Euronet Worldwide Inc (EEFT) 2014 Q1 法說會逐字稿

Greetings, and welcome to the Euronet Worldwide first-quarter 2014 earnings conference call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

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, Bridgett. Good morning, and welcome, everyone, to Euronet's quarterly results conference call. We'll present our results for the first quarter 2014 on this call. We have Mike Brown, our Chief Executive Officer, Rick Weller, our Chief Financial Officer, and Kevin Caponecchi, the President of Euronet on the call.

Before we begin, I need to make our 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 technological development affecting the market for the Company's products and services, technical issues associated with the operation of our complex processing system, including security breaches, changes in ATM and other transaction fees, and changes in laws and regulations affecting the Company's business, including immigration laws and anti-money laundering regulations.

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 its website.

Now I'll turn the call over to Rick.

Thanks, Jeff, and welcome to everyone joining us today. I will begin my comments on slide 5.

In the first quarter, we delivered revenue of $353 million, operating income of $24 million, and adjusted EBITDA of $43.6 million. Our cash earnings per share was $0.46, a penny ahead of our guidance. The numbers included about $0.03 favorability from taxes, which was offset by $0.02 from the write down of certain customer acquisition costs in the Money Transfer Segment.

Foreign exchange rate movements were immaterial, only impacting cash EPS by about a quarter of a penny, since we gave our guidance.

With respect to taxes, about half the tax benefit was from the realization of certain deferred tax assets in foreign jurisdictions and the other half driven by a favorable mix of profits from countries with lower tax rates. While I'm always glad to deliver lower tax expense, I would expect our tax -- our cash earn -- tax effective rate to be in the mid- to high 20s, for the balance of the year.

Overall, this was a good start to a year, with year-over-year earnings growth of 21%. I will give a bit more insight to the results when I get to segment reporting in a few slides.

On slide 6, you can see the 3-year transaction trend for each segment. EFT transactions grew 9%, driven by growth, which was spread across our markets. This growth was offset by the loss of the IDBI agreement we told you about last year. Excluding the loss of that agreement, transactions would have growth by 12%. This transaction growth was largely driven by the 14% growth in ATMs year-over-year, also adjusted for the IBDI machines.

epay transactions grew 1% compared to the first quarter of 2013, driven by growth in India and Germany. These volume increases were partially offset by declines in the Middle East and Brazil.

Finally, total transactions for Ria increased 9% year over year, including 12% growth in money transfers. Partially offsetting the Money Transfer growth was a year-over-year decline in non-money transfer transactions of 3%, due to the discontinuation of a high-volume, low-margin product in Spain.

As you can see in the Money Transfer revenue growth of 13%, the 3% decline in non-money transfer transactions did not have a significant impact on the results. Money transfers expended in all send regions. This double digit growth was the result of successful agent sales efforts, together with the addition of about 20,000 more network locations.

We are pleased to finish the quarter with the 12th consecutive quarterly double-digit increase in money transfers.

On slide 7, we present the quarterly financial results for each segment on a reported basis. Foreign currency had some impact on the results with increases in the euro of 4%, the British pound of 7%, and the Polish zloty of 3%, offset by declines in the Australian dollar of 14% and the Brazilian real of 16%. But essentially, the pluses were offset by the minuses.

We can go to slide 8, where the impacts of currency movements have been excluded. Here on slide 8, I'll start with the outstanding quarter of EFT. Revenue increased 20%, operating income increased 88%, and adjusted EBITDA increased 33%. This growth was primarily from transaction increases across our markets, driven by more ATMs under management, greater demand for value-added products, and additional cards under management.

In this year's first-quarter results, we were able to recognize a $1.5 million in transaction revenue, due to strong transaction growth related to a particular outsourcing agreement, where in the first quarter, we had more transactions than in past years, which allowed us to recognize revenue at a higher pricing tier when compared to previous years.

epay revenue declined 2%, operating income increased 1%, and adjusted EBITDA decreased 2%. The results include continued declines in Australia and Brazil, largely offset by increased demand and non-mobile content. Transaction declines from customer promotional events at cadooz contributed to the revenue decline, but had a marginal impact on operating income and adjusted EBITDA.

Money Transfer delivered 13% revenue growth, while operating income and adjusted EBITDA declined 38% and 22%, respectively. Revenue expansion was driven by a 12% increase in money transfers across our markets. You may have also seen in the press release the operating income includes a $1.5 million write down of certain customer acquisition costs. Excluding the write down cost, operating income and adjusted EBITDA would have declined 10% and 7%, respectively.

During the quarter, we incurred acquisition-related expenses. You'll recall the announcement of the HiFX opportunity or acquisition a few weeks ago. And we made investments in our digital service and the development of the Walmart-2-Walmart product.

Without these upfront costs, margins and profits would have expanded nicely.

Finally, in all segments, revenue and gross margin per transactions remained relatively constant year over year.

Let's move to slide 9, and I'll review a few balance sheet highlights. On slide 9, our balance sheet is presented for the end of the first quarter, compared to the end of last year. We ended the quarter with $292 million in cash. The $83 million increase was a result of cash generated from operations, borrowings from the revolver to fund ATM network cash, and the timing of cash receipts and disbursements.

Debt increased by approximately $40 million, largely due to cash used to fund ATM loads and to cover normal timing-driven cash needs. All-in-all, leverage rates remained about the same.

You may recall our announcement earlier this year related to our credit facility. We expanded our credit facility from $466 million to $675 million, with several favorable improvements in terms, including the extension of the maturity out 5 years to April 2019.

The extended and expanded facility significantly strengthens our capital position and flexibility to support many years of strong growth. We are pleased with the new agreement and we believe it reflects the strength of our financial position.

Overall, this was a strong and very exciting quarter for Euronet - nothing like starting the year with 20% earnings growth.

Now I'll turn it over to Mike, who will start on page 11.

Thank you, Rick, and welcome to everybody joining us today. We've had a very exciting start to 2014. We realize that the recent announcement of our partnership with Walmart has generated some new parties' interest in Euronet. So I thought I would start by giving you a brief overview of the Company.

I founded Euronet almost 20 years ago, to make cash more convenient to customers in Eastern Europe through the deployment of ATM. These ATMs became the basis of our EFT Segment, which now includes our own independently deployed and shared ATM networks, ATM, POS, debit and credit card outsourcing services, as well as a host of value-added products.

For the full year of 2013, the EFT Segment processed approximately 1.2 billion transactions, and accounted for 21% of our consolidated revenue, and a whopping 43% of our adjusted EBITDA.

In 2003, we formed our second segment through the acquisition of epay. epay was one of the first processors to convert scratch cards to electronic PINs for prepaid mobile air time at the point of sale. epay has evolved from a mobile top-up provider to an electronic distribution and cash collection network offering prepaid mobile top-up, as well as content from leading global brands such as iTunes, Google Play, Microsoft Xbox, Sony PlayStation, and Facebook, just to name a few.

In 20013, we processed 1.1 billion transactions, which accounted for 53% of our consolidated revenue and 34% of our adjusted EBITDA.

Finally, in 2007, we created our third segment through the acquisition of Ria, the third largest global money transfer provider. When we purchased Ria in 2007, they processed $4.5 billion in money transfers, through a network of 42,000 locations in 13 send countries.

In the 7 years since this purchase, Ria has seen outstanding growth. In 2013, Ria processed $9 billion in money transfers, through a network of 216,000 locations in 22 send countries, and accounted for 26% of our consolidated revenue and 23% of our consolidated EBITDA.

We recently announced the acquisition of HiFX, a provider of account-based money transfers for high-net-worth individuals and small- to medium-size businesses.

Ria, together with HiFX, will be responsible for purchasing around $25 billion in foreign currency this year.

Through these three segments, Euronet has grown to become a worldwide leader in processing secure electronic financial transactions, responsible for dispensing, collecting, and transferring $62 billion in cash across our segments annually.

Now let's move to slide number 13, and we'll talk about the first quarter highlights on the EFT Segment.

Slide 13, as you can see, our EFT team had another outstanding operational quarter, with income growth of 94%. This growth is a continuation of our momentum in this segment, which delivered 40% operating income growth in 2013, and 35% growth in 2012.

This strong growth is not a result of a single deal. It is the result of the work we have put in over the last 3 years. To draw on words from our previously issued annual report, these results are the culmination of adding more units, more products, and more locations, which fuel the strong results you see in EFT.

Now let's move to slide 14, and we'll talk about the detail. On slide 14, you can see some of our selected highlights.

During the quarter, we expanded our footprint by launching our independent ATM-deployed network in Denmark. In a global partnership with American Express, we have started rolling out ATMs in Copenhagen. American Express adds another world-class company to our list of partners, and I'm excited that our plans included selling more ATMs in more markets and providing more value-added services to these devices for this account.

As you may have seen in the press release, we recently issued announcing our purchase of Carpatica Bank's fleet of more than 200 ATMs, doubling our independent ATM network in Romania. The bank also signed an agreement to become the fifth member of our shared ATM network there. This is a breakthrough agreement in Romania and strengthens our asset purchase proposition in this large and growing market.

In Poland, we signed an agreement with Orlen, the largest fuel chain in the country, to exclusively deploy ATMs in Orlen gas stations. We have already started adding ATMs to these gas stations and plan to continue rolling out additional devices during the second and the third quarters of this year.

Finally, we signed an agreement with Veropoulos, a large Greek supermarket chain, to install POS terminals and provide POS switching services across their stores. This agreement is in addition to the agreement we told you about in the fourth quarter with MasterCard, where we have been deploying contactless POS terminals to a number of the merchants in Greece.

Slide number 15, over the past several quarters, we've been telling you about our coupon dispensing agreements with various brands in Poland. These campaigns continue to gain traction in the market. In the first quarter, we successfully completed a campaign with the largest local beer producer and the biggest cable TV service, distributing 650,000 coupons on certain ATMs around the country.

Additionally, we launched Pure Commerce's DCC acquiring product with DFS, a leading global duty-free merchant in First Data in Hong Kong. This project is being rolled out to all DFS terminals at the Hong Kong airport, and we expect the rollout to be completed in the middle of the second quarter. We're excited to partner with First Data and extend our relationship with DFS.

We also signed agreements to introduce Pure Commerce's DCC solution to leading hotel chains in Singapore, including the Grand Hyatt, Marriott, Holiday Inn, and Novotel hotels. We are pleased with this expansion in the Asia-Pac region, which is a vibrant and growing place.

We added 247 ATMs in the quarter, net, bringing our total ATMs managed to a count of 18,558. The largest increases were in India and Europe. The brown-label ATMs we installed during the fourth quarter have ramped up nicely and we expect them to continue to our second quarter earning -- to contribute to our second-quarter earnings growth.

Between India and Europe, we have an internal goal to roll out an additional 1,500 ATMs through the remainder of 2014. It's worth repeating that this was an outstanding quarter and a great start to the year for our EFT team. With such exceptional growth, we expect to see strong results from EFT for the year.

Now let's move on to slide 17, and we can talk about epay for a minute. The epay Segment held its own year over year, and ended the quarter with modest transaction growth, which resulted in a slight increase in operating income. While this quarter's results did not reflect the year-over-year growth trajectory, I remain confident that we will see growth in this segment through our continued focus on providing mobile operators with innovative solutions to help them operate more efficiently, and introducing our leading global content into more retailers across more channels and more countries.

I expect epay's results over the next couple of quarters to be similar to the first quarter, until we get to our seasonally strongest fourth quarter.

With that, let's move on to 18, and we can talk about the highlights, some of the highlights of this quarter.

First, we'll start with our core mobile business. In Europe, SIM card activations represent a new customer for mobile operators. In our European markets, we have made a strategic decision to place more focus on SIM distribution. In particular, we have used our technology to create a new SIM card to allow mobile operators a more efficient distribution of phone numbers. This will help solve the issue of a shrinking supply of mobile phone numbers in certain markets.

In the first quarter, we launched SIM distribution for Lebara across our network and the UK, and in Germany we enabled point of sale of SIM activation in Lotto Berlin and Lotto Schleswig Holstein locations in Germany. We continue to search for ways that we can use our technology to help mobile operators run their business more efficiently.

We also signed a mobile top-up and SIM activation agreement with a large national retailer in the US. We won a national agreement after our successful pilot program at a limited number of stores.

As many of you know, that while our segments are functionally different, they have many synergies that allow us to cross sell our products. In the first quarter, our EFT and epay teams partnered to sell mobile top-up through the VIAMO smartphone app in Slovakia. VIAMO is a peer-to-peer micropayment agent that is heavily supported by the two largest banks in Slovakia. VIAMO allows users to pay their peers or purchase products within the app.

Through VIAMO's partnership with Euronet, users will now be able to add minutes within the app on their mobile phone by using funds from their bank account.

Now let's move to slide number 19. On slide number 19, you can see our non-mobile highlights. We continued our efforts to diversify our epay business with additional non-mobile content. For the first quarter, non-mobile made up 38% of our total gross profit, up from 28% for the same quarter last year.

As you can see on the page, we continue to roll out leading global content to major retailers across the markets where we operate. The most significant contributor to this growth was the continued expansion of Google Play. We added the product to retailers in Austria, Spain, and France during the quarter.

With a larger number of android phones in Europe, Google Play is a high-demand product, and we continue to see increased sales across our market. For the past several quarters, we have been telling you about our technology that allows our retail and bank partners to digitally distribute leading global content. We continue to execute these deals, and in the first quarter, we signed an agreement with Optus, a leading mobile operator in Australia, to distribute iTunes digital codes through their online platform.

Last quarter, we announced our agreement with PayPal to allow its customers to purchase our leading global content with funds in their PayPal account, online or on PayPal's mobile app. In the first quarter, we continued to run a number of successful campaigns with PayPal, and we are very pleased with how this partnership is developing.

In another example of the synergies between our segments, our EFT and epay teams partnered to distributed non-mobile content. In addition to the POS distribution and switching services agreement with Veropoulos that I mentioned in Greece, that I mentioned in the EFT segment, we also signed an agreement to distribute iTunes and mobile top-up through the same retailer's POS terminal.

In Germany, we signed an agreement with Finanz-Informatik, the leading processor for all savings banks in the country, to sell iTunes through their online and mobile banking applications. This agreement is similar to the PostFinance agreement in Switzerland we mentioned last year. And we will provide all savings banks in Germany with the opportunity to quickly offer their customers iTunes through their banking application.

While we expect epay's results to hold their own over the next couple of quarters, we are excited about the different ways our technology can help our mobile operator partners more efficiently run their businesses and help our brand partners reach a larger consumer base quickly and easily.

Now let's move onto slide number 20, and talk about Money Transfer. Slide 20, this was a very exciting quarter for our Money Transfer Segment. As we told you earlier in the quarter we signed an agreement to acquire HiFX, a provider of online, initiated, international payments and foreign exchange services. HiFX offers account-to-account money transfer services, which is an adjacent market to Ria's traditional cash-to-cash type money transfers. We are still awaiting regulatory approval, but expect this agreement to close in this quarter.

As you know, we announced our partnership with Walmart to power the Walmart-2-Walmart domestic money transfer service. Walmart-2-Walmart is an innovative new money transfer service that offers competitive pricing and convenience for the 95% of Americans who live within 15 miles of a Walmart store.

We believe the product's simple, transparent pricing structure is competitive relative to other products in the market and is made possible by the product capability and strong compliance culture of Ria, together with the size, technology, and scale of Walmart.

Customers using the Walmart-2-Walmart service can send up to $900, between any 2 of the more than 4,000 Walmart locations in the US, at everyday low pricing, without sacrificing quality.

We view this product much like when we launched ATMs 19 years ago. We deployed these ATMs with a mission to bring secure, convenient financial services to people that never had them before. That was our original mission, way back then. We believe that the strength of the Walmart brand and the US customers' familiarity with Walmart locations, combined with the simple pricing structure, we will appeal to a broader audience of customers needing to send money in the United States.

We are very excited about this partnership and believe it is a testament to our commitment to customer service and also to our financial strength.

Walmart-2-Walmart went live in the US stores late last week and Walmart initiated their full marketing campaign on Monday. While it is still too early to speculate about or discuss the impact to our financial results, we are very please with this relationship with Walmart. The addition of HiFX and Walmart will serve to further strengthen our growth for the second half of this year.

So now let's move onto slide number 22 and we can talk about Ria's achievements [and] Q1. Total network locations grew by 10%, in the first quarter compared to last year's first quarter. This growth, combined with the April launch of the 4,000 Walmart locations, brings our total to 223,000 locations across 135 countries.

Our Ria team continues to do a great job at strengthening our footprint in key remittance markets while maintaining high quality and reliability. In Bangladesh, we added two key correspondent banks, Pubali and Rupali, which are well-known banks within the company with excellent services. Bangladesh is a top-10 remittance market with more the $14 billion in remittance inflows annually.

These agreements expand our network to more than 6,000 locations in that important market.

Nigeria is another important global remittance market, receiving more than $20 billion in annual in-flows. We expanded our network in Nigeria with 700 new locations across three new correspondent banks.

Our pipeline to add new correspondents across our network remains strong. During the quarter, we signed agreements with 11 new correspondents in 7 countries. These new agreements will allow us to continue to improve our service in Nigeria, Ghana, and Mauritania.

Finally, you may have seen earlier this week that we had built a new riamoneytransfer.com website. This new website offers a customer a more friendly layout, a responsive design for PCs, as well as mobile devices, including tablets and additional features that allow customers to more efficiently send a transfer.

As Rick mentioned in his comments, we have made significant investments in our digital solution over the past year, and as this new website provides secure, easy-to-use option to send money from the convenience of your home or on the go 24 hours a day.

On slide number 23, we highlighted Ria's transactions for the quarter. During the quarter, transfers initiated inside and outside the US both grew at double-digit rates. For the past couple of years, we have presented those numbers separately due to different economic climates between the US and the global markets.

Now that both the US initiated transfers, including those sent to Mexico and non-US-initiated transfers have returned to double-digit growth, we believe separating -- a separate disclosure is really no longer necessary.

Money transfer transactions grew 12% year over year, with the growths virtually across all markets. This represents the 12th consecutive quarter that we have achieved double-digit Money Transfer growth. Non-money-transfer transactions declined 3%, due to the previous-explained discontinuation of a high-volume/low-margin product in Spain last year. Removing the impact of this product, the non-money transfers grew a strong 18% year over year.

As I reflect back to when we acquired Ria 7 years ago, Ria was primarily a US-to-Latin American business. Today, Ria is a very different business with about half of all the transfers initiated outside the US.

This quarter marks the addition of a new chapter for Ria. We continue to build on the existing momentum of the core business, plus, we adding domestic money transfer now with Walmart, the world's largest retailer, a business-to-business money transfer option through our pending acquisition of HiFX, and a new online money transfer service.

Ria continues to have a very health core business. And with the addition of HiFX and Walmart, combined with our investment into digital, we're excited to continue to build the Ria of the future and to expand its opportunities for growth.

Now let's move on to slide number 24, and we'll wrap up the [core]. Well, we delivered cash EPS of $0.46, a 21% increase over first quarter last year. We announced two new exciting agreements - the acquisition of the account-based money transfer provider HiFX, and our partnership with Walmart to power the Walmart-to-Walmart Money Transfer product.

EFT had an outstanding quarter, driven by continued growth of our ATM network, strong demand for our value-added services, and additional cards under management.

epay results were impacted by continued declines in Australia and Brazil, largely offset by continued non-mobile growth.

Ria entered a new era, marked by its strength of its core business, its entry [into the] domestic money transfer and large retail, and by the pending acquisition of HiFX, a B-to-B money transfer service.

Our balance sheet, as usual, remains very strong, with great cash flow generation.

We amended and expanded our credit facility. The increased facility reflects, again, the strength of our earnings performance and our financial position.

Finally, we expect Q2 2014 adjusted cash EPS to be approximately $0.57, assuming consistent foreign exchange rates.

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

Thank you. Mike Grondahl, Piper Jaffray.

I just got a question on each division here. But the first one, EFT, the operating margin clearly expanded more than what we envisioned. It was up about 700 BIPS year over year. And you mentioned this $1.5 million kind of one-time fee.

Can you talk about is that recurring at all? And what else is really driving that large margin improvement.

Okay. So that was a big one, and that's a bit of a shift. So let me tell you how that contract worked. That contract had some -- basically it had lower transaction revenues until you reach a certain quantity of total transactions for the year, and then a higher rate would kick in.

Well, because we've been continually growing transactions in that market under that contract, it was interesting in the old days, we'd probably hit that higher pricing tier in the fourth quarter, and every year, with growth in transactions, that pricing tier kept moving forward.

This year, it just barely made it into Q1, so we were able to bring an additional $1.5 million of revenue in the first quarter, which I guess you could say if we didn't grow from last year, would mean that it would kind of sacrifice the following quarters, basically robbing Peter to pay Paul in subsequent quarters of two, three, and four.

However, what we're excited about this is, the reason that it did hit in Q1 is because we continue to grow those darn transactions. So we're off to a great start with that quarter. So if I were you, I'd probably -- you're trying to compare apples to apples. Rick, you can correct me. But if you kind of take the $1.5 million out, then you could be a little bit closer to last year's numbers.

Right. And it is recurring.

Well, it's recurring in the fact that the contract's going and if we continue to do these big numbers, we'll hit that same threshold early next year as well, but you'll see it. So next year will kind of match this year.

Okay.

It wasn't like a one-time deal that just came in and then disappears.

And, Mike, I would add that the other opportunities that gave us nice margins in the EFT segment was, again, continuation of good value-add product, continuation of growth in profitability of our ATMs. As we mentioned, the Indian brown-label ATMs that we deployed in the fourth quarter continue to ramp up nicely and they're going to be -- they're exiting first quarter going into second quarter with a incremental contribution to operating margin.

So it's a number of events. We called out that one particular item, but there's a number of other things in there that's just a dynamic or fundamental improvements in the business that contribute to those results.

Okay. And then in epay, how do you want us to sort of think about revenues there for the year? I guess this is the second quarter, the mobile side was probably a little bit weaker and the non-mobile side offset that, but it really didn't lead to growth. And, Mike, you said something about sort of flattish and whatnot.

Can you just help us a little bit with a revenue, some comments, and just -- margins were fine.

You just kind of analyzed the segment. Last quarter, Q4, about 40% of our gross margin was delivered by non-mobile product and somewhere like around mid-30s-ish for the whole year over year, okay.

So what you're seeing here is we continue to grow our non-mobile content. We've got nice margins on that. And, but what you're finding is that tends to make us that much more seasonal. So where you've seen other folks who focus mostly just on the non-mobile content, you see they might be 60% of their business in the last quarter.

We're not nearly to that point yet, because we've got the still-strong mobile. But you're going to see a lot more action on the latter half of the year than the first half of the year in the epay segment, just because of the shifting to more and more non-mobile. And as we launch more and more non-mobile products, like this Google Play across 3 new markets we just mentioned, we've got 3 more markets I think we need to get it to - isn't that right, Kevin? - in the next 90 days or so. That tends to continue to help us.

Okay. And one follow-up on that. Did gross margin dollars grow? I think in the fourth quarter you said they were up 5%, even though revenue wasn't.

They were pretty flattish, Mike.

Okay. And then just lastly, guys, how do you think about the operating income in Money Transfer kind of trending the rest of the year from this low point in 1Q?

Ask your question a little bit differently. I'm not quite sure I follow you, Mike.

Sure. In the Money Transfer Division, operating income was really weak at $3.9 million. You had the charge and some of the Walmart expenses and whatnot and the Ria online expenses. I assume that operating income sort of bounces back and trends back. But how do you guys see that?

Yes, we will see a recovery in operating income in the Money Transfer Division. As we said, we've got some pretty good size investments that we had made there, and we expect those investments will be contributing towards the numbers, especially as we move in the second quarter, and then, obviously, throughout the balance of the year, Mike.

Okay. Thank you, guys.

Peter Heckmann, Avondale Partners.

Nice results. Another question on the prepaid side. Is there a way to think about prepaid? I think one of the things that investors struggle with is not only is the mobile/non-mobile, but it's also the varying ways of revenue recognition in terms of gross versus net. And you mentioned in the press release that cadooz voucher sales were down a bit. If I remember correctly, those are the ones that are recorded at face value.

How is that dynamic impacting some of the [optics] within the prepaid? And is there a way that -- or is there a better way to kind of think about prepaid normalizing for the different methods of revenue recognition, kind of looking at it more like on a net-to-Euronet basis? And maybe that's just a gross profit basis. But can you talk about how that dynamic of revenue recognition might be impacting the revenue growth as well?

Yes. Pete, I think it had a little bit of impact this quarter. But I'd say on the balance it's not having that much distortion in the process. It's a little bit in there. You're right, sometimes if you kind of just cut through that to the net revenue or to the gross profit kind of a number there. But I don't think it's that much in the grand scheme of the math.

And as Mike said, as we kind of take a look forward here, we're expecting epay to pretty much hold its own, if you will, on a year-over-year basis as we go forward. And as we get into the fourth quarter, we expect to see a little bit more bump because of the strength of the non-mobile product coming in there.

But I don't think that that cadooz stuff is doing too much to cause distortion at this point.

Okay, that's helpful. And then, so the investments within Money Transfer, appear to be roughly $3 million, and I would assume that there's some carry-on cost in terms of upfront merger integration, as well as support for the Walmart-2-Walmart deal. But if I heard you correctly, so we would expect to see Money Transfer absolute dollar operating income bounce back or [to] leverage these investments in the back half. And then, in terms of -- and this may be getting into some of your thought process for ramp. But over the next 4 quarters, kind of directionally, where are we thinking of Money Transfer operating margins kind of coming out? Kind of at the same margin level as we've seen over the last 3 or 4 quarters or --?

Well, Peter, I don't know the exact numbers. But [we] have several of the Q1 events for Money Transfer are kind of non-repeatable. We had startup costs of the Walmart stuff. We had -- and nowadays, with new GAAP, you can't -- you expense your acquisition expenses when you do -- whether you do the acquisition or not, at the time. So that's kind of -- the HiFX thing won't repeat. And a net write-off of that one single retailer's $1.5 million won't repeat.

So the nice thing is, the repeatable in there is only the money that we're spending on Ria digital and our whole digital strategy. So that's good.

And then you've already seen the ramp up that I don't include in any of that, which would be just the ramp up of our staff to handle the Walmart-2-Walmart product. So that'll continue. But the nice thing is, there's three of those expenses that contributed to lower margins in Q1, aren't repeatable.

So we would expect our margins to continue to expand nicely through the year, especially as we see this new Walmart-2-Walmart product continue. So we just don't' know what those numbers are going to be. But it'll certainly add very nice profits, we believe, for the segment.

Okay, that's helpful. And then last question, I'll get back in the queue. Can you kind of talk about your thoughts in terms of owned ATM deployment for the year in terms of giving us some sort of probable range?

Well, we've been -- this is my same [key-in] answer. Everybody asks on every phone call for the last like 10 years, or at least the last 3. We don't know how many ATMs we're going to be able to sign in outsourcing or APP deals like the Romanian deal, whatever. You just don't know because they're outsourcing. They're hard deals to sign. They have a very long close cycle. There's a lot of politics involved. So it's hard to estimate that.

So for that reason, we've never put -- when we show you our guidance for the next quarter, we don't' put anything in there for an unsigned, unimplemented deal.

So I can't tell you for sure. I imagine we'll continue to get them like we have been. But for sure, when it's in our power, we're going to try to put in as many well-placed ATMs as we can that can be profitable for us.

And we told you that our goal for this year is 1,500 more ATMs. I'd like to hit that goal. It would be great if we could even beat that goal. But it is a ATM-by-ATM battle. You just would not believe the headaches it takes to put an ATM in. You've got to negotiate with the tenant, then with the landlord, then with the municipality for rights to change the façade of, a lot of times these historic downtowns. You've got just a -- it's just a frigging hassle.

But the nice thing is, last year we put in darn near 2,000 ATMs, and every one of those was a ATM-by-ATM battle.

So we've go the staff on hand. We know how to win those battles. But I'm not telling you it's going to get any easier. But we've got our goal and we've got the staff, and we want to put them in.

Got it. I appreciate it.

Chris Shutler, William Blair.

So I wanted to start with epay as well, if you don't mind. So, Mike, I was just hoping you could give us, just stepping back, kind of state of the union in that segment. And specifically, Australia and Brazil, I mean, those continue to be drags. Just maybe review for us what's going on there, how big those geographies are today as a percentage of total profitability and segment, just to get a sense of how much additional drag there is from here.

I think I'll have Rick try to figure out -- he said what are the -- what percentage out of our total profit is Australia and Brazil together.

Out of our consolidated, operating income, it is in probably about the 6-ish percent range.

And also, you were asking, what can you perceive -- you noticed also that Rick called out that those two currencies really took a head butt over this last quarter. So it's not just loss of business. But when you see your [currency balance] and then we have to translate all that back into dollars, we're fighting a headwind there.

Yes, understood. But as a percentage of the, I guess just thinking about the segment overall, since you called out those two as the drag in the quarter, how big are those as a percentage of the segment?

Well, let's see. Of the segment [tier], they would be -- let's see. I tell you what, Pete --

No, this is Chris.

Yes, I'm sorry. Chris --

He'll be calculating.

Yes, that's fine.

It's around 10%, I think. I've got the number on top of my head for consolidation. But let me just kind of -- for the full year, it might be around -- north of 10 a little bit, but less than 15.

Okay. Got you. And not to beat a dead horse here. But I mean, is there any sign of that pressure abating? I mean, because, obviously, you've seen good growth on the non-mobile side. I'm just trying to figure out if --

We haven't seen --

-- you'll see stabilization.

Maybe Kevin can comment a little bit on Brazil and Australia. We do have some good things coming. I mean, we have that transport product that's rolling out now nicely. In fact, it's in something like 300 locations now and going to grow to a lot. Maybe Kevin would be the best guy to give you the color on that.

Okay, great.

Yes, Chris. So what we've said in the past is Brazil was impacted by a shift in mobile operator strategy. As of now, we don't anticipate that the mobile operators are going to reposition themselves. But there is some discussion about it. So we haven't given up on Brazil, but it's going to continue to be a tough fight.

In Australia, it's the result of mobile operators going direct to consumers. That's a bit unique to Australia, because of the high credit card penetration in Australia. We're trying to offset that with more and more non-mobile products in Australia.

And why don't you talk about the transport --?

And the transport project, again, as I described before, we are closely aligned with the government. The Australian government is rolling out a card similar to what you see in the UK with the Oyster card. It's basically a card that every consumer in Australia will hopefully use for public transportation. And we'll be -- epay will be the load points for all those cards that need to be loaded with cash.

That should give us a nice boost there.

Yes.

Yes, definitely. Okay. And then in EFT, sounds like Pure Commerce had some nice implementations in the quarter. So as you looked at the implementation timelines, Mike, and what you're stating this year relative to last, I mean, is that kind of on track to meet your projections for incremental operating income there in '14?

I think that they have a -- nice thing is they signed about everybody we wanted them to sign last year. But the signatures were quite a bit later in the year than we originally expected. So by the time you roll them out and you start to see the revenue start to flow in, it was delayed.

So, but the nice thing is, all the ones that we did get rolled out late in Q1, we're going to start just the revenues in the next 3 quarters. So these still have the potential to do okay for us. They're a little -- they didn't meet their internal projections; a little slower than what we had hoped originally. But I still think they're going to be a -- definitely a valuable asset to the company.

And it allows us to talk to, again, chains of retailers, chains of people -- you know, on a much bigger scale than we would have otherwise. You saw that -- we've got those 3 very high profile hotel chains in Singapore. We're going to those same hotels in other places in Asia to try to do the same kind of thing.

So I think it's all going to work out.

All right. Then --

But their actual revenue contribution in Q1 was not much.

Yes.

What we did do, finally, frigging, is we got them all -- we got all these darn terminals lit up, because Christmas is over and everybody could pay attention to it. So now it's time to make some money.

Got you. And then just final one, in Money Transfer, kind of following up on some of the previous questions there, can you call out kind of the non-recurring, because you talked about the $1.5 million of customer acquisition cost. I know digital is kind of a recurring expense.

So how much, to the extent possible, if you aggregate kind of Walmart and some of the acquisition-related stuff, was that? Or is there a better way to think about what will or will not be in Q2?

Well, let's see, Pete --

That's Chris.

-- Chris, about -- that's the second time I've called you --

No problem.

I think you're much better looking than Pete.

Yes.

Sorry, Pete.

But we're trying to be a little careful about what all we say or don't say with respect to exactly the Walmart numbers because it's just too early to kind of tell. But I would tell you that the three of those particular items exceeded -- they exceeded $2 million.

And I would tell you that the -- certainly, we're going to continue to have expenditures moving forward in the digital space, but at some point we expect to see volumes come forward with that, and we will continue to have expenditures and even increasing expenditures to support the Walmart-to-Walmart rollout. So those expenses aren't going to go away.

What will go away is the expense related to acquisition type of stuff. So I would tell you the kind of non-recurring acquisition-related expense and that write-off that we had of the $1.5 million, it won't be there, and probably another half a million of other stuff won't be there.

So out of the total operating cost of this quarter, about $2 million, probably will not recur. The other parts related to digital and the Walmart, the Walmart will continue as those products ramp up and roll out.

All right. Great. Thanks a lot, guys.

Thank you. Mike Grondahl, Piper Jaffray.

A couple of the new developments in the quarter, for example, the Orlen, the fuel stations in Poland, what's the opportunity there with ATMs? I mean, how many units could that be?

They have -- I don't remember the number off the top of my head, Mike. I think it's several hundred. And as far as -- I'm not -- I can't remember that number.

Okay.

Hold on. I think we found some -- I don't know. We'll just say conservatively, [a hundred and half. If I'm off on that], I'll update you next quarter.

Okay. The --

It is the biggest gas station chain in Poland. But I think we're able to kind of pick and choose which ones that we go into. Maybe that's why I'm thinking several hundred and only a hundred.

But it's kind of a new channel for us. We rarely --

Hello? Hello?

Pardon me, Mr. Grondahl.

Yes. I was asking a question.

Okay. Just one moment. Ladies and gentlemen, please stand by. The conference will proceed in just one moment. Ladies and gentlemen, thank you for your patience. That does conclude the conference. Thank you all. You all have a great day.