Euronet Worldwide Inc (EEFT) 2012 Q4 法說會逐字稿

Greetings, and welcome to the Euronet Worldwide fourth-quarter 2012 earnings conference call. At this time, all participants are in a listen-only mode. However, later we will conduct a question-and-answer session, with instructions to follow at that time.

(Operator Instructions)

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

Thank you, Ben. Good morning, and welcome, everyone, to Euronet's quarterly results conference call. We will present our results for the fourth-quarter and full-year 2012 on this call. 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 a number of factors, including conditions in world financial markets and general economic conditions, technological developments affecting the market for the Company's products and services, foreign currency exchange fluctuations, the Company's ability to renew existing contracts at profitable rates, changes in fees payable for transactions performed over the Company's networks, and changes in laws and regulations effecting 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 it's website.

I will now turn over the call to Rick Weller, our CFO. Rick?

Thank you, Jeff, and welcome to everyone on the call. I will begin my comments with the fourth-quarter results on slide 5. After reviewing the results for the quarter, I will cover the full year. For the fourth-quarter 2012, the Company reported revenue of $351.2 million, an operating loss of $1.9 million, and adjusted EBITDA of $45.8 million. As you saw in our press release, the operating loss included a $28.7 million impairment charge related to our Brazil goodwill. As we have mentioned over the last several quarters, a change in certain mobile operators' strategy limited our ability to distribute products in certain markets within Brazil. We have cut costs and introduced non-mobile content into the market to offset the impact of these changes. However, these non-mobile products are new to Brazil and have not yet replaced the lost earnings. This is a non-cash US GAAP adjustment. So to sharpen the focus on the performance of the business, we will center our discussion on adjusted operating income, which excludes the Brazil impairment.

Our adjusted earnings per share for the fourth quarter was $0.47, less the $0.03 in one-time tax charges related to the repurchase of our convertible bonds, which I explained to you in the third quarter. We finished the quarter with a minimal, unfavorable FX impact, less than 0.10 of $0.01 after tax. And we incurred about $0.01 of expense related to acquisition diligence that was not included in our $0.47 guidance. At times during the quarter, it kind of felt like we were getting a bit of FX tailwind. But reflecting back on the quarter, you can see, for example, that the euro to the dollar dropped to about $1.27 in November, and has since continue to improve. I would also like to provide an added level of analysis to this year's fourth-quarter $0.47, compared to last year's fourth quarter. You may recall that in our $0.46 of last year, we reported that we were $0.05 per share ahead of our guidance of $0.41. And that the $0.05 was due to benefits of tax planning initiatives, half of which were one-time benefits, and the other half which would be recurring, but evenly throughout the year. Accordingly, a cleaner view of our year-over-year cash earnings-per-share would be $0.47 compared to $0.41, or a 15% year-over-year earnings growth. Overall, this was a very good quarter for our business, and in line with, if not a bit ahead of, our guidance provided in October.

Let's move to slide 6, please. On slide 6, we show the three-year trend in transactions for all three segments. EFT transactions increased 16%. This transaction growth was driven by 24% more ATMs under management from the end of 2011 to the end of 2012, together with transaction growth from our cross-border acquiring business. e-pay transaction growth in the fourth quarter was driven by increases in North America, Germany, India and France. These volume increases were partially offset by declines in Brazil, Australia and Spain. Finally, total transactions for Ria increased 28%, including a 20% increase in money transfers. This marks the seventh consecutive quarter of double-digit money transfer transaction growth for Ria. Transfers initiated in the US increased 26%, including a 28% increase in transfers to Mexico. We were also pleased to see non-US transfers increase 13%, including rebounds from two of our more challenging markets, Spain and Italy. As has been the trend for several quarters, our non-money transfers saw nice growth at 63% in the quarter, driven by increases in check cashing transactions in the US and the sale of Ria PINless products, which Mike will discuss more during his comments. Next slide, please.

On slide 7, you can see our reported results for the fourth quarter. In summary, there was not much FX conversion impact included in the fourth-quarter 2012, compared to the fourth-quarter 2011. Only about 1% on bottom-line numbers, but a little more different up and down the page. So I will focus my discussion on the next slide, where we present the constant currency numbers. Slide 8, please. In the fourth quarter, EFT segment continued to see strong growth, with revenue, adjusted operating income and adjusted EBITDA increasing 22%, 55% and 40%, respectively. These results were attributed to a 24% increase in ATMs under management, expansion of value-added services, and increased demand of our software products. Mike will speak to you more about brown label ATMs in a few minutes. But I am pleased to tell you that the brown label ATMs we installed over the last several quarters are now producing positive operating income. And we expect this tranche of ATMs to continue to deliver positive results in 2013. Moreover, the achievement of positive-operating income contributions proves our thesis on the brown label concept, thereby affirming our deployment of additional machines in 2013.

And to close my comments on EFT, you may recall our observations regarding the seasonal shifts we were seeing in EFT due to the growth of value-added products. If you compare the fourth quarter to the third quarter, you will see a slight decline in our sequential results. This sequential decline is entirely due to seasonality. Our e-pay segment saw revenue growth of 6%, while adjusted operating income and adjusted EBITDA each declined by 11%. The revenue growth in the fourth quarter was largely from non-mobile contributions in Germany and prepay mobile sales in the US. The declines in operating income and adjusted EBITDA were primarily focused in Brazil, Australia and Spain, partially offset by gains in Germany and the US. We expect to see similar results from e-pay in the first quarter, but look forward to the second quarter when we expect results to stabilize as we anniversary the mobile operator changes in Brazil.

Ria's strong momentum continued in the quarter, where revenue increased 19%, adjusted operating income increased 67%, and adjusted EBITDA increased 31%. These results reflect Ria's continued success in signing high-quality send and payout agents, which resulted in a 21% year-over-year increase in total network locations and transaction gains in existing markets. I suspect that some of you may ask if we felt pricing pressure from the leading competitor's pricing announcement. To which I will answer, no. Moreover, Money Transfers' EBITDA margins improved again in the fourth quarter, coming in at 14.1%, a nice tick over third quarter's 13.7%. Overall, we are very pleased with our Money Transfer segment's results in the quarter.

Let's move to slide 9, please. On slide 9, you can see our balance sheet for the year. Cash remained essentially the same from the end of the third quarter. In the fourth quarter, we repurchased substantially all of our convertible bonds, about $168 million. We repurchased about $42 in shares. We completed the acquisition of certain assets of ezi-pay in New Zealand, and we generated free cash flows. Our debt increased by approximately $40 million, essentially from the repurchase of shares. So you might ask why debt didn't drop by $168 million for the repurchased convertible bonds? It didn't because we essentially repaid it in the third quarter by way of drawing down -- paying down our draws on the revolver to near zero because we had accumulative cash in anticipation of October 15 convertible put date. Accordingly, when we then repurchased the convertibles on October 15, we drew against our revolver to cover the put. Another way to view our debt management -- we closed last year with $339 million in debt. We closed this year with $301 million debt. That $38 million decrease was largely the result of using cash of about $80 million to repurchase bonds. And we then borrowed about $40 million to repurchase shares. The remaining bond repurchases of $88 million, roughly, was rolled into our revolver.

Accordingly, at the end of the year, our revolver stands at about $215 million, term debt at about $75 million, and capitalized leases and other debt of about $11 million. Regarding share repurchases, you should not expect much, as our share price has appreciated nicely. And with the size of the fourth-quarter $40 million repurchase, our credit agreement will limit repurchases over the next three quarters. And finally, some of you may have seen our announcement regarding S&P's recent new credit rating of triple-B minus, entry-level investment grade. When I joined Euronet 10 years ago, we were challenged to find ways to repay a slug of 12.375% high-yield debt. Today we are rated investment grade. This was a short 10 years, but it is sure nice to see the Company in such a sound financial condition, and well-positioned to continue its strong growth trends.

Now let's move to slide 11, and I'll talk about full-year results. On slide 11, you can see 2012 revenues were $1.3 billion, operating income of $58 million, adjusted operating income of $86.7 million, and adjusted EBITDA of $162.8 million. Full-year cash EPS was $1.60, excluding the one-time tax charge of $0.03 I mentioned earlier, making net full-year cash EPS $1.57. Moreover, if you further analyze the year-over-year cash EPS, and take out of last year's $1.48 the same $0.05 I discussed related to the fourth-quarter 2011, and increase the $1.60 by about $0.08 for the impacts of currency rates year-over-year, you would see that our full-year cash EPS grew by approximately 17%. This is consistent with the 17% growth in constant currency adjusted operating income you see on this slide. Overall, mid- to upper-teen growth rates in constant currency measures up and down the P&L can only be described as a very good year. Next slide, please.

On slide 12, you can see the full-year trend in transactions for all three segments. All segments -- for all segments, the transaction trend was virtually the same as we discussed for the fourth quarter and each of the three prior quarters. EFT transactions grew 23%, e-pay 5%, and Money Transfer 25%. Finally, I'd like to point out another milestone achieved by our EFT segment. It topped one billion transactions for the first time in Euronet's history. Let's move to slide 14, where I will discuss the full-year results on a constant currency basis.

On slide 14, we have provided a view of the full year, adjusted to remove the impacts of currency impacts and nonrecurring items, such as the impairment charge in Brazil. While the FX impact seen in the fourth-quarter to fourth-quarter analysis were minimal, the FX impacts for the full year-over-year review were more significant. The full-year results for the EFT segment were consistent with what I reported on the quarterly results. EFT benefited from an increase in deployed ATMs, growth in our value-added service products, and additional sales of software products. Full-year revenue increases in e-pay were largely from the full-year benefit of our acquisition of cadooz in the third-quarter 2011. Adjusted operating income and adjusted EBITDA declines were from challenges in Brazil, Australia and Spain, offset by nice contributions in the US and Germany. Finally, the full-year money transfer results reflect the benefit of the expansion of our money transfer network, which has produced more transactions across all our markets. Overall, this year was a good year for our business, one in which we were able to deliver record cash earnings per share, double-digit constant currency growth in revenues of 15%, operating income of 17%, and adjusted EBITDA of 15%.

With that, I conclude my comments and hand it over to Mike.

Thank you, Rick. Wow, this was a good year. If you would start, please, on slide number 19, I will continue with my presentation. Here you can see that revenue was up 15% and operating income up 17%. That is definitely the way to complete the year. I will begin my comments on this slide. And it was just a great year for our EFT team. We successfully executed on our strategy. We signed more contracts than ever before. We successfully increased our value-added service offerings and reach. We entered new markets and processed more than one billion transactions from the first time in our EFT history. As you can see on this slide, we are moving into 2013 with a strong pipeline of projects, which we expect to contribute to strong earnings in the coming year.

Now let's get to the specifics. We doubled our presence in the Ukraine by signing an asset purchase and network participation agreement with a member of the French BNP Paribas Group. This agreement to add 172 ATMs was signed after a successful purchase and integration of 116 ATMs from the same bank in 2011, and is a perfect example of how we can provide banks with an opportunity to turn their costly ATM estates into profit contributors. In Poland, we expanded our offering to provide cardless ATM transactions for Deutsche Bank in Poland. This is an extension of our technology that allows Ria beneficiaries to collect funds at the ATMs in Poland without the use of a debit card. Deutsche Bank customers can now initiate a transfer through their online account and the funds can be collected by a beneficiary at any of our 1,000's of ATMs in Poland. We also signed a prepaid card issuing and POS driving agreement with Lambda Card Services in Cyprus. This agreement utilizes the payment services license that we have been using to expand our EFT presence, which also allows us to issue and process prepaid cards. We are now able to offer customers an end-to-end solution that covers the entire value chain. Excuse me.

As Rick mentioned, our first brown label ATMs in India have become profitable. We have learned a lot about the deployment of brown label ATMs in the Indian market over the last year, and we are excited that our initial 1,700 brown label ATMs now contribute positively to our earnings. To keep the momentum going in the fourth quarter, we signed an agreement to deploy an additional 1,500 ATMs with Axis Bank. We will be selective on the rollout plan of these ATMs, and the timing will depend upon their projected profitability. I would also like to highlight the success of our software team, who produced record sales in the fourth quarter. This success was largely from sales of our products that are used to activate EMV or chip card acquiring, as well as acceptance of China UnionPay and Diners cards.

If you wouldn't mind, please move to slide number 20. On this slide, you can see that we renewed our sponsorship agreement with Pekao in Poland, with substantially the same terms and conditions as the old agreement. In case you are not familiar, in some countries we have a sponsorship agreement with a bank where they provide cash for our ATMs and are independently deployed networks. We also continued to see success with our value-added services. We introduced these products on our own IAD network in the Czech Republic, as well as on customer ATM and POS networks in five different countries. During the quarter, we deployed 230 ATMs, bringing the total number of ATMs we operate to 17,600.

Finally, before I conclude my comments on EFT, I would like to take a minute to introduce you to the Pure Commerce acquisition we announced in January of this year. Pure Commerce provides similar products to those we currently offer on our ATMs and POS terminals in our EFT segment. They operate in several markets where we currently do business, like Australia, Singapore and Europe, and give us another substantial Asian market with Korea. We believe the products and the culture of the business at Pure Commerce are right in line with our current strategy, and we are excited to have the Pure Commerce team on board. With that said, our EFT team had an exceptional 2012, and we expect more of the same this year.

Now let's move on to slide number 24, and we will talk about e-pay for a minute. On slide number 24 -- before I get into the specific highlights for the quarter, I want to take a minute and talk about the e-pay segment as a whole. As you know, throughout the year, the e-pay segment's results have been kind of mixed. Where we have had markets with success, the success has been tremendous. In markets where we face challenges, those challenges have been significant. In 2012 we were very successful in introducing value-added services for mobile operators, which I will comment more on in a minute, and in selling non-mobile content. Unfortunately, challenges remain in some of our markets. As we move into 2013, we will continue to execute our strategy to deliver mobile operator solutions to markets outside the US, and to sell additional non-mobile content in all of our markets.

Now let's talk about the fourth-quarter e-pay highlights. In the US, we sold our mobile operator solutions to T-Mobile and UltraMobile. The agreement with T-Mobile makes e-pay the sole provider of prepaid top-up and commission payments in the independent channel in the US. We have already started integrating our solution with both platforms, and expect to see revenue from these agreements in the first quarter. In Germany, we began distributing Lebara SIM cards and mobile top-up for seven MVNOs at Penny supermarkets. Finally, we renewed a prepaid top-up processing agreement with SPF, a large retailer and our biggest customer in France. Next slide, please.

On slide number 25, we present our non-mobile highlights for the quarter. We continued to see success in our partnership with Apple iTunes. We introduced iTunes into eight new markets in the quarter, which include two large markets -- Turkey and Russia. In the US, we began to sell iTunes in Wireless Zone, an exclusive Verizon wireless dealer. We were also able to add iTunes gift cards into cadooz' physical rewards business in Germany, and saw nice demand for this product in the fourth quarter. In the UK, we signed an agreement with WorldPay to provide card-acquiring services on independent retailer POS terminals in the country. This partnership allows the independent retailers we serve to process debit and credit cards for all products sold in their stores, which in turn will provide them with additional revenue they would have missed out on otherwise. Finally, we acquired certain assets for ezi-pay, a leading mobile top-up and gift card distributor in New Zealand. This acquisition makes e-pay the market leader for prepaid and non-mobile content in New Zealand. There is no doubt that we continue to face challenges in certain markets in the e-pay segment, but we also have certain markets that are performing well. I can assure you that we are working hard to implement value-added services and non-mobile content into the underperforming markets in order to restore growth to the e-pay segment.

Now let's move on to slide number 26, and we will talk about Ria. For the last several quarters, I have been talking to you about the momentum that has been building in our Money Transfer business. And our fourth-quarter results are just an extension of that momentum. We continue to benefit from our efforts to expand our network of agents and payout locations, as well as capture a greater share of the transactions generated within our existing network. Our success in these areas led to new highs across all key financial indicators, including transaction growth across our markets. Now let's move on to slide number 29.

On slide number 29, we present our Money Transfer highlights for the quarter. Year-over-year, our total network grew by 21%. Key drivers for this quarter's growth were the 13 new correspondents that we launched which, combined with new locations launched through existing correspondents, added approximately 7,000 locations to our network in Q4. We continue to strengthen our network footprint in top remittance markets, such as Bangladesh, Mexico and India. As an example, in Bangladesh, we added 1,700 new locations through Southeast Bank, BRAC Bank and AB Bank, which offer excellent bank deposit and cash pick-up services. These agreements are very important for our business in Bangladesh, and we can now make deposits into any bank account in the country within 10 minutes.

In Mexico, we launched new locations at existing correspondents Elektra Mexico and Banamex, and expanded our relationship with Scotiabank by adding payout in Mexico. These additions account for more than 1,000 new locations in the country. This strong expansion with key partners is helping to strengthen our position, and is reflected in our successful transaction growth of 28% to this market. We also added cash pick-up to over 1,400 of our own ATMs in Poland, which is partly contributing to the sharp increase in transactions we are seeing in this market. In addition to the launches I have mentioned, we signed 10 new correspondents in nine countries during the quarter. This includes a new agreement with Bank Negara in Indonesia, a top remittance market that receives over $7 billion in remittances a year. This agreement will allow us to provide a cash pick-up and bank deposit service in more than 1,000 of their branches, plus over 3,000 third-party locations that include the Indonesian post office and other rural banks. We also signed an agreement with Dutch-Bangla Bank in Bangladesh, which will allow us to offer cash pick-up service in its branches. Next slide please.

On slide number 30, you can see the breakdown of our transactions in the quarter. Money Transfer transactions grew 20% this quarter. This is by far the fastest growth we have experienced at Ria since we purchased the company in 2007. And it represents a significant acceleration even from last quarter's 14% growth. Transactions originated in the US grew by 26% year-over-year, driven by positive trends in most of the Latin American and Caribbean countries, and other emerging markets such as Vietnam, Ethiopia, Philippines and Senegal. Transaction growth from the US to Mexico, our largest single corridor, was an impressive 28% year-over-year, significantly outpacing the flat overall transaction rate reported by Banco de Mexico for the entire industry. We also saw strong performance in our non-Mexico transfers from the US, with 25% growth in this quarter, which, to put things into perspective, compares to 19% growth in the third quarter and 11% growth in the second quarter of 2012.

In our international markets, we saw 13% year-over-year growth, which, if you will recall, compares to 7% last quarter. Despite the challenging economic scenario in Europe, we continue to see strong growth in markets such as France, Germany and the Nordic countries. It is promising to see that the growth is a broad trend, even in our most complex markets such as Spain or Italy, where we are seeing signs of recovery and the transactions have returned to year-over-year growth. Our non-money transfer transactions continue to deliver strong growth as a result of our efforts to add additional products to our core money transfer capabilities. This quarter, our non-money transfer transactions posted a 63% growth over the same quarter last year. This increase is primarily the result of successful cross-selling of the mobile top-ups of e-pay through Ria agents in Europe and the US, particularly with transactions from the US and Italy, as well as an increase in our check-cashing transactions, specifically ones originating in the United States.

In May 2012, we issued a press release introducing Ria PINless, a high-quality prepaid airtime product that enables customers to make international calls at very competitive rates without the need to enter a PIN. Our e-pay and Ria teams worked together to introduce this product as a response to other pinless products in the market. We gradually added this product to both our Ria and e-pay stores over the second half of the year, and to Ria's agent network in December. Transactions in the Ria US stores has been impressive so far, and the agent response has been very enthusiastic. We are pleased with the cooperation of the two segments to produce a product tailored for the demand we are seeing from Ria's customers. Overall, this is a very strong finish to 2012 from our Money Transfer team. I am excited about the continuing momentum in this segment, and I look forward to a great 2013. And now let's move on to slide number 31 to wrap up the year.

On slide number 13 (sic - see slide 31), our fourth-quarter cash EPS was $0.47, excluding the $0.03 one-time tax charge related to the bond repurchases. We continued to maintain a strong balance sheet, as evidenced by our investment grade rating from Standard & Poor's. EFT ended the year strong, with growth through ATM expansion, sales of value-added services, and increased demand for our software products. E-pay had a challenging quarter, but we look forward to the second quarter when we expect e-pay to stabilize. Our Money Transfer team continued its momentum and delivered solid results through strong network expansion and transaction growth.

Overall, 2012 was a very good year for Euronet. We delivered another year of record cash earnings, made possible by our continued focus on new markets and products, along with the effective execution across most of our business. We have a strong team, with a lot of good things in front of us, and I am excited to seize the opportunities in 2013. Finally, we expect our Q1 2013 adjusted cash EPS to be $0.37, assuming consistent foreign exchange rates.

With that, we will be happy to answer questions. Operator, will you please assist?

(Operator Instructions)

Mike Grondahl, Piper Jaffray.

Congratulations on the quarter. The first one just really has to do with the iTunes business. Some of the new countries you have won. Could you kind of talk about how that is expected to ramp up in 2013? And then secondly, if you could just talk about -- now that India is profitable -- how do you expect those earnings to ramp in 2013 and the rollout of the 1,500 new ATMs there? Thank you.

Kevin?

Yes. So this is Kevin. Regarding iTunes, the bulk of those countries are small countries that won't have a significant impact on results. But the two countries that we are pretty excited about are Turkey and Russia. Those are both large countries from the standpoint of population, and they are very successful countries with Apple hardware. So we should expect to see some impact from those -- from all of it, but specifically related to Turkey and Russia. Regarding India and the brown label, Rick, do you want to try and take that?

Well, I think that we will continue to see our Brown label ATMs increase. We are very excited about seeing that we produced -- we got to operating profit numbers in the fourth quarter. As Mike mentioned, we have got about 1,500 more under signature now. We would expect to see the rollout of those start towards the latter part of the first quarter, and then gain momentum through second and third quarter. Right now, I would say that maybe a little more than half of those 1,500 or so we would deploy this year. If we see a little better than expected results on some of those, we might increase that number of deployments towards the latter-half of the year. But probably, like I say, a little more than half of those we would roll out this year.

Okay, great. Thank you.

Chris Shutler, William Blair.

In Money Transfer, obviously, pretty strong results there. Just curious, if you dig into the numbers a bit, I'm curious if you are seeing outsized strength in any particular geographies. And then also, Mike, can you help us understand whether most of the growth -- you think it is being driven by existing customers doing more transactions, growth in the average transaction size, or new customers? Ultimately, I'm trying to get a sense of how much of the improvement you think is more market share versus underlying improvements in the economy.

I think in Europe you are seeing underlying improvement in the economy, particularly in Spain and Italy, combined with new markets where there are market share gains, particularly France, Germany, Nordics, et cetera. In the US, I would say that is probably an improvement -- probably a combination of improvement in the economy -- and you have kind of seen that with some of the economic indicators here in the US. A little bit of construction kicking in, and so forth. But combined with the fact that there's got to be some market share gains. Because when you look at Bank of Mexico's numbers, where they actually monitor the total number of transactions that come into the country, they are essentially flat. Yet our numbers are up well into the double-digits. So all that means is we must be taking market share from somebody.

Yes, that make sense. And on the guidance of $0.37. That is down $0.10 sequentially due obviously to seasonality, but -- and up year-over-year. Just wondering if there's anything holding back the guidance at all? The last two years, the sequential decline from Q4 to Q1 has been between $0.08 and $0.10, if you normalize for that tax benefit last year. And you obviously have a number of things coming online in Q1, with Pure Commerce, ezi-pay, some FX tailwinds, and then the repurchase. So just wanted to get a little bit more color there.

Yes, well, those are good observations. One thing though -- remember Rick's comment when he mentioned Q4 versus Q3. What we're finding now with our own independent deployments of ATMs, that we've got a significant growth in the fourth quarter, even more than we used to. Where we used to have ATMs but we just get local guys doing lots of transactions during Christmas time, we now have the extra benefit where we are starting to put these independently deployed ATMs in a number of Western European countries, and we just get a lot more action in Q4 than we have in the past. So the seasonal drop becomes a little exacerbated. And actually, I'm thrilled that we are going to do what we are going to do in Q1, just based upon the seasonality.

Yes, and Chris, I would add to that, the success in the non-mobile product has pushed a little bit more into the fourth quarter for -- because products like Amazon and iTunes and stuff like that have a very strong holiday sales effect. And so we are seeing a little bit more of that in the fourth quarter. And as Mike said, a little bit more on the value-added product side on the ATM.

You know, with those gift cards, I think the number -- Kevin you can correct me -- is around 40% of the annual sales happens in the fourth quarter. So because we are doing more and more iTunes and Amazon and all these gift cards, we just all of a sudden -- across not just our EFT segment, but our epay segment and others -- we just see a really strong bump-up seasonal -- way out of whack with Q1 -- in our business. It's good news, though, for Q4. And being able to hang onto within $0.10 of Q4 into Q1, that's really good news.

Yes, okay. And then could you just help me size the revenue contribution for both ezi-pay and Pure Commerce, I guess on an annualized basis, as we think about '13?

I don't think that we put out those. On Pure Commerce, we said that they did about $15 million in annual revenue. We didn't put out anything on ezi-pay.

Okay.

But I think the $15 million is probably not a bad number. I would actually expect it to be better than that as we experience growth on that side of the business.

Okay, great. Thanks a lot, guys.

Jason Nacca, Sidoti & Company.

Congrats on the quarter. Okay. I wanted to get right into it. You know, speaking about the outsourcing of ATMs in Europe, given you said in the Money Transfer business, we are seeing some improvements in economic conditions. Is that kind of changing the story for what some of these banks are thinking, regarding their outsourcing strategies?

I think that the -- what -- it is interesting, particularly with Money Transfer and with immigrants jobs and so forth, they tend to lead the rest of the market. And you will see that well in advance of what you see the general market go up. The reality is, the crisis is still the crisis in Europe. And in fact, where people have passed stress tests, then they start to fail them now just because their economy is so weak and they can't make their operating income to cover their numbers. Now, we like that. Actually, the crisis is our friend. Because it is causing these banks to have more conversations with us about doing innovative solutions to make their ATMs space --, which are nothing but a cost center right now -- into more of a profit center. Just like we did with the BNP Paribas deal in the Ukraine, we are doing other deals like that and discussing other deals across Europe. So the crisis is still here in Europe. I'm loving it, and we will take advantage of that.

Okay. And then my next is the DCC product, regarding the Pure Commerce as well, to change into that. Are you seeing some growth there that is more than you expected, given the Pure Commerce and the reputation that it has? Maybe provide me a little color on what you're seeing now with that acquisition, and if it is changing some of your outlook.

Well, we have good goals for Pure Commerce. But understand we have only had it under our belt for like less than a month. So I can't tell you that it's beating our projections yet, because we just haven't had it long enough. But I'll tell you, there is a strong management team, very entrepreneurial, thoughtful guys who run that. They have stayed with the business. Since we acquired them, they have got some great plans for continued rollout this year. We just -- it's kind of a block and tackling year. We don't even have to sign much, we just have to roll out what we've got. And we are on it. We've got -- we are also leveraging some of our technical prowess that we have in our own EFT division to help them. So we will be able to give you a little bit more color on this as the quarters go on. Because, like I said, we've only had them for a month. But when you think about what they do, it's a great product that could be used throughout the world. So we just need to get it into more places and bring it live with their current agreement they have signed.

Now, regarding your Sydney rollout of this three-phase program, specifically the transportation-related products. Are you seeing any more interest worldwide from either governments or municipalities regarding you guys taking some market share there, and seeing more interest?

Kevin?

Yes, so this is Kevin. So let me speak to the Sydney project and then I'll speak to the global interest. On the Sydney project, as you recall, I think we said in the last update, it is a three-phase project. We are in a pilot stage of the first phase. I am very pleased with the technical execution on it. It went exceptionally well. In terms of measuring the demand for the product, it is still too early to predict. We are only about six weeks into it, with a limited rollout. But we remain cautiously optimistic. Regarding interest from others, what we have done is, we are not doing that directly with transport authorities. We have -- we are using partners, like in the case of Australia, with Cubic. And these partners are bidding on projects all around the world. And as they win these projects, we believe we will continue to be the preferred partner to provide our cardless solutions and our cash flow solutions onto transport cards.

Okay, great, that's it.

(Operator Instructions)

Peter Heckmann, Avondale Partners.

Could you give us an update on cadooz' first full year of ownership? Is there a way to break out a little bit how to think of year-over-year growth in that entity? If there is an ability to enter into some new markets? Or particular successes that you want to point out? It seems to me that cadooz, if I remember correctly, was limited primarily to Germany. And there was a fairly significant opportunity in some other European countries. Maybe some other large competitors? But it seems like that could be a much bigger business at some point. Is that tracking with those expectations?

All right, Pete, this is Kevin again. So the 2012 performance of cadooz was generally in line with our expectations. We made the decision last year -- we explored some expansion opportunities, and we made the decision last year to really continue to focus on Germany. If you recall, there's two elements of the business. There is the rewards business related to employee incentives and compensation. And then there is a promotion side of the business, where they do marketing promotions for companies. We had a lot of success with additional promotions. We had continued success on the employee recognition. But we really grew the promotion side of the business last year. Additionally, the other focus we had in 2012 was to expand the product content. And we successfully did that by introducing a number of new products into the cadooz portfolio. For 2013, your question is spot-on. We are looking at expanding the cadooz model into likely two countries. We are not yet ready, for competitive reasons, to say where we are going to do that. But there's two countries where we are going to -- we feel are well-positioned with moderate competition. And the products that we have, we think is good for those markets. And so that is the plan for 2013.

Okay, great. And then, Rick, in terms of long-term debt options, I may have missed it if you mentioned it. Does it make sense to explore some fixed-rate options for the debt at this point? Or are you pretty comfortable with the amount of debt on the revolver?

Yes, Pete, we are -- I guess I would say is that we are satisfied with where we are right now. However, as you know, the debt markets are pretty attractive. We have seen some very attractive longer-term rates. So what I would tell you is that we keep our eye on the markets from an opportunistic standpoint. If there was something that would make sense, it would probably be along the line of some type of a longer-term fixed rate to take down the revolver. That would then just free up flexible capital, if you will. But right now, we don't have any kind of urgent plans to rush to market on debt.

Okay.

But it is nice that S&P's gave an investment grade rating. So that is just going to make it even more attractive mathematically for us.

Right. And then last question. Is there any pending regulatory change that could be either positive or negative that we should be keeping our eye on? It's always difficult as an outsider to kind of due diligence all the different markets that you're in. And some regulatory change may just not be material. But anything that we should be tracking from either a positive or negative standpoint for 2013?

We are not tracking anything to -- there just doesn't seem like there is much out there that could affect us.

Fair enough, appreciate it.

Mike Grondahl, Piper Jaffray.

Mike, I don't know if you commented, or did you say anything quantitatively about your ATM backlog? And then if you could just handicap maybe Euronet's chances of getting a deal in Western Europe this year, that would be helpful. Thanks.

Okay, so we've got about 300 or so ATMs in our classic backlog count methodology. But our business is evolving, so it doesn't really apply as well anymore. So your question is a good one. Because we have always excluded the brown label from our backlog. So we've got 1,500 of those ATMs, which we can put out all or a few of those, depending on how profitable we can get. And then on top of that, we have got our own plans to expand our IADs, our independent ATM deployments, across Western Europe and central Europe, in the neighborhood of 500 to 1,000 ATMs. So when you add it all up -- I don't know, there's -- we will see what happens in India. But you know, there could be 2,000 ATMs this year. We will see. You know, maybe 2,500. But where we are focused, particularly in Europe, about -- I mean, sorry, in India -- because it took us little bit -- it took us an extra quarter or so to get profitable, more than we thought. We are going to be really careful about choosing our sites there. And then, I forgot what the second question was.

Western Europe.

Oh, yes. Western Europe. We are talking to a number of banks in Western Europe. You noticed, just nailing that deal with BNP Paribas. We are dealing with Western banks, but they are making their decisions so far in Central Europe. We have had a number of discussions with Western banks for value-added services on ATM networks, about doing outsourcing or acquiring networks. We haven't closed the deal yet. It is kind of like always. It's hard to predict these things until I've got the signature on a piece of paper. But I will tell you, we are in discussions.

Okay, thank you.

Chris Shutler, William Blair.

In the EFT segment, the 1,700 brown label ATMs in India. Can you help quantify how much of a drag that has been to operating income in 2012?

Oh yes, it is $0.03, $0.04, maybe a little bit more. But you know, probably $0.03 to $0.05 a share.

Okay, great. And then, the only other one I had is in the corporate expense in the quarter. In the release, you guys talked about higher incentive comp. Then I look at the adjusted results, and it looks like stock-based comp only increased about $200,000 year-over-year. So what am I missing? And how should we think about corporate expense going forward? Thanks.

Now the other part of that was just in looking at a year-over-year number, Chris. On cash bonus, or short-term incentive, we had a little stronger numbers in the fourth quarter. Because as we came through the year, it looked like we were headed towards achieving the lower-end of the targets. And as we completed the year and finished out the numbers, it came in at the higher-end of the target. So it was just kind of like a bit more accumulative pick-up in the fourth quarter compared to the same kind of approach in the prior year.

Okay. So going forward, it should normalize back down to the $7 million-per-quarter-ish range, somewhere in there?

Yes, I would have to kind of take a look -- yes, that doesn't seem too bad. And we do get a little bit of volatility by quarter on the stock-based comp piece, just because of substantially all of our stock-based comp is performance-based, as opposed to just awarded shares.

Right.

And so that performance-based causes a lot of volatility in the accounting for that. But I think your $7 million number is directionally there.

Okay, thanks, Rick.

Thank you. And that does conclude our question-and-answer session. I would like to turn the conference back over to Mr. Michael Brown for any closing remarks.

I just want to thank everybody for taking the time on the call. We will be around if you've got any further questions. Thank you very much.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program, and you may all disconnect. Have a great rest of the day.