusted EBITDA was $39 million. Our cash EPS of $0.39 was in line with our guidance. This includes head wind of about $0.015 from FX together with some benefits we received from tax.

As many of you know, more than 75% of our revenues are generated outside of the U.S. So the decline in foreign currencies compared to the dollar had a significant impact on our second quarter earnings compared to the prior year. And for that matter, the prior quarter. To compare the current results to the prior year, we have also presented our results by eliminating the foreign translation impact. I will discuss the FX impacts in more detail when I talk about the segments specific results.

Next slide please. On slide 6, we present the three year trend in transactions for each segment. The EFTsegment continues to see strong 25% transaction growth in the quarter, with expansion across virtually all markets. India, Pakistan, Poland, Romania, our cross border acquiring business, and the addition of Euronet Middle East contributed the greatest growth this quarter. Epay segment saw modest transaction growth of 3% in the quarter, primarily from the U.S., Germany, the U.K., and ATX. Offsetting these gains were declines in Brazil, which we discussed a couple of quarters ago, in Australia, which we reported in the third quarter last year, and Spain, where the economic landscape is challenging.

Finally, Rhea continues to see transaction increases across all regions. During the quarter, total transactions grew by 21%. Driven by a 93% growth in non money transfer transactions. Total money transactions, transfers, grew 10%. Stemming from an 11% increase in U.S. initiated transfers. U.S. growth includes an 11% increase in transfers to Mexico. Transfers initiated outside of the U.S. grew 9% in the quarter, despite the struggling European economy.

The 93% growth in non money transfers was largely from an increase in mobile pop up transactions sold through Rhea agents, check cashing, and bill payments. You will see the influence of non money transfers in the average revenue per transaction for the Money Transfer Segment where the averaging goes down simply due to mix. For example, our revenue on a money transfer is about $13.00 compared to $3.00 to $4.00 on non money transfers.

On slide 7, we present the business segment results on an as reported basis. As I mentioned earlier, foreign exchange fluctuations had a significant impact on our results this quarter. For perspective, the second quarter Euro rate was 11% lower than the second quarter last year. The Dalasi was down by 17%. The Brazilian Real down by 18% and the Australian dollar down by 5%. In order to make more meaningful comparisons I will center my discussions on the next slide, where the financial results are presented adjusted for currency changes.

Next slide, please. I'm on slide eight now. In the quarter, the EFT segment constant currency revenue, operating income, and adjusted EBITDA increased 35%, 29%, and 32% respectively. These solid results can be attributed to the growth in ATMs which drove 25% transaction growth, additional sales of our value added product solutions, and the full interest of our Middle East subsidiary. Epay constant currency revenue increased 15%, operating income decreased 22%, and adjusted EBITDA decreased 9% compared to the same quarter the prior year. The increase in revenue is largely due to the September 2011 acquisition of Cadooz.

The decline in operating income stems largely from the previously announced changes in mobile operator distribution strategy in Brazil, and retailers choosing to go direct with mobile operators in Australia discussed in the third quarter last year. While Australia's performance was relatively stable, on a sequential quarterly basis it still weighs down the year over year comps. And regarding Australia, we will partially lap it in the third quarter. Additionally, this quarter our Spanish business was impacted by the declining economy. Tempering these losses, was good growth in the U.S., and Germany together with growth in non mobile content particularly in Germany. In the Money Transfer Segment, constant currency revenue increased 12%, operating income increased 42%, and adjusted EBITDA increased 19%.

This is the third sequential quarter we have seen double digit constant currency growth in revenue, operating and income -- operating income, and adjusted EBITDA for the Money Transfer Segment. This expansion was driven by 21% total transaction growth resulting from additional network locations and product sales. All and all, this was a very strong quarter for a Money Transfer Segment. Gross margins were relatively stable across all three segments, both sequentially and year over year. Operating margins in Epay, contracted both sequentially and year-over-year. However, both EFT, and money transfer improved sequential operating margins and maintained operating margins year over year. The decrees in corporate expense compare to the prior year is largely attributable to lower short term incentives and stock based compensation accruals.

Next slid, please. On slide 9, we provide a few highlights of our balance sheet for the quarter. Cash remained relatively the same. We essentially used free cash flows to pay down debt. As you know, we have $171 million principle amount of convertible bonds that can be put to us in October. With a conversion price of $40.48. We expect the holders to exercise their put. Anticipating such, we currently plan to repurchase the bonds using cash on hand, and available capacity on our $265 million revolving line of credit.

You may also remember in August last year, the board authorized share repurchases up to $100 million or 5 million share. During the quarter, we did not repurchase any shares. But we will continue to consider repurchases in light of the share price, and liquidity flexibility. In summary, our balance sheet remains strong, with modest leverage. With that, I conclude my comments and turn it over to Mike.

Hi, thank you, Rick. And welcome to everyone on the call. I am glad to be joining you this morning. I can actually in Rome, Italy, where I am meeting with potential and perspective customers, as well as our Epay and money transfer teams who continue to do a great job for us in this market. I am pleased with our second quarter earnings, as our EFTand money transfer teams delivered exceptional results.

The strong earnings helped us to overcome the challenges we were facing within the Epay segment, and to deliver consolidated constant currency revenue and operating income growth of 18 and 19% respectively. With a significant portion of our revenue being generated in Europe, I have fielded a lot of questions about how the financial crisis in Europe is impacting our business. As the crisis has continued to unfold, we have been fortunate that a majority of our European revenue is generated in two of Europe's strongest economies Germany and Poland. This has resulted in minimal overall impact to our business.

We have also seen softness in the harder hit markets like Spain and Italy, however, our worldwide presence and extensive product portfolio have helped us to offset some of these impacts. The downturn is also presented us with unique and new opportunities. In the old days we used to outsource and run ATMs for our bank, charging a monthly fee per ATM. Now in addition to cash withdrawals, we provide mobile pop up, advertising, and a host of other value added services on the ATM's These products bring additional revenue to your net and to our customers creating exponential value for each ATM. that we operate.

Banks are starting to see the value that we bring to the EFT -- I mean to the ATM networks as they have always perceived really as a cost center for their distribution -- for their account. This results in more deals than ever for our EFT team. With that said, let's move on to slide 12 and talk about the EFT segment in more detail. Here on slide 12, we present our quarterly financial highlights for the EFT segment. In this quarter we saw more of the same from our EFT division. They delivered more ATM, more value added services and more new agreements and more transactions. This translated nicely into constant currency revenue and operating income growth of 35% and 29% respectively.

This was an excellent quarter for our EFT team, as they continued to capitalize on opportunities presented and I expect more of the same next quarter. So now let's move on to the next slide where I will comment on some of the highlights. On slide number 13, you can see we have signed lot of agreements during this quarter, so I am only going to hit the most note worthy. In Romania we launched a new independent automated deposit terminal network. These are the first deposit terminals to be operated with participation from multiple banks in that market. There are a number of benefits, ADTs offer their customer, including 24/7 service, immediate funds availability, and time saving. Our EFT team also signed a global agreement with American Express to deploy ATM at Amex locations. We won this agreement because of our global presence, our processing expertise, and our extensive value added services portfolio. While this agreement won't cover a large number of ATMs it speaks to Euronet's ability to create value for our customers which I mentioned a few slides back.

We continue to expand our footprint in Poland by signing an agreement to provide ATM driving services for S.K. Bank, one of the largest cooperative banks in the country. While this agreement is only for 35 ATMs. It is the first with a cooperative bank in Poland. And to give you a little better eye of what this means now, and could mean in the future. There are 575 cooperative banks across the country, which operate a combined 3100 ATMs. Serving as evidence of the opportunities that still exist within our largest EFT market.

Finally, we renewed several agreements including a outsourcing agreement with Standard Charter Bank in India, a network participation agreement in Poland, and outsourcing agreements in Romania and Cyprus. So now let's move on to slide number 14. Here you can see the highlights from our value added services portfolio, and ATM network expansion. During the quarter, we continued to expand our value added services footprint, by introducing new services on our IADNetwork, That Means Independent ATM Deplorer, in Ukraine and on customer networks In Romania Serbia, Montenegro, Bosnia, Bulgaria, Ukraine, And The U.A.E.

We also signed an agreement to provide value added services on ATM and P.O.S. terminals for the First Bank of Nigeria. In addition to growth and value added services we saw significant ATM expansion in the second quarter. We added over 1,400 ATMs across India and Europe, bringing our total ATMs under management 17,048 by the end of the quarter. Our outsources back log stands at 385 ATM. Last quarter we told you we are going to deploy 1,000 ATM in India in the quarter and we delivered by installing 1,090. Not only did we deliver in India, but we installed more than 300 ATMs in Europe. A couple of calls ago, one of you ask me whether I thought 20,000 ATMs was achievable by 2014. I told you that it would absolutely stun me if we didn't get to 20,000 ATMs in three years. Being above the 17,000 mark, six months later, makes that number look well within sight. Overall, this was a outstanding quarter for the EFT business, and I'm excited to deliver more of the same in the third quarter.

Now let's move on to slide number 16, and we can talk for a little bit about Epay. Here first on slide number 16, will present the results for Epay on as reported basis. I wish I could say that the story here at Epay was as good as E.F.T., but the fact is that we didn't do as well this quarter. Our weak performance is a little more evident than prior quarters but the story is still the same. In Brazil, the change in mobile operator distribution strategy has had a significant impact on our prepaid earnings.

In addition, half way through the third quarter last year, you may recall certain retailers went direct with mobile operators in Australia. As Rick mentioned this continues to negatively impact our results year-over-year, however, we feel like the business in Australia has largely stabilized, and once we lapped the losses of the retailers in the next quarter we will see more of a positive picture in Australia year-over-year. That quarter we also started to see our results in Spain impacted by the economic pressures in that country. The discussions we have had with mobile operators lead us to believe that the results that our results are consistent with the overall prepaid industry and economic conditions in that market. On a more positive note, two of our largest prepaid markets are delivering very very strong results. The U.S. and Germany saw nice growth in the quarter.

We also continued to see good contributions from non mobile sales, with 27% growth year over year. In the next couple of quarters these comps will become better as we lap the negative events, continue to see strength in the U.S. and Germany, and implement other initiatives that will help us overcome these losses.

Now on to the next slide. On slide number 17, we present highlights from our mobile business. During the quarter, we extended our relationship with Media Set Turn, it's kind of like the Best Buy in Germany. To sell pop up in 70 of their Spanish stores. We won this business because of our existing non mobile relationship, a shift from our traditional lead in with mobile pop up. Thishighlights the increasing importance of non mobile content in our product portfolio.

We also launched Like a Mobile, and MVNO on 21,000 POS terminals in Germany, eight MVNO brands to Dinosol super markets in Spain, and six MVNO brands to Desi Shell petro stations in Spain. Finally we have taken advantage of our direct agreement with Vodafone in Italy by signing an agreement with Central Italiana to sell Vodafone mobile pop up. Central Italiana is the largest purchasing organization for large retailers in Italy and it is one more step towards expanding the business through growth with large retailers in that market.

Now let's jump to slide number 18 and you can see all of the agreements that we signed for expansion of our non mobile business. During the quarter, we are able to sign several new software distribution agreements, including global agreements with Adobe and Symantec. These agreements are important as the software distribution industry shifts away from the traditional box with a C.D. inside, more towards pin activation on a P.O.S. terminal. These global agreements allow us to deliver these products in a more cost effective method for the software publisher, it makes purchasing the software more convenient for the end consumer and it creates what is called attachment opportunities to the hardware sales for the retailer. In this quarter, we also signed our forth transportation agreement in Australia, with connecters to authorize toll pass distribution and bill payment. A couple of years ago we told you about our first agreement with Cubic Australia to provide toll pass distribution and top-up for public transportation in Sidney, similar to the Oyster Cards you may be familiar with in London. This is a government contract, so it has taken a while to roll out, but the pilot is said to go live in the fourth quarter of this year.

Finally this quarter, we are able to leverage existing relationships to sell products across our other businesses. First we used our EFT relationship with OMV to implement closed loop gift cards for customers in Slovenia and the Czech Republic. We were also able to further integrate our Cadooz acquisition by using our existing I-Tunes relationships to allow Cadooz to distribute I-Tunes in their B to B channel. Although I'm clearly disappointed with the impact that Brazil, Australia, and Spain had on our results, the issues in each of these countries are very much market specific. Just a couple of years ago I was sitting here telling you about rate declines in our two largest markets and that we would create opportunities some way, some how to fill that gap. As you can see, through the outstanding results in the EFT segment, we have been successful in overcoming those challenges. Well I can't change this quarter's results, I don't see these as long term set backs. I believe we have a resilient team that will overcome these challenges with a number of aggressive initiatives that we have underway including continued success with prepaid mobile sales and stronger markets our non mobile content around the world, the transportation agreements, that I just talked to you about, we continue to win and our mobile operators solutions I am -- I am competent that we will restore the growth trajectory to this segment. More specifically, I believe with our immediate efforts we will overcome the second quarter year-over-year operating incomes and declines in the third quarter.

Now let's move on to slide 20, and we can talk about money transfer for a moment. Wow. Well I'm glad to get back to talking about exceptionally strong performance, with Rio's 42% constant currency operating income growth. As was the case last quarter, network expansion was the leading contributor to our success this quarter. The economic uncertainty and FX rate volatility we saw in Europe led to slower growth in our international markets particularly in Spain and Italy. Despite all of the well chronicled difficulties in these two economies. We have seen our competitors reduce their work forces and retrench in. Our team has approached the difficult economy just as we did with the U.S. over the last few years. They remain focused on their core business, increasing market share and positioning us to emerge stronger when their economies recover. Now, while I don't want to sound overconfident, because I don't believe the European crisis is over, there are plenty of other markets in Europe where we are enjoying tremendous growth. In fact, we continue to see strong double digit growth in nearly every other European market, including France, Germany, the Nordics and the U.K., and the same applies outside of Europe with money transfer in the U.S., Australia, and Canada.

So let's move on to slide number 21 for a few more specifics. Year-over-year, our total network grew by 19%. Key drivers for this quarters growth,were the 15 new correspondence that we launched which combined with new locations launched with existing correspondence, add approximately 8,000 locations to our network. The most significant of these were in the Philippines, Pakistan and Thailand. The addition of the most significant of these- - I'm sorry, The addition of the National Bank of Pakistan gives us approximately 5,000 locations in a top 10 global remittance corridor.

We also added 1,700 cash pay out locations through Thailand. Until now, we have only been able to provide bank deposit service to Thailand, so this is a key service upgrade. I should also mentioned that we added the post office locations in Portugal and Romania, which will allow us to capitalize on the sharp increases we are seeing in remittance volumes to and within Europe. In addition to these launches we signed 17 new correspondence in 12 countries during the quarter that will add 5,100 locations when we get them launched. Perhaps the most significant of these are the addition of 800 locations in Morocco, again, we are already seeing strong demand for this service in Europe, so this is a key strategic addition for our team, and we look forward to launching it as soon as possible.

In Israel, we signed an agreement with a correspondence, which will not only give us pay out service in Israel, but will enable them to leverage our network to send transactions as well. Finally the launch of a new correspondent in Rwanda will mark our first entry into that market. So let's move on to slide number 22, and we can talk about the transaction growth in the quarter.

On slide number 22, you can see this segment, money transfer, continues strong transaction growth with 21% increase in total transaction. Charts that look like these sure make it easy to discuss the success. Let's first focus on money transfers where despite a tough quarter in a couple of European markets, we really see a lot of positive development. In the U.S. we grew transactions 11% in the quarter. This is the third consecutive quarter our U.S. division has delivered year-over-year double digit growth in money transfers. The 11% growth rate in the U.S. to Mexico transfers also represent the third consecutive quarter of double digit year-over-year growth.

To shed some perspective on the turn around in our U.S. to Mexico corridor, the 11% year-over-year growth rate this quarter compares to 17% in Q 1, which way believe was at least partially influenced by the unseasonably warm weather, that resulted in accelerated hiring during the winter months but it compares to 2% decline in Q 2 of last year. We are cautiously optimistic that we will continue to see high single digit, and or low double digit growth in Mexico in Q. 3.

Non-Mexico transfers from the U.S. also grew at 11%. As we continue to diversity and improve our network, we are seeing more and more success in transfers sent outside of the U.S. to Mexico corridor. This not only reduces the US division's dependence on Mexico, and the Latin American corridors but will also improve our ability to expand our correspondent network in these regions as the banks recognize our growth potential in the U.S. I'd also like to talk about the growth we are seeing in our non money transfer transactions which we have been highlighting over the last several quarters. This quarter, these transactions increased a whopping 93% year-over-year.

The bulk of this growth is from our success in cross selling mobile pop ups through Rhea agents, in Europe and the US and from bill payment and check cashing transactions in the U.S. While these revenues are still relatively small, compared to our core product, you can see that there is tremendous opportunity here. Also keep in mind, that these products make us much more sticky with our partners and differentiate and protect our margins from our competitors. So let's move on to slide number 23, and we will wrap up the quarter.

Okay. Slide number 23, here you can see with these six bullets that we met our catch EPS guidance of $0.39. And as Rick mentioned that was with currency head wind. EFT. continued its momentum, benefiting from strong ATM and transaction growth and continued success with our value added services portfolio. Epay is working through challenges in Brazil, in Australia, but saw nice growth from the U.S. prepaid mobile business, and non mobile content particularly in Germany. Money transfers saw outstanding growth. As the network expansion led to volume growth in North America, Europe, and Asia.

We planned to purchase the remaining $171 million of convertible bonds in October, with cash on hand, and available capacity of our revolver, and finally we expect our third quarter adjusted cash EPSto be approximately $0.41 assuming consistent foreign exchange rates from today. With that, I will conclude my comments and I'd be glad to take questions, operator, will you please assist.

(Operator Instructions). Our first question comes from Peter Heckmann of Avondale Partners.

Good morning gentlemen, nice quarter.

Thank you.

Could you give us a update on the Cadooz acquisition. Talk about the growth rate year-over-year of that business, as well as some of the ability to take that strong presence in Germany and import into some of your other European countries.

I have a few -- I think Kevin might be a little bit closer to that, do you want to shoot for this one?

Sure. So the Cadooz business as we mentioned before is a seasonal business. It's typically strong first quarter and fourth quarter. We have had success trying as we mentioned on the call, we have had success with some of our content partners specifically this quarter with I-Tunes trying to help introduce I-Tunes into the B to B channel through Cadooz.

At the same time, we are leveraging some of our positions in other markets to take Cadooz, B to B business into some of our markets outside of Germany. We have not announced to the market as to which markets those are, but we are working on some of those opportunities as we speak. Additionally, the promotion side of Cadooz, we have talked to -- Rick has talked to what the specific business model is in the past. And the promotion side continues to gain strength. While we didn't have any of those promotions go live this quarter, we have a number of promotions in the works for the -- for some future quarters. Does that address it, Pete?

It does. And if you -- will you remind me, was Add acquisition was relatively more of the business related to -- in kind of employee incentives or was it more customer loyalty?

It was about -- about let's say 60/40th in that kind of ballpark, Pete. So more weighted towards B to B incentive as opposed to our product type incentive as opposed to pure employee incentive.

But with our retail relationships, Pete, we're -- where that mix is being worked.

Okay. And then a follow up question on the value added services. Can you talk a little bit about -- and I know you have tried to quantify in the past, but a little bit more in terms of kind of percentage overall transactions and the relative growth rate, and when do we kind of see the tipping point where the relatively more attractive economics of value added services start to outweigh some of the maturity of the mobile pop-up business?

Well, you saw that we had strong growth, I think it was 27% kind of year-over-year increase in the mobile operator -- in the non mobile transactions. You know, I tell you that we would have overcome in the normal scheme of things with mobile operators and just the kind of flattish growth rate there. We would have more than overcome that this quarter had it not been for the two little more extraordinary changes that happened in Australia and Brazil. So I think as we lap those, you will start to see that more evident in the numbers.

Okay, okay. I appreciate --

-- Pete, obviously there's a bit more seasonality in the over the Christmas season.

Oh yes, yes. That's a good point. In fact, something like 40% of a lot of these value added products whether they be software sales, or I-Tunes or whatever, are sold in December. Not even just in the fourth quarter but in one month. So you see that's stuff really kick up in the fourth quarter.

Okay, so with the growth of the value added services and the acquisition of Cadooz, as well as the normal seasonality of the business, we're seeing a greater portion of profits continue to be generated in the fourth quarter for Euronet.

Absolutely. Absolutely.

Okay.

And then you see just to prepare you, in Q. 1 you see for all those same reasons you see a bit of a step down too.

Go it. Thank you.

Thank you, our next question comes from Greg Smith of Stern Agee. Your line is now open.

Hi, guys.

Hi, Greg.

The purchase of Euronet Middle East, what impact did that have on the segment results, exactly.

Just a few percent.

Okay.

So literally a few percent.

And then Mike, you mentioned some sort of initiatives in Epay that you are working on to really -- to -- you kind of just mentioned that generally, what were you talking about there specifically.

Well, just kind of more of the same kinds of things. When I was talking about Cadooz? Or just in general?

No, in general. I thought at the end of your comments you said you were working on other initiatives.

We are. And it is more of the same. It isn't as much top secret as it is the reality it just takes hard work and elbow grease. Kind of like we got ourselves out of the hole at the EFT division. We are out there signing up more retails and more non mobile content along with the mobile content, and as mentioned in my comments too, in one case, we actually -- we led with our non mobile content and ended up with the mobile content of a retailer in Spain. So it is just what we do. We need to sign up more retailers and sign up more content providers and put the two together, so we make the commission in the middle.

Got it, okay. And then the U.S. contribution to Epay, how big is that today and sort of you mentioned strength in the U.S., how big can that become as a percentage of the segment.

Rick, I don't have that percentage right here in front of me.

Well, it's -- let me take a quick look at a number here before I just rattle it off the top of my head. It's a meaningful part of our total contribution. I would put it in the category of about -- a little less than 20%. And I would tell you that it has the opportunity -- it certainly has the opportunity to double. Based upon where we see prepaid product here in the U.S. together with a lot of the success that you see out of products like the -- you know the crickets, the sprint boost, the virgin, those kinds of products which tend to be kind of all you can use plans that are proving to be very successful -- very attractive to the prepaid market. So it's a meaningful piece of our prepared business, and I really do believe that it has the opportunity to double.

Yeah, and this is kind of --

You know, another add on that is you just -- mobile operators are always judged on their RPOO. And for a long time the revenue per user per month was less with a prepaid user than a post paid user. But what we -- the numbers used to be in the neighborhood of like call it $50.00 or $60.00 for a post paid user verses $15.00 to $25.00 maybe for our prepaid user depending on the countries and so forth. With these all you and eat plans that Rick just mentioned in places like Boost, and others, what this has done is it is captured a larger wallet share out of these consumers. Now currently, this is really only happening in the United States, but Cricket and Metro P.C.S. are the first guys to pioneer that. Boost, Virgin and a lot of these guys have tried to mimic that. But what's wonderful for us is they give you an all you can eat plan for call it $45.00 per month, so RPOO that we collect money on has gone up. Now remember we get paid a commission. So if somebody is spending $20.00 a month, and now he spends $45.00 a month, this is really good for us. As more markets decide to try this plan, it can be very interesting for us, and just doing more of the same and having more conversions along this line in the U.S. is good.

I keep praying that this will hop the Atlantic and get to the mobile operators in Europe, because if they took their cue from the U.S. in this case, you could see substantial growth in our business. But so far, nobody is quite dipped their toe into that water.

The last thing I'd add, it is a little different dynamic that I think is worth talking about, is that in the U.S., most of our growth is being generated from mobile air time growth, or gaining market share for the traditional mobile air time business. Whereas a lot of our growth outside the United States is related to the non mobile. And a plan is or the strategy is to take some of the things we are doing in the U.S. that is resulting in that growth, and export those ideas to other markets.

Got it. And then just one last quick one. Obviously you are getting hurt on the foreign currency side, but yet you made your guidance, and your guidance for next quarter looks pretty good, are you holding -- is there something you are doing to really offset that? Stepping back on investments or is it just kind of the outperformance frankly in the EFP segment picking up the slack? What is the right answer there?

Certainly isn't the former. We have not stopped our investment. Because when you think about when you make an investment kind of decision, you make a lot of these decisions and then it take as year even to implement them. It takes them a while to get up to speed, but we will watch foreign currency flux within a quarter. We don't really engage our investments based upon where the Euro is this week. Basically, it's been -- strong underlying fundamentals of the business. You take a look at the huge percentage growth and constant currency of money transfer and the EFT division, and you can't help but see that is what is offsetting the fluctuations in foreign currency.

Yep, great, thank you.

Thank you our next question comes from John Craft at D.A. Davidson, your line is now open.

Hey, guys congrats on the progress.

Thank you very much.

I just wanted to drill down a little bit on the money transfer. It is pretty clear you are gaining share in the U.S. to Mexico corridor, and we heard Western Union talk about some heightened compliance effort that they are doing that's sort of impacting them. I guess I was hoping to get your take on that? Whether it is share gains and if there's any plans in your eyes that may -- you may need to follow suit with those enhancements.

Well, first of all, I don't want to speak ill of the bigger guy. But the reality is their growth rate and number transactions and this quarter was considerably less than ours. So we had to take market share from somebody, I'm not sure if it was them. But when you look at the growth that we had which was significant, 11% growth in the U.S., we had to take it from somebody. So I'm sure a little bit came from them and came from others.

Don't forget too that we signed -- and we went live last quarter with Electra which formerly was a unique Western Union pay out for them and Mexico. We picked up a lot of transactions from there that used to be them, and I think when we did an analysis, something like 75%, or 70% of them were not our customers before we did those transactions, so we -- they must be Ex-Western Union guys. I don't think we are the source of their problems because they are considerably bigger than us. But we're -- when you have a really good program, you have good agents, we have an excellent P & L Manager, in the U.s., who has run that business now for the last 2 1/2 years, those are the things that are winning us market share.

And with respect to compliance, we still guard that, that is our family jewels. We watch that every day. We have headaches about it every day, because we want to make sure our compliance is second to none. And we don't anticipate any kind of change in our compliance policies because we believe we have had very strong policies that have been complimented on them by the regulators many times.

That sounds encouraging. And then just one other question, if I may, on Epay. You talked about Australia stabilizing at least sequentially, but it didn't sound like Brazil is stabilizing. I was wondering whether you see that continuing to get worse, or how long before that region stabilized with some those mobile strategy changes.

You know -- Go ahead, Rick.

I was going to say, we'll continue to see kind of year-over-year pressure just on a comp basis through probably at least the forth quarter. That's when we announced that distribution strategy change of the mobile operator out there. You know, we've obviously tried to take initiatives to stem that. We expect some non mobile product in that market to start launching at the first part of the year. But it falls in the category of plain old hard work every day, so our teams are focused on it, in summary I think we will see that pressure through the first quarter. I mean through the fourth quarter and then I would like to think that we would start seeing a little more resilience in that market at the beginning of the year.

Great, thanks guys and congrats again.

Thank you.

Thank you, our next question comes from Tim Willi of Wells Fargo, your line is now opened.

Thank you, good morning.

Good morning, Tim.

Europe -- you get this question every quarter I think, but curious for your thoughts on tones of discussion the focus of the banks on cutting costs and outsourcing. Have you seen any changes this saga has continues is it getting better for you, are people less focused on striking deals, it seems that the value added service success you are having would say no, but I would be curious about the larger institutions verses the smaller ones. Even if there is a way to think about it that way?

Well, I would just -- funny you should mention that, but I was just with one of those very large bank in Italy today,early this morning. And I will tell you what's doing it, he says dealing with the labor issues and so forth, and Western Union, western Europe are always challenging so the idea of just signing an outsourcing contract to cut costs and cut heads is always more challenging than you would like. He said, but with our value added service offering of new ways to make money on those ATMs, he says that's exactly the kind of stuff they love to see. And several of the banks in Europe want to also to differentiate themselves strategically and technologically from their peers, and those are the people that are more open minded to more services on the ATM, more unique kinds of products.

So everything we're seeing points to the same thing, this crisis has caused these banks to be a little bit more humble, and a lot more inclined to have discussions with us, and then you couple that with the fact that we've got now kind of a pallet full of value added services offerings that are all revenue generators for them on a very expensive retail distribution network. And we've got that 1-2 punch. And that's why, as I said it before, I don't know the exact numbers but we probably signed or extended more agreements in the last 18 months or so than we did in the prior five years combined. So that continues.

Great. Two other questions. First was 7-11 Just curious how that is progressing to what degree you think that has been key S

to the big metrics you have been putting up in the U.S. and U.S. to Mexico.

I would like to say Tim that was the a real butt kicker. The reality is it's doing okay. It's growing a little bit more every month, it hasn't been operatively statistically beneficial to our numbers in the U.S. We're just doing really well in the U.S. in every other area. So 7-11 still likes us, they are looking at new kinds of product, and product pricing to push more of this and make more money on it. So we're still working with them to make it as big as we hope it can be, but so far it hasn't changed our numbers significantly.

Okay, and my last question was on the cross border acquiring, which I think you have now called out at least at this quarter, and in a prior quarter as contributing to some of the strong performance in EFT. How are you feeling about that business in terms of obviously the relationship with OMB?It seems to be going quite well, but just other perspective, customers and on going expansion of that platform? And if you can throw into that maybe for Rick sort of what the incremental margin profile. Does it still look extremely strong as that business grows or is there anything that has changed with that platform that has toned back the margin expectation for that product.

I'll let Rick answer the margin thing, but I don't think much has changed. It is still good. With respect to that next new retailer, we're getting some nibbles to do this. But understand to do what OMB (inaudible) did, and they were an early adopter, you have to make a substantial investment in your own I.T. to save money over the long term. With kind of the challenges that are in Europe right now with respect to the economy, these large retailers aren't in the mood to invest $2 million or $3 million or $5 million to save $5 million a year. So that's the problem that we got. It isn't that we have a system that doesn't work, because they like it or become an even stronger partner than when we first signed it, we are going into all kinds of new markets with them. As I motioned last time, we signed loyalties deal with them with their new virtually 100% investment now in Turkey. So I can't tell you that next quarter and the quarter after that we're going to nail another OMB. But luckily, OMB itself is quite a bit bigger than it was when we signed them. The number of transactions that we are acquiring are in excess of both of our projections at the time we did the deal, and we are selling new things like loyalty and mobile top-up and other kinds of products through there. So it can be its own little profit center, even with one customer.

Okay.

And Tim, you know the margins are really quite attractive in terms of incremental customers that we had, so if we add that next customer it should be a good contribution.

Great, thanks for the update.

Thank you, our next question comes from Mike Grondahl from Piper Jaffray.

Congratulations on the quarter and thanks for taking my questions. The first one is really about India. Mike, It sounds like you added 1,090 ATMs there in the quarter. Can you tell us where you are in total ATMs and kind of describe that opportunity and where you think it is going.

You mean total ATMs with the Brown Label?

Yes.

I think that number is around 1,300 or 1,400, is that right Rick?

Brown Label is about 1,400, correct.

Right. And so like like we told you last quarter, as we did kind of a trial of this in fourth quarter of last year, all the numbers look good. So we made the decision that we are going to put 1,000 ATMs in as fast as we could this year. We started rolling those things out late February, early March, of this year. We got them all hooked in, bolted down, filled with cash, by the end of April. And we are going to watch the performance of these very carefully to see how closely that matches our original -- test group, and I would imagine after six months or so of taking a look at these, we'll have an idea if their ramp is consistent with our original numbers. If it is running slower but gets there, running faster but gets there, and then after that we will make a determination whether to increase those numbers. But so far, everything is looking good. And the numbers are bearing out what we thought they would do. And if that's the case, it wouldn't surprise me that we invest in quite a number more ATMs. I can't tell you exactly how many that will be for a little bit of time.

Sure. And the margin profile on the ATMs in India, is it similar or different from your Europe business?

It is about the same. It is about the same. You might call it contribution per ATM.

That would be on the brown label as we would -- verses outsourcing.

Yeah, outsourcing is thinner, we already told you that. It is thinner than both in China and in India center on outsourcing than it is in Europe, but that was what was nice about the Brown Label. Our test batch, and the ones we started to bring on live now, is that we expect that they will have every bit of the contribution of -- or we hope they will, of all the ones we have been having in Europe, which is quite a bit higher.

Great, and then if you handicap where you are placing incremental capital, whether it's India ATMs or Europe ATMs, over the next 12 to 18 months, where do you -- where are the bigger opportunity for you? Which one is bigger?

Well, I think we have to be -- I think to say that it is one place or the other is not really good -- doesn't really make much sense to do. We have a lot of capitol. We have a great balance sheet. You can see that. If it looks like I can make $250.00 or $300.00 per month, per ATM in India, and it costs me $13,000 to buy one of those, and I end up with long term that kind of a return, I am going to do those all day long. And it would be the very same thing in our IEDswe might do across Europe. As long as the numbers prove out, we would be foolish not to use capital to continue to expand. So we'll just keep putting money where we get a very good return. And the nice thing is I don't have such a finite amount of that -- when you really think about it, let's say we put in 1,000 new ATMs somewhere, that will cost me $13,million, a lot of times we get leases on that anyway, and it doesn't come directly out of our bank account, so you as a shareholder would want me to continue to invest where I get those kinds of returns.

Yeah, of course. Let me ask it slightly different way, Mike. I think that in the fall if these first 1,400 in India have gone well, you could potentially deploy 1,000 to 2,000 more over the next year. Do you think you can deploy 1,000 to 2,000 ATMs in Europe over the next 12 months? .

Well, we did 300 in Europe last quarter. I'll just let you multiply.

Okay. Great, and then just last question, kind of on expenses. If you will, SGNA have been relatively flat now for four quarters. And salaries and benefits have been relatively flat for four quarters. Is the -- those expenses something now you can leverage more going forward? Have you hit that critical mass? Or will they grow as revenue grows.

Well, you know, that's -- what you've hit is something that Kevin and Rick and I and our managers spend a lot of time on. We are trying to be tight on expenses. And particularly in SGNA, and it is a fight, because everybody always wants to hire somebody else. It is going to make your life a little bit easier. What we want to do is control that, because that's how we get the leverage of our transaction processing business.

As we go into a few more markets, that's going to take a few hits, you need people who can manage the local markets with the local tongue, but hopefully, our processing centers can be leveraged, we don't need any new processing centers. We are getting a little more effective in what we do, we are trying to work on more tools to help us do that. So our goal is to try is to be as flat as we can in those two areas and still take on more work.

Mike, I would add that I think where we do look at adding bodies it is to technology and innovation to introduce the products. Where we are particularly tight or continue to be very tight, is in our operations. So we try to get the leverage out of our operations, and where we have an opportunity to innovate create value or add a new product, we are more open to reviewing whether we need an extra engineer or two.

Okay that's helpful. And Mike, good luck closing some contracts in Italy.

All right, thank you very much.

We're at beyond the top of the hour here, so maybe one more question and we should probably close down then.

Thank you, our final question comes from Chris Shutler of William Blair, your line is now open.

Hey, guys thanks for squeezing me in.

Okay.

That's okay. You are kind of a skinny guy so it worked.

Thanks.

In the ATM business, can you give us a sense of how much revenue in that business came from value added services in the quarter? Or maybe just a high level how that might have compared to a year ago? Just to give us s sense how much that is growing.

It's compared to a year ago, it has some good growth. We try not to be -- totally transparent on that, because a lot of these value added services are some of our key competitive advantages. So I mean the reality is we added a boat load more ATMs so you can't forget that, and then value added services continue to grow for us, as we keep signing up more and more banks. I am going to kind of dodge your question just a little bit.

The only thing I would add to it is you know when you negotiate a package deal with a customer, sometimes it's a little judgmental, arbitrary in terms of which side -- which product you assign the revenue too. So that's not just a perfect science, Chris.

Okay. And then in terms of margins will it's EBITDA or operating income, can you talk about the trajectory that you see for the three different segments over the next several quarters? Should we expect EFT and money transfer to continue to see improvement, and Epay to continue to see year-over-year declines? Anything that would change those trajectories.

I would expect those to be reasonably similar as Mike said, as we go into the third quarter. He kind of expects to see good kind of similar results out of EFT prepay and money transfers. So yeah, I think it would be -- our story looks pretty good, and would hold together consistent with what we had this quarter.

And, of course, in Q 4, because of the seasonality we will get a bump up and probably all three segments.

Yeah.

But also know that as we keep doing more and more transactions, you know those -- when we sigh a new bank with EFT, we bring a very large portion of that straight to the bottom line. And so that helps improve our margins on a money transfer side, we bring about 35% to 40% of our revenue is our incremental margin after we pay our agents to collect the money and our pay out bank to pay out the money you know the game on Epay, classically we give away 80% of that in a split without retailers. So kind of our incremental margin of our next transaction as it approaches infinity is 20% there.

Okay, and then if you don't mind, just one last one, it feels like EFTand money transfer are both clicking along pretty nicely right now. Epay with some struggling there. It sounds, Mike, like you are very committed to that segment. How seriously, if at all, have is you considered any more strategic actions? Whether it's exiting certain geographies or anything like that, thanks?

I don't think we are there yet. We are starting to get a lot of good synergy between the divisions. I mean the reality is had there not been this big old change in Brazil, we would be looking at -- we would have a whole different story for today. And so we just have to get past the Brazil change, and we need to continue to grow our business. As I look at several of these areas within Epay, they are very exciting to look at. So we aren't -- and part of -- one of the things that makes us successful is we can go to these content providers and large mobile operators and show them we have a world wide kind of footprint, so just yanking ourselves out of one of these markets isn't necessarily the best thing for the whole unit.

Okay, thank you.

All right, thank you, and for Everybody, I want to thank you for taking the last 67 minutes to be with us, and I'll look forward to talking to you in about 90 days.

Ladies and gentlemen, thank you for participating in today's conference, this concludes today's program, you may all disconnect, everyone have a great day.