Euronet Worldwide Inc (EEFT) 2015 Q4 法說會逐字稿

Greetings and welcome to the Euronet Worldwide fourth-quarter and full-year 2015 earnings conference call.

(Operator Instructions)

As a reminder, this conference may be recorded.

It's 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, Stephanie.

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

We'll present our results for the fourth quarter and the full year 2015 on this call.

We have Mike Brown our Chief Executive Officer; Rick Weller, our Chief Financial Officer; and Kevin Caponecchi, the CEO of the Epay Division on the call.

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

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 economic conditions in specific countries or regions, technological developments affecting the market for the Company's products or services, foreign currency exchange rate fluctuations, the effects of any breaches in the security of our computer system, the ability to renew existing contracts at profitable rates, changes in fees payable for transactions performed over our networks, 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 report on Form 10-Q and current reports on Forms 8-K.

Each 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 information on the investor relations section of its website.

Now I'll turn the call to our CFO, Rick Weller.

Very good, Jeff; thanks a lot.

Good morning, and thank you to everyone joining us today.

I will begin my comments on slide 5. We finished the year with strong results delivering fourth-quarter revenue of $470 million, operating income of $55 million, and adjusted EBITDA of $77 million.

We delivered adjusted cash earnings per share of $0.92, a 24% increase year-over-year.

This result includes about $0.015 of headwind from foreign currency since we gave guidance in October, so without the FX headwind we would've nearly hit $0.94 a share.

The 24% increase also marks the 12th consecutive quarter we have had double-digit year-over-year growth in adjusted cash EPS.

And while 24% earnings growth is certainly impressive enough on its own, this result also includes approximately $0.11 of headwind from foreign currency on a year-over-year basis.

If added to the $0.92, we would've achieved growth of approximately 39% year-over-year.

Exceptional, to say the least.

We are proud that each of our segments contributed to these outstanding results.

Another great quarter for Euronet.

Next slide, please.

On slide 6 we show our three-year transaction trend by segment.

EEFT transactions grew 6% with increases across Europe and India.

I might point out that this 6% transaction growth number reflects the loss of a substantial number of transactions from the termination of the unprofitable China contract we disclosed in the second quarter.

If not for this termination, transactions would have grown approximately 15%.

Epay transactions were essentially flat.

Growth in Germany, Australia, New Zealand and the Middle East were offset by declines in Brazilia, North America, Russia and the UK.

We continued to see a shift in the mix of mobile versus nonmobile transactions.

While we don't disclose the specific number of nonmobile transactions, nonmobile gross profits expanded on a year-over-year basis.

Total money transfer transactions grew 32%.

This growth was the result of a 38% increase in money transfer transactions and a 3% increase in nonmoney transfer transactions such as check-cashing, bill payment and international recharge.

The 38% growth in money transfers was driven by double-digit organic growth, including strong growth in the Walmart-2-Walmart transactions together with contributions from the 2015 acquisition of IME.

Next slide, please.

Slide 7 presents our results on an as-reported basis.

Key currency changes included double-digit year-over-year declines in the euro, Polish zloty and the Australian, Canadian and New Zealand dollars.

And single-digit declines in the Indian rupee and British pound.

To normalize the impact of these foreign currency fluctuations, we have presented our results adjusted for currency exchange rates on the next slide.

But before we get there, just a comment about currencies.

I might point out that while currency fluctuations have had a significant impact on our reported GAAP financials, the fluctuations have little impact on our overall business economics due to two key factors.

First we have essentially naturally hedged our cost in each country where we generally generate our revenue.

Second, we generally use the resulting free cash flows for in-country capital expenditures or to largely complete foreign acquisitions.

Accordingly, our foreign free cash flow production this year has relatively the same purchasing power as it did last year.

Another way to perhaps think about the impacts of foreign currency to our economics would be to see what our cash EPS would be if we were a euro-based currency reporting company.

If you simply converted our reported USD cash EPS to euros for both 2015 and 2014, you would see the resulting euro cash EPS would be EU2.98 for 2015 and EU1.95 for 2014, or a 53% increase.

That would be a 53% increase in euros to invest in largely euro or euro tracking markets, further demonstrating no deterioration in economic buying power.

I'm on slide 8 now.

The EFT team had another really good quarter.

Constant currency revenue grew 19% as a result of a 12% expansion of our global ATM network and transaction growth of 15%, after adjusting for the loss of the China contract.

Regarding the 2% operating income and 6% EBITDA growth, it is important to understand a couple discrete items.

As you saw in our press release, there were two items that impacted this quarter's numbers.

First, the previously announced Company-initiated contract amendment and extension with one of our largest European customers which resulted in a reduction of operating income and adjusted EBITDA of $1.2 million in the fourth quarter and we recorded a $1.3 million reserve for cash in transit to ATMs which was held in an account at a bank which declared bankruptcy.

Had these two events not occurred, constant currency operating income and adjusted EBITDA would have grown 13% and 14% respectfully.

Year-over-year operating income and adjusted EBITDA margins declined due to increased fixed and semifixed costs from a continued shift of ATMs from those we operate on an outsourced basis to those we own and operate.

In the same regard, you can see the step down in revenues from the third quarter to the fourth quarter and further an additional step down in the first quarter before traffic begins ramping back up for our seasonally strongest quarter of the EFT segment, the third quarter.

As we continue to deploy more of our own ATMs, we will continue to see more dramatic seasonal effects between the fourth quarter and the first quarter.

The epay segment finished the year with a constant currency revenue decline of 3%, operating income growth of 15%, and adjusted EBITDA growth of 11%.

The revenue decline was the result of a shift in the mix of transactions where we earn a commission we share with retailers to transactions we earn a processing fee and lighter revenues from our cadooz B2B unit where revenues are largely recorded at face value.

If the sum of these two items were added back to constant currency epay revenue, our epay constant currency revenues would have grown about 4%.

While constant currency revenue declined, constant currency gross profit increased 4%, which we were able to nicely leverage to the bottom line.

As you can see, a better reflection of the business growth is at the gross profit level where you can see the 4% adjusted constant currency revenue growth rate is essentially the same as the gross profit growth rate.

Gross profit growth was the result of increased nonmobile transactions, partially offset by certain mobile declines.

Gross profit per transaction was up slightly year-over-year.

This growth, combined with efficient operating expense management, resulted in operating income and adjusted EBITDA growth of 15% and 11% respectfully.

Year-over-year and sequential improvement in operating income and adjusted EBITDA margins was the result of continued growth in higher margin nonmobile sales.

This represents the fifth consecutive quarter of double-digit constant currency operating income growth from the epay segment.

The money transfer segment continued its outstanding year, delivering 27% growth, operating income growth of 62% and adjusted EBITDA growth of 44%.

These strong growth rates were the result of double-digit organic growth from each of Ria's core business, Walmart-2-Walmart and HiFX, together with the June 2015 acquisition of IME.

Before I leave this slide, I would also like to point out that if one were to add back for the epay mix cadooz revenue impacts, our consolidated constant currency revenues would have grown approximately 15% year-over-year.

We are very pleased with the results contributed by each of our segments in this fourth quarter as we finish the year.

Let's move to slide, 10 please, to review some full-year results.

On slide 10 you can see full-year revenue approached $1.8 billion, operating income exceeded $200 million, and adjusted EBITDA approached $300 million.

Full-year cash EPS was $3.32, a 28% increase year-over-year.

Foreign currency rates impacted this result by approximately $0.56 per share which, if added back to cash EPS, would have resulted in a year-over-year growth of approximately 50%.

Next slide, please.

On slide 11, for each segment the full-year transactions were virtually the same -- the trends were virtually the same as we discussed in the quarterly results.

For the full-year, EFT grew 4%, but excluding the China contract would have been 9%.

Epay transactions grew 7% and money transfer transactions increased 42%.

Let's move to slide 13 to discuss full-year on a constant dollar basis.

On slide 13 now.

For the full year EFT revenue increased 22%, adjusted operating income increased 21%, and adjusted EBITDA increased 20%.

This growth was driven by ATM expansion across Europe and India, combined with increased POS, DCC and other value-added transactions.

Epay revenue grew 5%, operating income grew 25%, and adjusted EBITDA grew 16%, largely contributed nonmobile to this improvement and cost management.

Money transfer had an exceptional year, growing revenue at 40%, operating income at 105%, and adjusted EBITDA of 73%.

Organic growth, including Walmart-2-Walmart, together with the May 2014 acquisition of HiFX and the June 2015 acquisition of IME, drove these strong results.

With double-digit constant currency results up and down this page, I think it bears repeating that this was simply an exceptional year for Euronet.

Next slide, please.

Slide 14 presents highlights from our year-end balance sheet.

On a year-over-year basis, we continued to strengthen our balance sheet.

Our cash and debt remained about the same while, at the same time, we completed two important acquisitions and improved our leverage.

Said differently, free cash flows from operations essentially paid for our two important acquisitions in Malaysia and Canada and the growth in our EBITDA against little change in debt results in further leverage improvements.

Net-net, we have been able to strengthen our balance sheet while growing our business and investing in the future.

Overall this was an outstanding year for Euronet.

With that, I'll turn it over to Mike.

Thank you, Rick, and thanks to everyone for joining today.

The results we achieved in 2015 are exceptional.

What more can I say about a 50% constant currency growth and op income in adjusted cash EPS?

That's just really impressive and a real tribute to our teams who work hard every day to make these results happen.

I'd also like to share with you a few other key highlights of the year.

We processed more than 2.7 billion transactions.

Between our three segments, we were responsible for the collection or dispersion of $74 billion in cash.

We added 2,700 ATMs across our current markets, as well as five new markets.

In June we acquired IME a leading Malaysian-based money transfer provider.

IME brought us immediate entry into the markets which account for $133 billion in money transfers each year.

In July we acquired XE, the world's most trusted currency authority.

In 2015, XE's website had more than 256 million unique visitors, nearly 4.2 billion page views and their app has achieved more than 41 million downloads since it was introduced.

All of this was the result of three key strategies to continue to add more content to more devices in more markets.

Number two, to expand our digital presence and, number three, to invest in our business to ensure long-term shareholder value.

I'd consider the earnings evidence of our success in 2015 and I will highlight some of these areas as we talk about each segment.

Please let's move on to slide number 18.

This was another outstanding year for the EEFT team.

What can I say?

I just can't say enough good things about their ability to remain focused and to select new high quality sites for our ATMs and POS terminals, while continuing to develop new and innovative offerings for our devices and those for other customers.

Let's move on to slide number 19 and we will talk about some of them.

Slide 19.

We continue to focus on delivering more innovation and more products on more devices in more markets.

As part of that focus, we look for new mechanisms or new technology to grow our business.

As an example of this innovation, during the quarter we launched mobile ATM recyclers with Idea Bank in Poland.

There is a little picture here on the slide.

These devices are like mini armored cars and allow retailers to call for a cash pickup to deposit the funds directly into their bank account, removing the risk that comes from carrying large amounts of cash to the bank or to an ATM.

This is a completely new offering and we've seen very positive response since the launch.

In Romania, we signed ATM network participation agreements with UniCredit Bank.

UniCredit is the fifth largest bank in Romania, and this agreement allows their customers to use Euronet ATMs without additional charges.

In addition to new agreements, we renewed several of our agreements with Raiffeisen Bank.

In Croatia, we renewed our ATM and POS outsourcing and driving and ATM acquiring agreements.

In Romania and Serbia, we renewed our ATM and POS driving agreements.

We also renewed our ATM POS and card outsourcing agreements with AIK Bank and (Commercianal) Bank in Serbia.

Next slide, please; slide number 20.

We are talking about growth drivers here.

We continued to introduce more value-added products to our portfolio.

Throughout the year, we have seen significant growth in our card management business.

During the quarter we launched our Euronet open loop gift card at Argos, a large retailer in the UK.

We also launched the private label closed loop debit cards for Erzsebet in Hungary that we told you about last quarter.

We added prepaid gift cards through our ITM software for Socabank in Haiti and Arvest issued EMV debit cards using Euronet's ITM software in the United States.

Finally we signed an agreement with Raiffeisen Solutions in Poland, a subsidiary of Raiffeisen Bank, which was established to handle all of the bank's foreign exchange traffic.

This agreement is unique because we were able to leverage our company wide foreign currency expertise with our EFT cardless payout technology and our Ria money transfer to provide an innovative solution for Raiffeisen customers.

Raiffeisen Bank customers can transfer funds from their Polish zloty account into a foreign currency denominated account at Raiffeisen Solutions.

Customers have the ability to transfer funds to 48 countries using a service powered by Ria, or if they wish to withdraw their funds, they can set up a cardless cash withdrawal using their mobile app and collect the funds at the bank branch or using one of Euronet's foreign currency dispensing ATMs.

As you know from our history, we grow our business through more value-added products on more ATMs.

The list on slide 20 certainly speaks to adding more products, so let's go to slide number 21 and we will talk more about the ATMs.

On slide number 21, we presented the key highlights of our ATM deployment progress.

This is kind of a new slide and I've talked about the subject matter before.

We thought we'd make it pictorial.

During the quarter, we added 823 ATMs with the largest increases in Europe and India.

We finished the year with 21,360 ATMs.

These additions were offset by our historical practice of temporarily winterizing 591 seasonal ATMs.

Excluding the Chinese contract termination we told you about in the second quarter, we added more than 2,700 ATMs across Europe and India in 2015.

Consistent with the expectation we set out for 2015, we expect to install approximately 2,000-plus ATMs in 2016.

As we've told you for the last several years, we experience more seasonality as our deployed ATMs become a greater percentage of our total ATMs.

To better illustrate this trend, we have provided an illustration of our ATM mix over the last five years.

As you can see in 2011, deployed ATMs made up about a fourth of our total ATMs.

By 2013 that percentage was up to 30%, and by the end of last year, 2015, that percentage increased to more than 40%.

And we expect this to continue as we put in more of our own ATMs.

The greater number of ATMs we own will contribute to a greater variation of revenue and operating income amongst quarters because many of the costs to own and operate ATMs are relatively consistent through the year, while revenue, though, is much more significant with the seasons.

This has been exacerbated over the last three years due to our more recent deployments in Europe where downtown and other busy locations demand much higher rents than our historical central European locations.

Accordingly, we will continue to see our first quarter as our lowest earnings quarter, followed by the second quarter, and then the fourth quarter, with the third quarter being our highest earnings quarter.

All around, this was another excellent year for EFT.

With the addition of good ATM sites and exciting new products, we expect another strong year for 2016 from EFT.

Now let's move on to slide number 24 and we'll talk about epay for a minute.

Epay delivered a strong 2015, with double-digit operating income growth in each quarter which was the result of our ability to expand our nonmobile content in the channels in which we sell it.

I'd also like to reflect on a few comments that Rick made earlier.

As you may remember, epay traditionally contributes about half of Euronet's total revenue, yet because of its economic model, contributes 25% of Euronet's EBITDA.

Bearing this in mind, it takes a lot more revenue to push my profit needle in epay than the other two segments.

Due to the fact that in Q4 we had a significant amount of epay's contribution morphing from a commission model to a transaction model and due to the high growth face value revenue of cadooz compared to its contribution, you might say that on an apples-to-apples basis, our total Company revenue would have grown approximately 15% on a constant currency comparison to Q4 2014 without these two changes in our retailer or content vendor relationships.

As an epay colleague once told me, revenue is for vanity; profits are for sanity.

Let's move on to slide number 25 and we will talk about the highlights in this exciting segment.

We continue to expand our nonmobile content to more retailers and through more channels.

In Germany, we added Google Play digital codes to the Deutsche Bank and Post Bank online banking platforms.

We also added PIN-on-receipt for iTunes, XBox and Amazon in 10,000 Lekkerland locations.

In Italy, we added iTunes PIN-on-receipt for 800 Eurospin locations and Sony content in 110 Media Markt locations.

In India, we created a white label website which allows IDBI bank customers to view and select from all available digital content without logging in to the online banking app.

Once they have selected their content, they can choose to pay for it directly from the bank account.

We also launched a new music service through ICICI Bank websites.

Customers can now download multi-langual music and movies directly from their banking app.

These two services in India highlight our ability to provide customers with innovative digital services that they want while making payment convenient and easy.

Finally, in France we launch closed loop gift card processes and a gift card mall for Systeme U, a group of large retail stores with more than 800 locations.

Next slide, please.

Slide number 26 shows highlights from our mobile business.

In Germany, we launched six mobile SIM products at 350 [Velor] Stores.

In the UK, we introduced [Simposa] in 240 independent retail locations.

In case you aren't familiar, historically SIM cards for prepaid phones come preloaded with a phone number.

Our Simposa product assigns a phone number to the SIM cards at the point-of-sale, reducing the number of phone numbers sitting idle on a retailer's shelf.

This is particularly beneficial in markets like the UK where telephone numbers are at a premium.

We also signed an agreement with Lebara and Talkmobile to use Simposa to distribute SIM cards for their brands.

Finally we renewed our distribution agreement with Woolworth's, the largest supermarket chain in Australia.

As I reflect back on 2015 for epay, we added new global nonmobile content including Ticketmaster and Blizzard, as well as new local content such as Deezer, MAGIX and CyberLink.

As we continue to add content to our network, we will continue to add distribution through our retail network around the globe.

This was a great year for our epay segment where we achieved double-digit operating income growth in all four quarters from good execution of our strategy to distribute more products through more channels.

Now let's move on to slide number 29 and we will talk about money transfer.

Well, here we go again.

This was another exceptional year for money transfer segment, delivering double-digit growth across all metrics, which is the result of strong execution on our strategy to organically grow our business as well as from the successful completion of three acquisitions over the last two years.

As Rick mentioned -- we will move on to slide number 30, please.

As Rick mentioned, we continued to see excellent money transfer transaction growth.

We achieved our 19th consecutive quarter of double-digit money transfer growth with a 38% increase in money transfers.

This growth was made possible by continued expansion of our network which now reaches 292,000 locations in 147 countries, a 20% year-over-year increase in total network locations.

This quarter we launched 13 new correspondents in nine countries.

In Armenia we launched send-and-receive service at more than 577 Haypost locations.

Haypost is the national postal operator in Armenia and beneficiaries can now claim cash payments at any of its locations in the country.

In addition to paying remittances to beneficiaries, this new relationship enables customers in Armenia to send outbound remittances to beneficiaries in any of the additional 146 countries where Ria has payout services.

In Mexico, we launched INPAMEX, also known as Instant Pay To Mexico, with 489 locations.

Through INPAMEX, Ria transactions can be paid out at respected supermarkets and drugstore chains, which are more often closer to our customers and offer greater convenience and extended pickup hours.

The more options we can provide our customers for cash pickup locations, the better service we can provide them.

Mexico, as you probably know, is the world's fourth largest receive market and was expected to receive nearly $26 billion in money transfers in 2015 and we're pleased to add INPAMEX to this very important quarter.

The services launched with Bank Alfahah is a significant addition to Ria's aim to extend its service coverage throughout Pakistan.

With 624 branches located in more than 200 cities, the fifth-largest private bank in Pakistan brings the prestige of one of the largest banking institutions in the country to Ria.

We also signed agreements with 19 new correspondents across 16 countries.

As you may have read in our press release issued on Monday, Ria has launched a new cash pickup and tax refund service in partnership with American Express and Walmart.

One of the benefits of a successful relationship with Walmart is having the visibility of proven success with a large global brand.

Over the last two years, we have been able to demonstrate our ability as a superior global processor which Walmart recognized with two consecutive Financial Services Supplier of the Year awards.

This recognition helped us win the agreement with American Express.

We are pleased to extend our service offer in Walmart and to partner with these two leading global brands.

2015 was a very exciting year for our money transfer segment.

We continued to grow our Ria business at double-digit rates.

We launched HiFX in the US.

We made two important acquisitions in IME and XE which will continue to drive our momentum as we go forward.

Now let's move on to slide 31 and we will wrap up.

Slide 31.

We achieved fourth quarter adjusted cash EPS of $0.92, a 24% reported increase and a remarkable 39% constant currency increase over Q4 2014.

This also marked the 12th consecutive quarter we have achieved double-digit cash EPS growth.

Adjusted for currency changes, our full-year cash EPS grew approximately 50%.

That one's hard for me to believe, but it is true.

EFT results reflect continued expansion of our ATM and POS networks.

Epay achieved its fifth consecutive quarter of double-digit operating income growth, driven by continued sales of nonmobile content.

Money transfer delivered another strong quarter of exceptional earnings growth, driven by double-digit organic growth including strong performance from Walmart-2-Walmart combined with the acquisitions of HiFX, IME and XE.com.

We continue to deleverage our balance sheet and generate good cash flow.

We expect our first quarter adjusted cash earnings per share to be approximately $0.68, assuming foreign exchange rates remain constant from today.

As we look forward to 2016, we continue to have substantial opportunity to deploy ATMs which, as we mentioned, we plan to deploy an additional 2000-plus ATMs in this year.

We're pleased to have launched HiFX US and are excited to launch in Canada with XE.

We continue to see opportunities to sign more correspondents across our Ria business, including in Malaysia through IME.

In epay, we continue to attract global and local content and we plan to add more content to more jurisdictions around the world.

We also look forward to a year where we hope that foreign currency fluctuations won't be so darn impactful to our earnings.

With that, we will be happy to answer your questions.

Operator, will you please assist.

(Operator Instructions)

Chris Shutler, William Blair.

Hey, guys, good morning.

Good morning, Chris.

Let's start in EFT.

First, Mike, I was hoping to get a better explanation of what you mean by winterization and the impact that has on the P&L in the quarter.

Okay, in Europe we are in a number of these Mediterranean coastal countries, and if we happen to have ATMs in these coasts or islands or whatever, there is basically no customers there.

There is no locals and there is no tourists, so during the wintertime we basically just put a tarp over them and close them down.

We probably still are paying rent, but at least we are not paying for money delivery services and so forth.

Okay, got it.

That's almost 600 ATMs.

Right.

I just wanted to understand whether there is still costs associated with those machines in the quarter?

Oh, yes.

And that's the whole trick, and we were trying to show with those pie charts.

And I've been saying this for a number of years, that as we've moved into Western Europe, things just get more expensive.

A location in downtown Warsaw doesn't cost the same as in downtown Rome.

And the thing about rent is, you have got to pay them 12 months of the year unless you happen to be on an island or something.

Okay.

And then in Q4 you added 823 ATMs; you said you winterized 591.

Let me add to that, too: those 591, we have to continue to depreciate them even while they are closed down for the winter, so they still do have expense associated with them.

Understood.

On the deployment and winterization numbers, though, can you give us some sense of how those numbers in the quarter compare to prior fourth quarters?

Just wondering if, particularly the ATM addition number of 823, whether that was materially more aggressive than prior quarters thus (multiple speakers) keep it higher.

We've never put in 800 ATMs in a quarter.

That was higher; and then we've just got -- we had a stunning year.

Where we're just a little over 2,000 ATMs the last several years, and we did 2,700 this year, so that's 2,700 additional ones you are paying full price on.

And we winterized more this year, too, just because we were more penetrated into those markets.

Okay, got it.

And then --

I think, just get ready for, in the fourth quarter and in the first quarter, we are going to have much higher costs as a proportion of revenue in EFT and that's just the way it is.

We have got enough empirical experience that we know these things print money for us in the other quarters.

The other thing I would point out, Chris, is that while we do have the higher costs, you can see in the results of our profits is, we've got good contribution coming in from a number of our different business segments that, again, if you looked at it on a constant currency basis, we were up in earnings almost 40% year over year.

We recognize that we may have some of these -- let's call it, more seasonally different costs -- but we're really pleased with our team's efforts to be able to bring in the type of revenue sources and profit sources that give us that ability to grow 40%, in this case, year over year, despite having that kind of load of expenses.

Understood.

Is there any way, guys, to classify the earnings hit in the Q1 earnings guidance from more deployments?

I'm just thinking this year Q4 -- last year's Q4 to Q1 versus 2014 Q4 to 2015 Q1?

Is there a couple of pennies of additional headwind from more aggressive deployment?

Or how should we think about that?

Or is it similar?

It's a little bit more.

But, again, we also have the cumulative effect of a year's worth of ATM growth coming into the picture there.

We expect to see a continued improvement in our EFT business, but clearly, just on a cost basis, it will be more in the first quarter this year than last year.

And one thing we did find -- maybe five or six years ago when we were a little bit smaller, we were kind of careful not to install many ATMs in the first quarter because we knew their highly negative financial impacts on our numbers.

We've got enough experience now putting these individual ATMs in these markets, that you just can't get enough of them in if you don't start working in January.

So basically we are putting them in as fast as we can, really around the whole calendar, and that costs us more in Q1 but the payoff is in Q2, Q3, Q4.

And just to finish the comment, if you just take a look at our first-quarter guidance, we're expecting that it is a nice improvement over last year's first quarter, which as well includes an appreciation or accretion from the EFT segment.

Net-net, again, while we will have additional costs there, that cumulative year-over-year growth is giving us the ability to believe that we will see yet an expansion in our op income of our EFT segment going into the first quarter.

So last year, 2014 over 2013, we grew first-quarter profit by about 20%.

And if we can hit our guidance of $0.68, it will be very similar for this quarter.

We're happy we can walk and chew gum at the same time.

We can take on higher expenses and still deliver those kind of growth numbers.

Just one more quick one on EFT: the ATM deployments in the quarter and the roughly over-800 number and the 2,000 you talked about -- 2,000-plus in 2016 -- how does that break out Europe, Eastern/Central Europe, versus more developed parts of Europe as well as India?

I won't break it out between Central and West Europe.

My bet is a little bit more in Western Europe versus Central and probably Europe versus India is probably 75/25 is a guess.

When we say 2,000-plus, we obviously have enough staff to put in 2,700.

The question is finding really good sites.

So I don't want to just find numbers for you guys, and put in bigger numbers, I want to put in ATMs that are profitable.

And so that's why we say 2,000-plus, because we still restrict our site selectors to find excellent locations.

All right; thank you

Peter Heckmann, Avondale Partners.

Good morning, gentlemen.

Thanks for taking my questions.

As regards the (inaudible), Rick, in the quarter, lower than expected, were there any one-time or discrete items you want to call out there?

In the first quarter?

In the fourth quarter.

I think it's really those couple that we pointed out in our press release there, Pete.

Say again?

I'm sorry, I missed it.

It just would be those couple that we pointed out in our press release.

Okay.

And then just in terms of trying to get the consensus a little tighter -- you've given your EPS guidance.

Can you talk about how you are thinking about constant currency organic revenue growth, maybe in the first quarter, and if possible, for all of 2016?

Pete, we can give some considerations to whether we would expand the line items that we give guidance on, but so far we've felt comfortable to stay to the bottom line.

As Mike said earlier in his comments, our epay business, more specifically, can have a little bit more of an erratic top line.

But as you could see from the illustration I pointed out, on a gross margin basis, if you made a couple adjustments for some of the gross revenue reported versus transaction, that really what we saw was a consistent improvement in transactions in gross profit on a year-over-year basis.

So that's why we have been reluctant to want to give more specific guidance on the top line.

We'll take revenue from -- let's say, for example, a cadooz -- and be glad to serve our customers and our markets out there.

Even though it may turn out to be gross revenue that we report, we know what we'll make in terms of a transactional profit.

And I think you can look back to our history and see the consistency of that and also the consistency of the delivery of our bottom line.

So, sometimes the top line can be a little bit more erratic.

I think we're seeing that, for example, in this fourth quarter.

But I would encourage us to continue to take a real strong look at the bottom line, because clearly we cannot produce that level of profits if we don't have the gross profits coming through the business.

Right; and I think that's an important point, is that there's a real mix shift here, and that's benefiting the bottom line.

And I don't want to get the consensus in a situation where you are missing the top line but you're beating the bottom line because you haven't given enough details on the mix shift.

I guess that always gets around as to who's missing what, whether it's us missing it or the analyst.

(Laughter).

We'll leave the humor at that, Pete

All right.

Last question and I'll get back in the queue.

But in terms of the percentage change in the mix shift in prepaid -- I may have missed it, but was there anything in particular from a seasonality perspective in the fourth quarter in epay that's a consideration?

And how should we think about it over the next year in terms of, would we expect mobile prepaid to be shrinking at a rate of about 10% a year, but content growing at 25%?

And then we can do our own calculations of what that does to margins?

We haven't put a specific number on it, but I think you are in a mid to upper single-digit number on the mobile, and you are in a nice, strong double-digit on the nonmobile, Pete.

Okay.

And lastly, any seasonality in the fourth quarter?

Any pay that is worth calling out or is that kind of --?

Nothing of remark.

Okay.

I'll get back in the queue.

I appreciate it.

Mike Grondahl, Northland Capital Markets.

Thanks for taking my question, guys.

Maybe I'll just try one follow-up on epay.

This shift from a commission to a processing fee and the cadooz face value stuff -- what inning are we in of that kind of working at sellthrough revenue?

Are we at the beginning stages of that?

Do you see that continuing for a while?

Can you give us some color there?

I would tell you that the cadooz is like a quarter-by-quarter thing.

It just happens to be the relationship of this year's fourth quarter compared to last year's fourth quarter, so it doesn't have a continuing effect.

The other item, which was the mix from what I'll call commission-based revenues to transaction-fee revenue, largely happened in the fourth quarter and we will see some of that effect as we go throughout the year on the revenue line but not on the gross profit line.

Right.

I think the takeaway for epay is, revenue trends are lumpy, but the gross profit line and the bottom line you are pretty happy with and you've got your own (multiple speakers).

And it's very constant.

Well said.

Well said, Mike.

Just thinking about 2016 for a moment, where do you see your investment dollars going in 2016?

What are a couple of the larger buckets?

Is Ria Online still several million dollars?

And what else would you call out?

That's one.

We'll continue to invest in that digital space there.

There's a few others that I would call out that we've been quite pleased with in completing our investments for continued growth.

We'll continue to roll out the HiFX US business, and hopefully we'll see it gain more momentum.

As Mike said, we'll be focused on HiFX Canada to be ready for capitalizing on our XE.com acquisition.

I will echo another comment that Mike said: we will continue to invest in ATM deployment.

We will continue to see more EFT product rolled out to really leverage what's on our ATM and POS network across our many countries.

And in prepay, we'll continue to attract more nonmobile names.

I guess that, in a real macro perspective, would be the areas that we have focused on.

I wouldn't necessarily say that each of those are going to drive incremental investment dollars.

Some will take a little bit of incremental investment dollars.

We've factored that into our guidance that we've given for the first quarter.

But we're pretty excited about a number of these things.

I didn't mention IME in Malaysia.

We see that as an extremely attractive opportunity for us.

We don't see a lot of what I'd characterize as being dollar investments, but we will make significant time investments to grow that property.

Okay.

And then, some of the fourth-quarter renewals, and maybe Woolworth's in Australia -- are those being renewed on similar terms?

Or are you having to make greater-than-expected concessions?

Could you talk about those renewals generally?

That's specifically in epay?

Just any renewals you are doing, whether it's ATM that you are managing, whether it's mobile or nonmobile?

From an epay perspective -- this is Kevin -- I can speak to that.

We're having quite a bit of success renewing retail arrangements and brand agreements, but no material impact on the business.

And in fact, as we add more and more products to our portfolio, we actually are getting some leverage in those discussions.

And I would even add to that, while we have talked about the mobile decline for several years, we've also recently changed a little bit of our approach with some of those vendors to where we recognize that there are some drops in the volume.

So we've negotiated effectively increases in the rates.

We haven't seen any kind of downward pressure on the renewal of these things.

We think that we'll continue to advance the ball there.

I don't ever want to try to, let's say, oversell margin numbers out there too, because I believe you always have competition out there.

That's always going to be there.

But what we've been able to demonstrate year in and year out is that we find ways to grow through that.

Got it.

And maybe last question for Mike -- how do you see 2016 setting up for Euronet?

In light of the fact that adjusted cash EPS has grown 25%-plus the last three years, and as you guys pointed out on a constant currency basis, almost 50% in 2015?

How is 2016 setting up?

I think, honestly, we've got a lot of momentum behind us; and it's hard to do 28% on 27% on 28% over and over and over, I will agree.

But the nice thing is we've got a lot of momentum and we really know what we're doing here.

I'm really excited about this year.

We want to sustain those high levels of growth like we have as close as we can.

And I will tell you, everybody knows we've got an implicit arrangement with all of our managers, is if they keep delivering these kind of numbers, you can double your stock price or double your earnings in three years.

It's hard to do, but that's at least a goal.

Got it.

Thanks, guys.

Rayna Kumar, Evercore ISI.

Good morning.

Hello, Rayna.

Hello.

When do you expect epay revenue to return to growth, given the shift from commission to processing fees?

And can you quantify revenue from cadooz?

I didn't specifically call out that revenue number for cadooz.

I just added it together with the other one to get that net effective increase of 4% for epay on a year-over-year basis.

So you could do a little bit of math, Rayna, and get to there, but I won't set out the two numbers.

I would tell you it was slightly more in favor of the transaction shift than the cadooz number.

In terms of the return to revenue, it's probably a little bit like what I would say to my comments to, I think it was Pete, about guidance on that.

I probably wouldn't speak a great deal to the top line, but again, I would talk about the gross profit line.

And I think we will continue to see that number will move up the page.

We've got good product in our retailers today.

We've got other stuff that's in the pipeline.

We've got other ideas on the drawing board.

And so I would expect to see that we will continue to see a growth in our gross profit number.

And I'd probably be a little careful to try to set an expectation of what would happen on the top line -- just because, maybe as Mike said, some of the lumpiness in that prediction.

Got it.

That's very helpful.

Do you expect to win a cross-border money transfer contract with Walmart this year?

I don't expect anything with Walmart.

Except that, if I can just continue to deliver good service to them, good products, good quality, then we can perhaps get other deals.

And you saw the deal we just announced with AMEX and Walmart.

It certainly wouldn't have happened if we weren't in good graces with Walmart with our current Walmart-2-Walmart product.

What they want to do with their international business is up to them.

As you saw, our competitor within Walmart is now in a nonexclusive arrangement, so that I think opens the door for a lot more discussions in the future.

Understood.

And one last question.

Can you speak about your expectations for negative FX translation -- the impact to revenue and earnings for 2016?

Let me tell you, if I knew the answer to that one, I'd be a billionaire.

At the end of the day, all we do every one of these quarters is, we tell you what we're going to do next quarter based upon current FX rates.

If the dollar to the euro goes one to two, then we're really going to have some problems.

If it goes two to one, then we're going to have a really nice year, but that's just as reported.

That's why we always do it in constant currency.

Rayna, as Mike said, we may be doing something else.

We're glad to be able to grow our earnings on a constant currency basis 50% year over year.

If I were to try to guess what's going to happen with currencies, I don't think we'd have near that luck.

But if you take a look at the euro on average for 2015, it was about 1.11.

For each euro, you ended up with about $1.11.

The euro today is trading at about $1.12, 1.12.

If it remains -- and there are many of the other currencies are, let's call it, similarly packed around the euro rather than the dollar.

So if it would remain like that throughout this year, you could see that the earnings would have relatively insignificant impact from FX.

But that's just dependent upon whether those currencies continue at the current rate.

Thank you.

Tim Willi, Wells Fargo.

Thanks.

Good morning.

Hi, guys.

Question on EFT.

I guess being [away] this quarter or next quarter, but how do you think about ultimately your growth opportunity in Western Europe?

And then does that, at some point in time, have you looking at other regions that you are currently not in?

Like Southeast Asia?

I think this is something that bears repeating.

When you take a look at the ATM penetration of North America versus Western Europe, North America has twice as many ATMs per capita.

Compared to Central Europe, it's probably four times as many ATMs here as there, on a per capita basis.

There are about 400,000-ish ATMs in Europe, so that would say that if Europe wanted to have the same kind of numbers as the US does, they could put in 400,000 new ATMs to get up to our standard, you might say.

And we're putting in 2,000, 2,500 -- we're not even scratching the surface.

And then you add to that places like India and some of these other places where you have got a 10X difference or 20X difference.

I still believe it's a target-rich environment, although it's not built like the US is through surcharge.

It's built by finding really good locations that you can get lots of locals to come visit.

And then with a little bit of luck, you can catch some tourists and you make a little bit more money on those transactions.

So I don't think Europe's ever going to have as many ATMs as the US does on a per capita basis, but we've got a long runway before we run out of sight.

I will also say, we are not just looking at Europe and we're not just looking at India.

We're looking at other markets, too.

Okay, that's what I was most curious about, is if there were other geographies.

I don't want you to get all excited and expect a whole bunch of ATMs in some new wacky new market, because that isn't going to happen this year.

We might test a few, see how they work.

And that's typically how we go into any of our new markets -- we test it with 20 or 30, see how that works, and then if it works, we will blow out a couple hundred.

Yes.

Question for Rick on the balance sheet, and then I will hop off.

How are you thinking about cash, share buyback, debt paydown, what the M&A pipelines look like?

As we typically have, we have a number of opportunities that are on the examination table, so to speak.

And I think, as we've done in the past, we will look to those opportunities and whether we think there is a good chance to complete them.

It's always really difficult.

We went a couple of years there without doing anything, and then last year we completed two acquisitions, the IME and the XE.

We've got what appear to be some interesting opportunities, but from there it gets to be really hard as to whether or not you can actually close out on them.

And so, as I think you saw in our announcement in January there, we had approved some share repurchase.

We'll consider that in balance with the -- let's say what our view and our optimism may be with respect to completion of an acquisition, and then whether or not it would be a more sizable acquisition.

Right now we don't see really large things on the acquisition horizon, but we do see things consistent with transaction sizes we have completed in the past.

So Tim, again, that's really a hard one to say.

There is good opportunity there and we will see how they work out.

Great; thanks very much, guys.

Alex Veytsman, Monness, Crespi, Hardt.

Good morning, guys.

So for epay, just wanted to get more color on the nonmobile port of expansion, and specifically what you expect throughout 2016?

What are some of the tailwinds you could see for the nonmobile as well as for epay overall?

I don't know that we necessarily see any other additional tailwinds out of nonmobile there, out of our epay segment.

As I mentioned earlier, we've seen some of that tailwind.

We've talked about it in the past.

And we recognize that it's a product that has a more mature life cycle to it.

And as a result, we're bringing in other product to offset that.

Our team has done a really good job at bringing in that nonmobile product to offset it, but I wouldn't expect to see any additional tailwind in that.

But, Kevin, if you have any other observations, jump in.

The only other thing I would add to that, Rick, is that we continue to add more channels -- not necessarily more markets, but more channels --specifically the digital channel, distributing our content via wallets and online merchants and online banking and mobile apps.

So we'll see an expansion of channel distribution.

We're always adding content, but I would agree with Rick, in terms of one or two specific products, I don't see one or two products making a significant difference in the year.

It's just about adding a lot more content across more channels and optimizing the distribution that we have in place today.

Got it.

That's helpful.

And then for Walmart cross-border, I know that at this point nothing is signed, nothing is there.

But if that were to happen, besides Mexico, what are the most logical markets for the Walmart-2-Walmart cross-border for you guys?

I think it's best to say Walmart has to make those decisions, which way they want to go, and if they would like us to be their partner, we would be happy to negotiate.

Okay; thank you

Jason Deleeuw, Piper Jaffray.

Hello, Jason

Hello, Mike, thanks and good morning.

First question on EFT.

So the margin outlook for the full year basis -- I think I understand the increase in shift to the owned ATMs and how that's creating more pronounced seasonality in that segment.

But when I think about on a full-year basis for EFT, the incremental margins must still be pretty high.

Can we still expect margin expansion for the segment on the full year?

As I might have covered with you before, when we throw out an ATM for sure in Western Europe, and maybe even all across the board, probably our incremental margin on that is about 30%.

So as X approaches infinity, theoretically, if we put in gobs and gobs of new ATMs, our margin should approach 30%.

So that might even be less than what we have today, but that's because today we have a mix of that and very high margins, probably 90% margin outsourcing deal.

So it's really a race to see how much outsourcing revenue we can bring in at the same time we're bringing in 30% margin owned ATM revenue.

Got it.

I was also going to ask, what is exactly driving the shift towards more owned ATMs versus outsourcing?

It all started with the banking crisis seven years ago.

The friggin' banks all had their balance sheets upside down; nobody could make a decision.

They still don't seem to be able to do that good a job with it, and so we're not going to wait for them to do outsourcing.

The banks are very unstable right now, particularly the banks in Europe, and the idea of outsourcing is a difficult thing to sell in any environment, particularly now.

So why sit around and wait for them to get decisive and make the right decision?

Let's put some ATMs in of our own.

We know how to do it.

We've been picking individual sites for 21 years.

So let's do what we know how to do, and if more outsourcing deals come, then all the better.

Got it

. And for epay -- also want to make sure I understand, what's driving the shift from this transaction -- from commission to more processing transaction --

That was one of our larger customers and that's just how they wanted to renegotiate their deal -- or how we wanted to -- and it's all worked out.

To us, it's irrelevant what the top line is, as long as we continue to see growth on that bottom line.

And then for money transfer, I know you guys are continuing to try to grow share and get more agents; obviously Walmart International is a big one, but I know there are others that you are looking for, possibly just US domestic.

And when you are competing for this business, what are the key negotiating points or differentiators?

Is it strictly coming down to price and the commission share or (multiple speakers) --

No.

What we are seeing here is, Walmart is the largest retailer in the world.

They are probably the most sophisticated.

What they realized is that an exclusive relationship with one provider doesn't make a lot of sense long-term, and they want to give their customers choice.

They said that when we announced the product.

And you can see that also on Payout.

Payout has gone from exclusives to nonexclusives as well.

As this industry evolves, it's going to move more towards nonexclusives because, at the end of the day, it doesn't make sense for you to ally yourself with just one provider who might only have -- the largest provider out there has 17% world market share.

That means you are saying no to the other 83%.

We would expect an evolution just like we've seen in Payout on the send side where more people will go nonexclusive and allow their customers choice.

Thanks.

And the last one -- I've been getting questions on the macro.

The global macro, obviously a little bit more forefront, given the last few months.

But I know you guys are putting up pretty strong constant-currency growth across all your businesses, but are you starting to see any macro softness in any of your businesses in any regions that you would call out?

No.

That's something I want to make really clear.

We haven't felt any of this.

We don't see it.

Immigration continues to grow around the world.

Our sites for ATMs are still there, regardless of these macro events.

Epay continues to throw more content into more channels all the time.

We grew constant currency last year by frickin' 50%, bottom line.

Obviously, we're not feeling a lot of impact.

Thank you.

Matt O'Neill, Autonomous Research

Good morning, guys.

I was wondering if you could give any update on the possibility of Visa opening DCC on ATMs outside of the EU?

We have announced that we do that now in other countries.

We do it in India.

We announced that the State Bank of India is a DCC partner of ours with 45,000 -- did you say Visa?

Oh, I see.

Visa -- that's up to Visa right now.

The EU mandated that Visa allow DCC.

It's kind of dumb that they don't.

MasterCard has certainly embraced it as a way that they can make more profit and also allow their customers to have more transparency in that transaction rather than being surprised when they get home.

We hope that Visa brightens up as well.

So we will just see what happens.

Great, thanks.

And lastly, any updates or changes to the plan for the XE migration following the notice period?

No.

We've given them notice -- basically it took us about a month or so after the acquisition to give them their notice.

We are now working out the mechanics of connecting all the pipes together so that we can have a nice flawless transaction flow for our customers.

So we expect later this year, just like what we were originally anticipating, to go live with that.

We don't have the exact date yet, but we're working towards that.

Great; thanks very much.

Operator, we are 15 minutes over.

I thank everybody for their time and their patience.

Thank you, ladies and gentlemen.

That does conclude today's conference.

You may all disconnect and everyone have a great day.