Euronet Worldwide Inc (EEFT) 2016 Q1 法說會逐字稿

Greetings, and welcome to the Euronet Worldwide first-quarter 2016 earnings conference call.

(Operator Instructions)

As a reminder, this call may be recorded. It is now my pleasure to introduce your host, Mr. Jeff Newman, Executive Vice President and General Counsel for Euronet Worldwide. Thank you, Mr. Newman, you may begin.

Thank you, Cat. Good morning and welcome, everyone, to Euronet's quarterly results conference call. We will present our results for the first-quarter 2016 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 and services, foreign currency exchange rate fluctuations, the effects of any breaches in the security of our computer systems, 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 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 the circumstances. The Company regularly posts important information to the Investor Relation's section of its website.

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

Thanks, Jeff. Good morning and thank you, everyone, for joining us today. I will begin my comments on slide 5. We delivered another quarter of double-digit growth with revenue of $437.9 million, operating income of $41.9 million and adjusted EBITDA of $64.9 million. Our adjusted cash EPS was $0.69, a 23% year-over-year increase and one penny ahead of our guidance. This result includes a small benefit from share repurchases which was essentially offset by headwinds from foreign currency exchange rates since we gave guidance in February.

On a year-over-year basis, FX headwinds impacted cash EPS by approximately $0.025 per share. As we said in our press release, this was the 13th consecutive quarter of double-digit cash EPS growth. This was another very strong quarter for Euronet in which all three segments contributed to this double-digit growth. Next slide please.

On slide 6 we show our three-year transaction trend by segment. EFT transactions grew 23% with increases across Europe and India. As has been the case for the last several quarters, this 23% growth reflects a substantial loss of a number of transactions from the termination of an unprofitable contract in China. If not for this termination, transactions would have grown 32%. I would point out, however, that 13, or about one-third of this 32% pro forma growth was from the 2,600 low-margin ATMs we on-boarded in India.

Epay transactions grew 1% with increases in Germany, India, Turkey, Australia, Poland, and the Middle East partially offset by mobile declines in Brazil, North America, and the UK. We will have to work hard to replace the loss of volume, mobile volume, and until then we would expect some softness in the epay segment revenues; however, operating income should remain consistent year over year due to the continued growth in non-mobile offsetting decline in mobile.

Fortunately, while we recover this volume we continue to have good success in non-mobile sales and we are seeing exceptional results from our EFT and money transfer segments, which gave us the ability and confidence to produce the cash EPS guidance we set out in the press release.

Total money transfers grew 35%. This growth was the result of a 39% increase in money transfers and a 5% increase in non-money transfer transactions such as check-cashing, international mobile recharge, and bill payment. Money transfer growth was driven by an increase in Ria's organic business, including double-digit growth in Europe, Asia-Pacific, the US, Walmart, and the added benefit of the June 2015 acquisition of IME. Let's go to slide 7, please.

Slide 7 presents our results on an as-reported basis. Since we gave guidance in February, we have seen improvements in some currencies, including the euro, however, other currencies have been unfavorable, including the British pound where uncertainty around the British exit from the EU has weighed on the currency. The net result of currency changes created a slight headwind to our results since we provided our first-quarter guidance in February.

On a year-over-year basis we continue to see currency impacts impact our results with declines in the euro, the Hungarian forint, and the British pound ranging from 2% to 5%. We also saw upper single-digit declines from the Indian rupee, the Australian dollar, and the Polish zloty while the British riyal, the Canadian dollar, and New Zealand dollar declined at double-digit rates. To normalize the impact of these foreign currency fluctuations, we have presented our results adjusted for currency on the next slide.

Let's go to slide 8, please. Again, these results have all been adjusted to equalize currency impact. EFT delivered another strong quarter. Constant currency revenue grew 21%, operating income grew 18%, and adjusted EBITDA grew 22%. These nice growth rates are the results of a 26% increase in ATMs and a 32% increase in transactions adjusted again for the loss of the contract in China. Operating income and adjusted EBITDA margins remained relatively consistent on a year-over-year basis, simply another great quarter for EFT.

The epay segment delivered constant currency revenue growth of 1%, operating income growth of 6%, and adjusted EBITDA growth of 5%. Growth was driven by increased sales of non-mobile products and partially offset by certain mobile transaction decline. Operating income and EBITDA margins expanded slightly as a result of the shift towards higher margin non-mobile products and effective expense management.

Money transfer had another great quarter with revenue, operating income, and adjusted EBITDA growth of 27%, 59%, and 44% respectively. This growth was driven by the transaction growth across most all parts of the business I previously mentioned on the transaction growth slide. Aside from mix, revenue, and gross profit, per transaction remained relatively consistent year over year across all segments. We are pleased with these first-quarter results. Next slide please.

Slide 14 presents highlights from our first-quarter balance sheet. Cash increased to $548.5 million as a result of cash generated from operations, cash borrowed to fill ATMs in anticipation of seasonally higher cash withdrawals in the second and third quarter, and the timing of settlements in the epay and money transfer segments, partially offset by cash paid for share repurchases and capital expenditures. The increase in debt was from borrowings on our revolver to fill the ATMs and to fund share repurchases.

In the first quarter we repurchased approximately 1.1 million shares for a total purchase price of approximately $75.6 million. We purchased about two-thirds of the shares with cash and one-third of the shares with funds from our revolver, and we have about 1/4 remaining of our $100 million share repurchase authorization. We continue to operate with relatively low levels of debt with a generally conservative view towards managing our balance sheet. Overall, we feel this was a great start to the year and we were very pleased with the contributions from all three segments.

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

Thank you, Rick, and thank you to everybody who is joining today. First, I will start on a lighter note and that is the reflection of our 2015 Annual Report. As you can see the graphics of our PowerPoint template draw from the illustrations in our 2015 Annual Report, the cover slide features a world map on top of a euro and Indian rupee notes as well as Malaysian Ringgit coins representing our global presence, our geographical expansion, and our foreign currency exchange rates expertise. A 28% reported and 50% constant currency EPS growth in 2015 was another crushing year for us, so starting off strong in Q1 is certainly encouraging. Now, on to the significance of the first quarter.

Delivering this 23% cash EPS growth to start the year is simply outstanding, especially given the seasonally pronounced impact of the first quarter. As many of you know, in the first quarter customers make fewer cash withdrawals and by less content after the holiday season, and money transfer customers make fewer transfers during the winter months. So, to deliver a 23% growth is a true testament to the focus and the dedication of our teams to deliver more products and services across our markets. These strong first-quarter results are a great start to the year in which we will continue to execute on our strategy to add more content, more devices, and more channels in more markets around the world. Now let's move on to slide number 12 and we will talk a little bit about EFT.

Slide 12. As we have told you in the past, the first quarter is always the weaker quarter for the EFT segment and this year was not any different. However, compared with the first quarters of previous years, this was a strong start for our EFT business. We have seen very strong full-year results from EFT in previous years and these strong results to start the year underpin our optimism that EFT will continue to be a good performer throughout this year. Let's move on to slide 13 and we will discuss some specifics.

As you can see, there are a lot of highlights on this page 13, so I will just cover a few. In the quarter we launched a new independent ATM network in Ireland representing the 19th country where we have deployed Euronet-branded ATMs. In partnership with Wizz Air, a leading discount airline in Europe, we launched the Wizz Travel Card product. This multi-currency prepaid travel MasterCard is issued and built using Euronet's European E-money license and the Wizz Air branding to deliver a new value proposition to our partner's most loyal customers. This is the first agreement in which we have been able to showcase our ability to provide a full ecosystem of multi-currency card issuing by combining our licenses, our foreign exchange expertise, processing and loading capabilities, as well as our expansive ATM network to provide our commercial partners with a new value proposition for their most valuable customers.

The initial rollout of this product was in Poland, but will be expanded to nine additional countries in the coming quarters. We also launched an agreement with Interchange FX to deploy Euronet-branded ATMs at high-traffic locations across several European countries. And in Poland we signed a cash recycler and outsourcing and network participation agreement with Deutsche Bank. These machines allow for cash deposits and withdrawals, and provide cost savings from fewer cash bills. Next slide, please.

Slide 14 highlights some of our value-added services agreements. We expanded our POS CCC merchant acquiring to customers in Austria. After a successful pilot in the UK we expanded our European gift card program to Poland, launching a Euronet open-loop Visa prepaid gift card. This product highlights the synergies of our business as the card is issued and managed by our EFT segment and distributed through our epay POS locations. We expanded our partnership with China Union Pay in Spain, enabling cash withdrawals on our independently deployed ATMs. And in Greece we launched 15,000 new POS terminals for Piraeus Bank merchants.

In the first quarter, we added 3,401 ATMs to our total ATM count. As you saw in our press release, approximately 2,600 of these ATMs were from one driving agreement in India, contributing minimal margin per ATM and per transaction even compared with our lower margins in India's ATMs. Understanding the unique set of circumstances evolving in India will help provide additional clarity on why we would sign a driving agreement with minimal gross profit impact. While India's Central Bank has been a bit irregular in some of its direction, one area of consistent emphasis has been their desire for banking inclusion, particularly as it relates to the ATM and card services in the country. Euronet replaced the Base 24, which is an EFT switch from ACI at Oriental Bank of Commerce, OBC, in an auction process.

These ATMs will generate minimal revenue and operating profits to the Company; however, this deal now qualifies Euronet to participate in a new market segment in India, i.e., the government owned banks, which constitutes 82% of overall debit card base in the country and 77% of the overall ATM base of 194,000 ATMs in India. The banks in this segment are increasingly looking at outsourcing their operations to payment processors like Euronet. Additionally, the Company anticipates the future beneficial relationship with this bank by selling more value-added services and payment solutions. These ATMs are accretive to our earnings and this deal will give us entry for us to provide our suite of services to India's public sector banks.

Unlike China, these ATMs will provide some positive contributions to op income and our business in India is now profitable and has been profitable and fast-growing for several years, not like China at all. Net of this increase, we redeployed 263 seasonal ATMs and added 531 new ATMs in the first quarter, keeping us on pace to deploy about 2,000 plus ATMs for the year. As you can see from these highlights, our EFT team continues to deliver more new products across our markets. Overall, another strong quarter for our EFT team. Now let's move on to slide number 17 and we will talk about epay.

During the quarter, our epay team remained focused on managing content within a retail outlet. This content management approach resulted in nice growth in our software and gaming category. In the first quarter we continued to expand our distribution of these products, including the addition of Sony, Xbox, and Nintendo into more than 500 VitreX locations, an electronics retailer in Germany, and Microsoft Office into a leading electronics retailer media market in Spain.

As subscription-based streaming services has grown in popularity around the world, we are working with numerous leading brands to expand their content distribution into cash-based markets. By converting the subscription service to a physical gift card sold at the point-of-sale, customers can gain access to content previously only available to credit card holders.

As a reminder, credit card usage in Europe is significantly lower than the US, I've said this to a lot of you before. For example, in Germany, continental Europe's largest economy, card-based usage only accounts for about one-fifth, 20% of all e-commerce transactions compared with the US where approximately 80% of e-commerce transactions are made with a card. And credit cards only account for about 5% of the purchases that are made within Germany.

During the quarter, we also added Netflix to a large supermarket chain in Italy and steam gaming 240 new retail locations in Portugal. We have also focused on increasing our sales of digital content through digital channels. Specifically, we have doubled our sales through channels like online banking portals and platforms like PayPal on a year-over-year basis. This quarter we signed another distribution agreement, this time with Cash Star, an online digital gifting site in the US.

We also continue to expand our existing content to new growing markets. We launched iTunes PIN on receipt at 2,500 solution-Gulf locations in the UAE and 4,000 euro-set locations in Russia. The continued focus on expanding our non-mobile product distribution resulted in a solid first quarter for our epay team. Now we will move on to slide number 19 and we will talk about money transfer.

As covered by Rick earlier, our money transfer team is hitting on all cylinders and delivering an outstanding first quarter, so we will move on to slide number 20 and talk about some of the specifics and what is behind this outstanding growth.

Our network has now eclipsed the 300,000 location mark, now reaches 310,000 locations across 150 countries, a 26% year-over-year increase. When we purchased Ria in 2007, the network had 42,000 locations. In the money transfer space, ubiquity of payout is key. You can't service immigrant consumers if you are not able to pay out a transaction where their family is located.

In the past nine years we have grown our money transfer network more than sevenfold, making our secure affordable service more convenient to more consumers around the world. This is a significant milestone and a great accomplishment for our money transfer team. This is just nothing but hard work and they have done a great job.

During the quarter we launched 11 new correspondents in eight countries. In Russia, we launched receive service at more than 22,000 Golden Crown locations. This is a large number of locations that will greatly improve our network in Russia, the 16th largest remittance receiving country which received an estimated $8 billion in 2015. We also launched services with two local post offices in French West Africa. Post offices are important. Network locations in these developing countries as they account for a significant amount of the bill payment activity that goes on in a country, allowing customers to collect the money sent by their family where they make their bill payments.

In addition to the launches, we signed 25 new correspondent agreements spanning 17 countries. We signed an agreement with Trust Bank of Bangladesh to offer receive service to Trust Bank's customers. Bangladesh is a top-10 receive country, receiving an estimated $16 billion in 2015. We signed another local post office agreement, this one with the post office in the Ivory Coast.

We continue to be motivated to provide superior customer service to all of our customers, including Walmart. We continue to work hard with Walmart to try to find ways to expand our product offerings and by combining our assets for the betterment of our mutual customers. As a part of these efforts, during the quarter we launched a money transfer pilot in select Walmart Chile locations. We remain excited about the potential of these initiatives together with the opportunity to work with Walmart on additional projects.

Finally, we launched an agreement with Earthport for payout through their global payments network. This agreement complements Ria's existing bank deposit services expanding its catalog, allowing even more customers to experience Ria's reliable, secure, and affordable services.

Before I close on the money transfer segment, I thought I would give you a brief update on our acquisitions of the last couple years. The IME Asia-Pac acquisition has continued to meet and exceed our expectations with handsome double-digit growth. As you may recall, this acquisition gives us front door access to very large transfer corridors with tremendous potential. We are very pleased with the momentum of this deal. As for HiFX, you may recall that we have launched HiFX in the US. We are seeing transactions ramp nicely and believe this success will continue.

And with respect to our latest deal, XE.com, our teams there have been busy with the integration of XE in preparing for the conversion of their incumbent white-label payment processor to our HiFX platform which should happen in the fourth quarter. Coincident with this, we will launch another market, Canada, in the very near future. Needless to say, we can't wait to directly serve XE's 200 million-plus unique visitors a year.

So, all in all we are very pleased with the results of these important and growth-driving money transfer acquisitions and look forward to their continued success.

Now then, to close on money transfer this was a great start to the year for our money transfer segment as they continue to deliver strong double-digit growth. Let's move on to slide 21 and we will close up for the day.

We finished the quarter with and adjusted cash EPS of $0.69, a 23% year-over-year increase and one penny ahead of our guidance. EFT delivered double-digit operating income growth as a result of continued ATM and POS network expansion. Epay benefited from continued sales of non-mobile content, our money transfer network reached more than 300,000 locations, and delivered double-digit growth across most all of the segments of our business.

Our balance sheet remains strong as usual with good cash flow generation and, finally, we expect to achieve second-quarter adjusted cash EPS of $0.90, assuming foreign exchange rates remain constant.

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

Thank you.

(Operator Instructions)

Mike Grondahl with Northland Securities.

Thanks, guys. Congrats on a typically seasonal challenged quarter. You guys outperformed nicely. Mike, where did that out performance come, kind of based on your expectations going into the quarter?

Well, actually pretty much hit everywhere where we thought it was. We tended to outperform a bit in the EFT and money transfer and epay was about where we expected it, so I am just happy to see guys hitting and exceeding their numbers.

Sure. Great. In India, it seems like the 2600 ATMs you are picking up are giving you entry into the public market where like 77% of the ATMs exist. Are you currently in any discussions for any of those public sector bank ATMs?

Yes. I will let -- I know part of the answer but I will let Kevin answer.

Mike, this is Kevin. Yes, we are in discussions. As Mike suggested, these public sector banks are using technology that is quite dated and they are looking to either replace the switch with a new solution or they are evaluating outsourcing those ATMs, and we are in discussions with other public sector banks.

And understand, like I said, I can't emphasize -- over 3/4 of all the ATMs on the market are public sector banks and those guys have been basically just closed down to us and so we had to kind of get our feet wet with one of these. They always start low margin to begin with and then you try to wrap around other services to make more money.

Got you. Do you have a goal this year, how many ATMs you'd like to --?

Not really a goal but the nice thing is we will not sign one of these deals unless we are making money and so -- or at least that's the general rule. So, this one is making money for us. Next ones we expect would do the same thing, so they are all incremental. We have been in India now for 10 years so we've got lots of infrastructure. Our guy running it there in India (inaudible) is a very bright guy and he has got a really strong team behind him, so I really think that market has not fully taken advantage of all that we have to offer.

Okay. And then on money transfer, the Walmart Chile pilot that seems to be your first piece of business with Walmart outside of the US. Is that correct? Can you talk little bit about the pilot?

That is correct. It's a pilot. They have almost 400 stores down in Chile. We are piloting a handful of stores right now and if all goes well for both parties, we could expand that to more stores.

So it's the second deal that we signed with Walmart. I think it is just -- with Walmart, these guys are very big, professional retailers and our focus is keep our nose down, work really hard, and just keep them happy. That is what we do and over time perhaps other deals will come our way.

Got it. And lastly, Mike, your money transfer volume continues to be very strong. Obviously you are taking share, but could you talk about where you're taking share globally? Is the pie still growing?

Here are two things and then I have got to cut you off because I have got to let other people talk, but these are good questions. So, with respect to money transfer, when it comes to our baseline -- call it the non-Walmart business, we're taking it from everybody. Obviously, we are growing a hell of a lot faster than the world market is for domestic remittance. I don't know exactly who, but we are taking it from the market.

With respect to the Walmart to Walmart deal, we firmly believe that as we have put in really what Walmart could be proud of, which is in everyday low price to their customers, we dropped the pricing sewed significantly in this particular US/US corridor that I think the pie is growing. So here more people can afford to make a domestic remittance when before they didn't want to spend $50 or $60 or $70 to send $600 or $700.

Got it. Thank you.

Chris Shutler with William Blair.

Good morning. I just wanted to follow up on the public sector banks in India. It is pretty interesting. Mike, what does or will the competition look like there those types of outsourcing deals and what would you expect the unit economics to look like relative to other India machines or central and eastern Europe?

So, --

I know it is early.

The funniest part about -- the interesting part about India is everybody and their brother claims they can do ATM outsourcing or something for banks. There are lots of little competitors. Because we have been there for 10 years, we are already driving and doing full outsourcing to a number of the private sector banks right now.

We have got a great reputation and so I imagine it is going to be competitive, but we are happy to just compete. And by the way these don't get -- when we do a driving contract in Europe there is a lot to it, so there are a lot of pieces so we might be managing the security and the maintenance and do the cash forecasting and organizing the cash [bills] and all this stuff, well this is just driving and switching, so this is really just computer work.

Okay. And then on epay, maybe you could just dive into that segment a little bit more. I know you did some in the prepared remarks, but give us a sense of how much the mobile versus the non-mobile gross profit is growing today or just what the outlook is. It sounds like you are expecting relative stability in the near term. How would you characterize the opportunity to re-accelerate epay into the upper single and low double-digit EBITDA growth in the medium term?

Chris, we are currently seeing kind of mid to upper single digit decline in the mobile sector and we are fortunate to see some really nice strong growth rates in the non-mobile which is, as you can see in the results, has given us the ability to continue to grow that operating income. As we have said in our notes there, we would expect to see a little bit of softness here until we really kind of gain continued momentum in the non-mobile there. It is kind of hard to really predict when that might happen.

We have seen some positive signs in certain markets. And again I would just come back and say that we have great momentum going on in our non-mobile which has given us the ability to work through mixed change. So, I think sometimes there is just always a lot of focus on the non-mobile part of it, but we have got a product that, let's call it, is going through a maturity curve and we are really fortunate that we have access to over 300,000 retailers with over 600,000 terminals that we distribute our products in together with the whole host of digital fronts that we distribute our products and that has really been the champion behind being able to grow this non-mobile in a good strong double digit basis. So as we continue to make that change out, I think we will start to see some movement there, but for the time being we will be a little bit cautious on how aggressive we might expect that to be growing.

Okay. So you would characterize the mobile top up businesses, the declines there as steady or are they accelerating a little bit? How would you characterize the headwinds?

No, I would say steady. I haven't seen necessarily acceleration but probably as with a lot of people we would like to think that when we see a flattening in a particular part of the business it is a trend that we would love to hang on to there. It has not really changed, but it has continued, like I say, in that single to upper single-digit rate.

Chris, this is Kevin. It is principally driven by mobile operators competing with one another, just continuing to give more for less and you see that in the advertisements on TV, et cetera. So that promotional activity from mobile operators is pretty consistent and it is proportional. All of us can only eat so much data, text, and voice.

Yes. Okay. So just a continuation it sounds like. And then just one more quick one just in EFT. Mike, you talked about the move into Ireland. I'm guessing it's very small at this point, but maybe just give us a sense how big the launch is and who the competitors -- why you are moving into that market?

Well, I'll tell you. I sent out a little email to everybody in my company because on St. Patrick's Day we went live with our first three ATMs. We just have a handful now, but we are going to -- it is the same modus operandi we do with each of our new launches. We start with handfuls of ATMs, get them out there, make sure we get it all working right. We assess the market and we continue to put out more ATMs where we can make them profitable. More on that later.

Okay. Thanks, guys.

Rayna Kumar with Evercore ISI.

Good morning. With your Walmart money transfer pilot in Chile, where are you setting prices relative to competition?

You know what, Rayna, I don't even have that information.

Rayna, we consistently throughout our business are slightly better than the leading brands that are out there because, as Mike mentioned earlier in our comments there, we provide a great quality product with lots of payout opportunity and we do it at a little better price. So it is a little better priced, but it is not different than what we have traditionally practiced around the world.

Got it. That's very helpful. With the 26% Asian location growth that we saw this quarter, I think it was the highest we have seen in at least the last two years, where do you think the other markets that you can add?

There is a lot. The reality is we still need more in Africa, we still need more in the Middle East which is why we bought IME because that gives us a head start into the Middle East. Asia we could use more, and we are pretty strong in places like Pakistan, Bangladesh, Sri Lanka, into kind of Southeast Asia, but we need to do more in India. So there is still a lot of work for us.

We have got a team that is crisscrossing the world every single day and talk about nose to the grindstone. They just hammer it out and add more ubiquity to payout which gives us access to more and more immigrants because like we said in the prepared remarks, if you don't have a payout location that is close to where the family, your mom lives and you are sending her money, then you are going to use a different provider.

Understood. Can you update us on the potential for ATM interchange increases across Europe?

Okay. So, I will tell you, this is -- we are trying to figure this stuff out too. We do know it appears a surcharge may be allowed in Austria and Spain in certain conditions, that is kind of new over the last few months. Germany is considering surcharge for different kinds of cards than they have in the past.

Everything seems to be very, very fluid. Nobody seems to quite know what is going on, but we will be able to, I think within a quarter or two, be able to solidify that, but this is a combination of card organizations, regulators, consumer groups, everybody is kind of buying to be the guy who determines what the rules are, so it's very fluid.

I think one other point I would make on this is that you hear a lot of discussion about decreases in interchange, especially in the card world, and you have to understand that in the card world what these really are just electronic transactions that are forcing the different networks. In the ATM world, there is a lot of cost it takes to keep an ATM in place and the banks that you were seeing over there, the banks are essentially saying I cannot run, make an ATM network available to customers with low interchange rates because as we have shared with you before, it costs almost $1000 a month to run an ATM.

This is a real bank quality ATM, not a small type of a desktop ATM but a real bank quality ATM that you provide a whole host of services, a whole range of value-added products and to keep those things up and going and rent and all that type of stuff, it is about $1000 a month. The banks are essentially saying, guys, we need enough money to profitably or at least break even run our ATM network to serve the customers of the bank. And so that is why I think, and Mike says it is quite fluid, these folks are engaging in the discussion to see how they can most efficiently operate their business because it is very, very different than card interchange.

When Rick says card, he needs POS.

Got it. Thank you.

Peter Heckmann with Avondale.

Good morning, everyone. Rick, just a follow-up on your comments on epay. Did you say just qualitatively the net effect we should think about maybe modest revenue declines but with modest growth in EBIT dollars given that continued mix shift to hire margin transactions?

I would say you heard it just the way we expected you to, Pete.

Perfect. And within money transfer, great transaction growth there. You see the way I calculated the average fee per transaction moving down consistent and I assume that is mostly mix, but are there any corridors where you would call out either new competitors or different dynamics in pricing?

No. Nothing that we really see there across-the-board, Pete. I would also just mentioned that the Asian Pacific transactions generally are a bit lower on the price side than you might see out of the US and the European-type transactions. That adds into the mix a little bit there. That brings that number that you have seen that is overall an average lower kind of a number there, but nothing really different on the competitive price front out there that we have seen.

Great. That's helpful. And then just last question, a clarification. In Chile on the pilot, I assume that is Ria branded pilot?

Yes it is. Yes it is.

Thank you. Jason Deleeuw with Piper Jaffray.

Thanks. Good morning and nice work on the quarter.

Thank you, Jason.

You're welcome. Quick question on the Walmart Chile store. Just to be totally clear, are those transactions from just US Walmarts to Walmarts in Chile?

No, no. That is not it at all. These are immigrants into Chile from other probably surrounding South American countries. Chile has got one of the stronger economies in South America and so you see people coming from Peru and other countries around there going into Chile for jobs and they are basically sending back home money. So this has no connection to the US Walmart other than its both called Walmart.

Great. Thanks. And then switching to EFT. With the growth in India, the mix we have going on with outsource versus owned ATMs and some other factors, how should we think about the segment margins? They were up year over year in this last quarter and this is a seasonally slow period, and we have had some ATMs moving around, but can we still expect EFT segment margins to expand going forward?

Yes. I think that is probably reasonable. They will say the same to expand.

In fact, as Mike pointed out earlier, these Indian ATMs are essentially driving our business, our business is driving, so whatever revenue comes in at the top goes all the way to the bottom because there is not any other kind of real operating kind of cost out there to do that. The only difference you will see is when you do the mathematics of your average operating income per ATM just because, like we said, they are going to be pretty marginal on the contribution line.

We really increased the denominator.

But our margin should continue to expand.

And just to reiterate for everybody, driving agreements, we love them, okay. We don't have any CapEx. We don't have any OpEx. We leverage that on top of current infrastructure so, as Rick said, you add a driving contract no matter what you charge and those a very lucrative agreements for us. High margins.

And then for the ATM for the remainder of the year I believe the target was 2000 ATMs and my sense is that is kind of outside of what you have done in India. Are you still targeting --

We are not counting the Indian ones in that. We did something like 530 or whatever the number was for this quarter net of all the other things are going on, so we are definitely on plan to deliver 2000 plus for the year and we hope that our site selectors can find another 1500 plus great sites this year.

We did not think that the 2600 India ATMs give us the right to do our victory dance yet.

Alright. Thanks a lot.

Thank you.

Alex Veytsman with Monness, Crespi, Hardt.

Hello. Good morning. Congratulations on an excellent quarter. My question is around Walmart to Walmart. I just wanted to understand the second half of the year a little better. What kind of growth rates should be envisioning for the second half of the year?

Everybody asks that and we ask that around the table here. We don't really know. We are into kind of uncharted territory.

First of all, the historic (inaudible) of Walmart prior to us getting there are confidential between Walmart and its other suppliers. All we can gather is it appears as I've mentioned because we are on the low end of the price elasticity curve, more and more people are using the service and more and more people are finding out about it every day. So, it is very difficult for us to know how big the pie can get because the pie has never been this big before. So we will just have to see. We still see growth. We are still happy.

And how about cross-border? What are some of the (technical difficulty) there?

Well, cross border with Walmart in particular you mean?

Walmart to Walmart potential cross boarder.

That would be -- that is up to Walmart and whenever they have their strategy and if they choose us as their supplier we will give you more updates, but as it sits right now we only have the domestic piece and we are excited about doing that and doing that really well for them.

Got it. Thank you.

Tim Willi with Wells Fargo.

Good morning, guys. [Allen] (inaudible) on for Tim. A couple quick questions on money transfer. So just to touch on the development in Russia. Is that something you see as a longer term opportunity to gain market share?

Absolutely. We have -- to be frank, we have kind of weak payout in Russia, so every time we add more payout it is better. It is good for us. It is the 15th or 16th largest remittance market in the world and we got rather spotty coverage, so I am happy that we added these new sites and hope to add more.

Okay. Great. And then secondly, can you just give us an update on the economics around IME and the plans for growth specifically in Southeast Asia?

Well, there is no economics other than they have exceeded our expectations since we bought them with just their intrinsic growth. We still have not done the full integration between our two system so that all of our agents can access all of their agents and their locations and vice versa. That is in process and so that will add some growth. In the meantime, these guys are just kind of ripping it up on their own, so they are doing a good job growing in Southeast Asia. In the Middle East they have added these corridors that we just did not have before, and so we are excited to add our brand and kind of our size and girth to what they have had so that we can amplify that a bit.

Great. Thanks, Mike.

Thank you, and that does conclude today's Q&A portion of the call. I'd like to turn the call back over to CEO, Mike Brown, for any closing remarks.

Thank you, Operator. No real closing remarks. I do thank you to everybody who spent some time on the phone with us today. We would look forward to a good Q2 and certainly a good rest of the year. Thank you very much. Bye bye.

Ladies and gentlemen, thank you for participating in today's conference. This does concludes today's program. You may all disconnect. Everyone have a great day.