Euronet Worldwide Inc (EEFT) 2016 Q4 法說會逐字稿

Greetings and welcome to the Euronet Worldwide fourth-quarter and full-year 2016 earnings conference call.

(Operator Instructions )

As a reminder, this conference 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, Takia. Good morning and welcome everyone to Euronet's quarterly results conference call. We will present our results for the fourth quarter and full-year 2016 on this call. We have our Chief Executive Officer, Mike Brown, our Chief Financial Officer, Rick Weller on the call.

Before we begin, I need to call your attention to the forward-looking statements disclaimer on the first page of the PowerPoint presentation we will be making today. Statements made on this call that concern Euronet 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 that are listed on the first page of our presentation. 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.

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

Thank you, Jeff. Good morning, and thank you everyone for joining us today. I will begin my comments on slide 5.

We finished the year delivering fourth-quarter revenue of $520 million, operating income of $58 million, and adjusted EBITDA of $83 million. Our adjusted EPS for the fourth quarter was $0.99, an 8% increase year-over-year and in line with the revised guidance we gave in late November.

The impact from FX rates, despite additional headwinds and the India cash constraint we talked about, was largely in line with our expectations. And, Mike will provide you with more of an update on the India cash situation in a few minutes.

We finished the quarter with $2 million to $3 million more ATM operating expenses than anticipated, largely due to the exceptional fourth quarter ATM deployments. But, that impact was covered by favorable tax rates driven by favorable transaction related country profit mix.

Next slide please. Slide 6 shows our three-year transaction trends by segment. EFT transactions grew 31%, driven by expansion of our ATM network in Europe, the October acquisition of UK-based ATM provider YourCash, and transaction growth in India. The growth in India was the result of a higher volume of low margin POS transactions processed in India, which was partially offset by fewer ATM withdrawals following the demonetization announced in November.

So while the loss in cash withdrawals was detrimental to our earnings, we had assets in place to benefit from the greater number of cards being introduced, albeit those transactions came in at a much lower rate than ATM cash withdrawals. As we see the cash situation stabilize in India, we believe we are in a good position to benefit from customer needs for both increased cash withdrawals and increased POS transactions.

EPay transactions grew 1% with increases in Poland, India, Turkey, and Germany, partially offset by declines in France, North America, the UK and the Middle East. The Money Transfer segment transactions grew 13%. Within this 13%, money transfers grew 14% while non-money transfer's remained consistent on a year-over-year basis. Money transfer growth came from double-digit transaction increases across all sectors of Ria's business and the expansion of our digital, international payments businesses.

Next slide, please. Slide 7 presents our results on an as reported basis. Changes in currencies varied widely on a year-over-year basis. For example, on one hand we saw modest declines ranging from 2% to 4% for the euro, the Indian rupee, and the Polish zloty and a significant decline in the British pound of 18%. While on the other hand, the Australian and New Zealand dollars increased 4% and 7% respectively. To normalize the impacts of these currency fluctuations, we have presented our results adjusted for currency on the next slide.

I am on slide 8 now. First, with EFT. For the fourth quarter, EFT revenue grew 20%, operating income declined 19%, and adjusted EBITDA declines 2%. Revenue growth was a result of a 59% year-over-year increase in ATMs and a 31% increase in transactions, with growth primarily from Europe, India, and the YourCash acquisition.

Declines in operating income and adjusted EBITDA include the impact of the demonetization in India, continued investments in our ATM networks across Europe with fourth-quarter deployments being 58% higher than the average of the three prior quarters and certain ATM operating cost increases in one European market. Excluding approximately $6 million for the impact of these three items, operating income would have grown approximately 10% year-over-year. So it is clear to see that operating margins were seasonally impacted by extraordinary deployment of ATMs to support continued future growth, which produces disproportionate operating profits in the second and third quarters.

To give you a better perspective of the evolving seasonality of the EFT segment, in 2014, 39% of EFT's operating income was produced in the first and fourth quarters. In 2015, first and fourth quarter contributions dropped to 34% and in 2016 dropped further to 26%. We expect 2017 to have similar dynamics, albeit at a slower shifting rate.

Now ePay. ePay had a nice fourth quarter delivering revenue, operating income, and adjusted EBITDA growth of 5% 10%, and 8% respectively. Growth was driven by strong sales of non mobile products which outpaced mobile declines.

Operating margin expansion reflects the higher-margin non-mobile product sales which our seasonally strongest in the fourth quarter. We are pleased with the fourth quarter results out of ePay as they reflect the work of our team to continue to expand our non mobile product. ePay posted expanded year-over-year fourth quarter operating margins, reflecting strong non mobile mix, together with effective expense management.

And finally, money transfer. Money transfer delivered another strong quarter. With 16 revenue growth, 23% operating income growth, and 20% adjusted EBITDA growth. This growth was a combination of a very strong quarter for Ria and payoffs from the investments we made in our international payments businesses, HiFX and XE.

Operating margins expanded by approximately 70 basis points, reflecting the benefits of expense leverage, stable pricing, and favorable mix driven in part by the higher value transactions of our digital international payments businesses. As it relates to revenues and gross profits per transaction, all three segments have relatively constant year-over-year results.

Now let's move to slide 10 to discuss the full year. On slide 10, you can see full-year revenue approached $2 billion. Operating income was $250 million, and adjusted EBITDA was $345 million. Full-year adjusted EPS was $4.02, a 21% year-over-year increase. This is the fourth consecutive year we have delivered more than 20% growth in adjusted EPS, a testament to our strategy of adding more products to more devices across more locations. Next slide, please.

Slide 11 provides the full-year transaction trend. EFT transactions grew 24% with growth across Europe and India partially offset by declines in China. ePay transactions declined 3%, while mobile transactions declines being largely offset by higher margin non mobile transactions. Money transfer transactions grew 20% with growth across all aspects of the business.

Let's move to slide 13 and discuss the full-year segment results on a constant dollar basis. Here on slide 13, you can see the EFT team delivered and outstanding year with revenue, operating income, and adjusted EBITDA growth ranging from 23% to 25%. Let's not forget that EFT continues to become a more seasonal business and normalizing for India demonetization, revenue, operating income, and adjusted EBITDA, our growth rates would have ranged from 25% to 27% growth. This growth was the result of ATM expansion and transaction growth.

Excluding the impact from India, operating profits expanded nicely reflecting the benefit of value-added transactions available on our ATMs. Operating margins, excluding increases in purchase price amortization, remain constant year-over-year and would have expanded approximately 50 basis points if not for the temporary India cash demonetization impact.

ePay revenue was consistent year-over-year, while operating income and adjusted EBITDA grew 4% and 3% respectfully. Continued growth in non mobile product sales and effective expense management contributed to a 30 basis point expansion of operating margins.

Money transfer revenue grew 19%, operating income grew 30%, and adjusted EBITDA grew 26%, with double-digit growth across our remittance and our digital international payment platforms. This strong growth was the principal contribution to a 100 basis point expansion in operating margins.

While not on this slide, I would also like to point out that our effective cash earnings tax rate for the year was approximately 21%. We expect a similar to slightly higher rate for 2017 as a result of generating proportionately more profits in higher tax rate jurisdictions.

We are extremely pleased that we delivered another full year of consolidated double-digit growth. Margins expanded across all segments, and we are well-positioned for 2017.

Let's move to slide 14 and I will comment on our year-end balance sheet. On a year-over-year basis, our balance sheet continued to strengthen. The increase in cash is largely from cash flows generated from operations and cash borrowed on the revolver to fund our ATM networks.

The increase in debt and leverage ratio was a result of lower debt repayments stemming from cash flow timing. Essentially, we chose not pay down certain euro denominated rate borrowings due to higher cost of short-term hedge rates.

So, for all practical purposes, debt remained unchanged for the year. Free cash flows produced from operations approached approximately $200 million, despite additional CapEx to fund increased ATM deployments in 2016.

As I close, I think it is important to say again that our business is becoming more increasingly seasonal, particularly in EFT. And our fourth-quarter results reflect the investment required to maximize the operating profits we can earn throughout the year. We believe that our track record with these investments in EFT is proven to work, as we have now delivered four consecutive years with operating income growth of more than 20%. The EFT results, combined with strong contributions from ePay and money transfer position us well for continued double-digit expansion in 2017.

With that, I will turn it over to Mike.

Thank you, Rick. As I reflect back on 2016, I am extremely proud of our accomplishments. Our business continued to deliver 20% plus growth in a year that included tumultuous global events; such as the British vote to exit the EU, the contentious elections in the US, and the India demonetization of the two most popular cash denominations just to name a few.

These results are made possible by the willingness of our teams to work harder not only to compete but to win in this environment. There are so many examples of companies failing or even folding under pressure. I am proud that we have teams that not only do not fail but thrive when the pressure gets tough.

Rick often tells me that the results will speak for themselves. So let me share with you a few of our accomplishments this year.

We converted XE to our HiFX platform, a significant milestone for the future of our money transfer business. We acquired YourCash, a good ATM business with presence in markets adjacent to our legacy ATM business. Each of our three segments, each of the three, contributed to bottom line growth.

We processed 3.3 billion transactions. We added more than 3000 high-value ATMs across our legacy business and 4900 new ATMs from the YourCash acquisition. We were responsible for $84 billion in cash across our three business segments and we delivered 21% growth in adjusted EPS the fourth year that we have achieved more than a 20% growth in earnings.

The achievements realized in these metrics are only part of what was another successful year for Euronet. Embedded within these accomplishments are many smaller achievements, which have laid the groundwork for our continued growth in 2017. So let's move on to slide number 18 and we'll talk a little bit starting with EFT.

Slide 18. So this was simply another phenomenal year for our EFT team, they continued to thrive despite all the macro economic distractions to achieve double-digit growth in all metrics.

Let's move on to slide number 19, and we'll talk about the highlights. As you know at the beginning of October, we acquired UK-based ATM operator YourCash, this was an nice acquisition that gave us immediate access to a couple of new countries and adjacent market to that of our traditional ATM business. YourCash delivered results in line with our expectations and we're pleased with the progress we have made in integrating them into our business.

In Poland we signed ATM and depository agreements with Raiffeisen Bank and a deposit network participation agreement with Nest Bank. These agreements expand deposit convenience for retailers across Poland.

We also signed card issuing and ATM acquiring agreements with Sparkasse [Airsta] in Macedonia. This the first been contact that we have done in Macedonia and one that we are proud of as we're competing against strong competition for this win.

The YourCash team also signed an ATM deployment appointment agreement with Gala, a convenience store chain in Ireland. When fully rolled out, this agreement will come as many as 50 convenience store locations. They also renewed an ATM deployment agreement with Co-Op, supermarket store chain in the Netherlands. In India, we renewed our outsourcing contract with Deutsche Bank.

Now let's go onto the next slide, please. Slide 20, we signed numerous value-added services agreements in this quarter. We added four merchant deposit customers to our deposit network in Poland, we completed various projects for Piraeus Bank, Standard Charter Bank and First Ukrainian Bank. These projects provided leading industry innovation to our customers, making it easier for both our customers and their customers to do business. Our ability to sign these add-on agreements demonstrates the strength of our network across Europe, the high-quality of value-added services we give our customers, and our leading market share numerous markets across the continent. Next slide, please.

Slide number 21. This is something that people have been asking a lot about so we thought we would make it really clear what is happening in India. So we provided you here with this slide, a timeline of the currency and circulation in India since the Reserve Bank of India made the decision to demonetize, that means take off the market completely, the INR501,000 notes on November 8, 2016. This was a shock to the Indians and a shock to us and we will tell you where we are at now.

As you can see in the graph, prior to demonetization, cash levels in India were the equivalent of approximately $270 billion US with approximately 86% of that cash carried in the INR501,000 notes. In the weeks following this decision, the RBI, that is the Reserve Bank of India, indicated that cash levels in India would return to normal by the end of 2016.

Unfortunately, the rollout of cash has been significantly slower than those early indications. And based on current trends, we would expect cash levels to return to near-normal by the middle to the end of March.

As we have navigated through this crisis, we have identified a few key data points that report to our Indian business. First, we believe that cash will remain the preferred payment method for Indian consumers.

Second, since November 8, approximately 18 million new bank accounts have been opened in India, which means that there are now more debit cards in circulation than before the crisis. While a virtually no new ATMs have been installed over the same period. As Rick mentioned earlier, because of the diversity of our product offering, we are well-positioned to help these new debit card customers make their next payment regardless of whether they prefer an ATM cash withdrawal or to use that debit card on a POS transaction.

Finally, based on a small one month data set, although the number of digital transactions increased when cash was not available, those same consumers have returned to cash to make their everyday purchases. So as cash becomes more widely available, we expect to see the transactions on our ATM network return to normal. With the delay in the cash rollout, we expect to continue to see pressure on our results in the first quarter. With things largely returning to normal in the second quarter.

During the fourth quarter, we added approximately 4900 ATMs for the acquisition of YourCash and 1100 high-value ATMs and we also winterized 1276 devices. So we ended the year with 33,973 ATMs, a 59% increase over last year. This growth reflects the addition of 5300 low-margin ATMs in India, the YourCash ATMs, and more than 3100 high-value ATMs. Well above our goal of 2000 for the year.

The growth does not include the 1500 ATMs that were winterized at the end of the year versus the 950 that we winterized at the end of last year. So if you think about it for a minute, we have got an additional 500 winterized ATMs, which will clearly have an impact on our operating costs in the fourth and the first quarters. But I am excited that we are jump starting 2017 with 500 more high-value ATMs.

As we have pointed out before and I reiterate, our EFT business is becoming increasingly seasonal and we invested in these ATMs late in the year in order to maximize our full-year profits, which will largely be earned in our seasonally strongest second and third quarters, where in half of year, we produced more than three quarters of our profits in this segment.

It bears repeating that EFT had an exceptional year, delivering their fifth consecutive year of double-digit constant currency operating income growth. With 59% more ATMs in our portfolio, the investments of the fourth quarter positioned the segment to deliver another very strong result in 2017.

Now let's move to slide 25 and we'll talk about ePay for a minute. Our ePay team continues to focus on expanding its non mobile content, which makes up now close to 60% of our ePay gross profit in the segment's seasonally strongest fourth quarter. You may notice a slight decline in the ePay POS terminals in retail locations, this is largely the result of our focus on digital distribution of content which is more cost-effective for both the content provider and the retailer and results in a higher margin product sales for ePay.

During the quarter, we gained even more traction in the gaming category as sales of these products have more than doubled over the last year. This quarter, we launched Code to Content with Sony and Xbox at retailers across Europe. We also added distribution of EA gift cards in 23 large retailers across the continent and we launched Blizzard and Wargaming in Eastern Europe.

In New Zealand, we launched the Prezzy Card in Foodstuffs, the first grocery store in the country to offer customers and open-loop gift card.

In the United Kingdom, we were able to cross sell our Euronet EFT merchant acquiring solution to several existing ePay retailers, as well as opening up the solution to new retailers and channels. By providing this solution, our existing independent retailers can now be more efficient in operating our expansive ePay product portfolio, while adding the new acquiring solution all through one terminal in order to reduce costs and improve pricing.

Secondly, the acquiring solution allows to offer a more compelling product portfolio, attracting retail customers who operate multiple locations as well as opening up new channels such as hospitality. This is just another example of our business giving new and existing partners better services to make their businesses more efficient. This is an excellent example of leveraging our assets across the segment in geographical boundaries.

It is a continue product launches and new contracts that you see on this page combined with good expense management that have allowed ePay to overcome some challenging mobile declines and contribute to our overall consolidated operating income scope. This was a good quarter for ePay and we will continue to add products to our portfolio and to more efficiently distribute these products for our content partners.

Now let's move on to slide 29 and we'll talk a little bit about money transfer. Our money transfer network now reaches 317,000 locations in 146 countries, 9% year-over-year increase. During the quarter, we launched 14 new correspondents in 12 different countries. We continue to have good momentum in correspondence signings as we added 17 agreements with new correspondents spanning 14 countries. With the most significant of these in Russia, Vietnam, and Pakistan.

In addition to our network expansion progress, we also have several other notable business highlights to mention. As we mentioned earlier this quarter, we expanded the scope of our Walmart-2-Walmart domestic money transfer service to include sends up to $2500 from our original maximum of $900. Sends in the $900 to $999 band will cost $9.50 and sends ranging from $1000 to $2500 will cost $18 with the Walmart-2-Walmart service. While competitive offerings were as much as $50, three times higher. As it relates to our broader agreement with Walmart, we continue our discussions and negotiations with the Walmart team and we're confident that we will sign the agreement before the April expiration date.

In November, we successfully migrated XE's cross-border payments volume from Western Union to HiFX. This was a complex project, but our teams will together and launched the new XE payments seamlessly. We have seen good volumes since the conversion and we will continue to make product improvements over the course of the next several months. This is another example of our expansion of digital transfer products.

I think it is important to pause here and focus on our digital business for a moment. As you know, over the last several years, we have made a lot of investment in the digital arena and we're really beginning to see the fruit from those investments. This quarter, we expanded our online remittance product, riamoneytransfer.com to Spain and we also launched a staged transaction mobile app which allows customers to send money transfers from a mobile device while paying for that transaction at an agent or a Ria store.

We've also seen strong growth with our AmEx partnership which allow Serve and Bluebird customers withdraw cash at any Walmart location as well as ATMs. And I should also point out that HiFX processed over a $500,000 international business and consumer payments this year.

All of our efforts and investments growing our digital capabilities are paying dividends. Not only do we have one of the world's best cash to cash networks, both in terms of global region product capability, but we're also well diversified between cash and digital money transfers.

Not only did our XE website and app achieve more than 270 million unique visitors, IP addresses, and 50 million downloads over the last year respectively, but for the full year, 56% of our cross-border principal was sent and 27% of our cross-border money transfer revenues were earned from transactions completed online or from a mobile device or deposited to a bank account ATM mobile wallet or other electronic method. We still see a very big market where cash is strongly preferred, but we continue to work hard to offer our customers digital convenience and the adoption has been strong thus far.

We will continue to invest in digital and we are working hard to better leverage the rest of Euronet's global network of retailers, ATMs, partners, and customers, to offer the world's best in class service for funds-in funds-out network. Our money transfer team delivered an exceptional year, and is well-positioned to continue it's growth in 2017.

Slide number 30, please. Before we wrap up the year, and take questions, I would like to take a moment to reflect on the significance of our assets around the world that have enabled our consolidated operating income to grow at double-digit rates for the fifth consecutive year. We have got a really unique company here. Our payment network is expansive, serving customers in more than 160 countries.

We operate about 35,000 ATMs and provide service to another 125,000 more devices. We operate or provide content on more than 824,000 POS terminals and have presence in more than 305,000 retail locations. We have a money transfer network of more than 317,000 locations, an app that has been downloaded more than 50 million times, that is XE and a website that has achieved more than 0.25 billion unique visitors annually.

And we do not just process, but we are fully responsible for the $84 billion in cash that flows this extensive network. We partner with more than 50% of the world's top 20 retailers, including Walmart, Carrefour, and Metro, just to name a few. We're connected to all the major card networks. Visa, MasterCard, JVC Diners, AmEx, [Johnny] UnionPay, et cetera. We distribute content for leading global brands, including Google, Apple, Facebook, Amazon, Netflix, Flip [Card], Microsoft, and Sony. And in addition to our retail distribution channels, we have established significant digital relationships with numerous banks and retailers, mobile operators, and leading brands such as PayPal and Ali Baba.

We maintain licenses in approximately 100 different jurisdictions and have a strong and accomplished compliance function to support our regulated business. With these assets, Euronet is not just another payment processor. Euronet is a multidimensional global company that facilitates business in almost every part of the world.

Whether the payment or product is physical or digital, cash or otherwise, we have a network that is unparalleled by any other processor in the world. With these assets, our proven strategy to add more products to more devices across more countries, and our demonstrated ability to deliver profit growth year after year after year, we remain fully confident in our ability to deliver double-digit earnings growth in 2017 and beyond.

Now let's move to slide number 31 and we will wrap up the quarter. So for the fourth quarter, we delivered as Rick said, an adjusted EPS of $0.99, an 8% increase over the last year's fourth quarter and in line with our revised guidance. For the full year, we achieved EPS of $4.02. a 21% increase over 2015 and the fourth consecutive year we have delivered more than a 21% growth in adjusted earnings per share. The EFT results reflects strong organic growth. The acquisition of YourCash, which was partially offset by the impact of the India demonetization and continued investment in our European ATM networks. ePay continued to add more non mobile content to their portfolio.

The money transfer results reflects strong growth across all areas of the business. And as usual, our balance sheet continues to strengthen with strong free cash flow generation. Finally, we expect our Q1 2017 adjusted EPS to be approximately $0.73, assuming foreign currency exchange rates remain constant and factoring in the seasonality, the India cash impact, and increased ATM operating costs.

Every year, you guys ask me how we are going to continue to grow at such strong rates and my answer is because of the assets I just told you about on the last page, I think we have greater opportunity for growth in 2017 than we did in 2016. We have more ATMs, we have more non mobile content, we have more network locations and more digital products. Our future is bright, if not brighter than our past and I am confident that we once again achieve full-year double-digits earnings growth in 2017.

With that, we are happy to take questions. Operator, will you please assist?

(Operator Instructions)

Chris Shutler, Williams Blair.

Good morning.

Good morning, Chris.

Mike, let's just follow up on that last comment that you made on digital double-digit earnings growth. Consensus right now I think is calling for about 13% adjusted EPS growth in 2017. I want to take your temperature on that and what could cause you to come in below or above that? Thanks.

Well, let me just remind you, your consensus for the last four years has been in the same kind of like 13% to 15% range. And we consistently deliver numbers in excess of that. So, I would tell you that we're just lined up really nicely for this year. Like I said, I mean, one of the biggest things is, and our largest segment right now is the EFT business. And we are starting out the year with higher operating costs because we have got lots more ATMs in the bag already put in the fourth quarter. So we're excited to hit a big number of new ATMs this year, we do not have to try quite so hard.

In fact our goal for this year is in the 3000 plus range. We had 2000 for our number last year. This year is around 3000.

So I think we just got to hope that foreign currencies do not go haywire on us. That the India demonetization continues to abate, and that we can just continue to do what we do in all three segments. We have covered it all. We do not see any large risks out there per se. It is just lots of block and tackle work. And that's what our guys are very good at. Despite when somebody throws them a curveball or meteor hits them in the head like with demonetization. So, that's where we are.

Okay. That helps. So you feel comfortable where you're at with Walmart and how that will play into the earnings?

Oh yes.

And then the on ATMs, Mike, the I think you added 3157 high-value in 2016. What is the total base of high-value ATMs right now? It is 20,000 or where are you guys at?

Around 17,000.

17,000. Okay. Got it. And of those ATMs added this year particularly in the fourth quarter, can you give us some sense of geography?

Obviously we're not putting any new ones in India. So, they are basically all in Europe.

Yes. Okay.

They don't have any money to sell, you know, that is our inventory in ATMs. And we did not have any money to fill them with so we weren't adding any new ones in India.

Okay. And then just lastly, on India for Q1, what do you guys modeling in for the operating income hit you will take in Q1 from India and what was it in Q4?

Well, as I pointed out, Chris, we had about $6 million from those three things. Using rough numbers about half of that was India. And then the other half was split between the other two items. And we use similar numbers for the Indian impact going into the first quarter.

Okay. That is helpful. Thanks a lot.

Thank you. Rayna Kumar, Evercore ISI.

Good morning, Rayna.

With the cash situation in India stabilizing, do you expect people to play catch up on taking out money in the second quarter that they couldn't over the last few months? And do you see any specific benefits either EFT or your money transfer business in India from that?

Well, it is hard for us to gauge whether that is going to happen. As I understand, you were there on a wedding not long ago, maybe you can ask some folks, we do not know.

But here is the fact. We have got those millions of new cards that have been issued. And we still have the same 200,000 ATMs that we had before the crisis. So, with these new cards being issued, they are going to use ATMs. They're going to use POS terminals of which we make money on both. So, I would imagine we would have some positive pressure but I just do not know. We'll have to see how it plays.

And you know as Mike said, there are cards issued. But keep in mind those are not credit cards those are debit cards. That means that there is a bank account behind that. That means that they probably got money electronically going into the bank account. And what we typically see across all markets, as people initially open an account, they generally have tendencies to draw money out and follow their customary practices of managing their personal budgets in a cash basis rather than in electronic basis. So another close to 20 million accounts where money is going in, we feel pretty confident that we will see that money circulate through ATMs.

And with the fact that the vast majority of all shops and you might call them retailers in India are cash-based, do not even have a POS terminal, the only way these 19 million new debit card holders are going to be able to buy anything is by taking the money out of an ATM and then going to use it with cash at those retailers.

That's really helpful. Do you expect any impact to your business from Ant Financial's announcement that it will be acquiring MoneyGram?

First of all let's put money transfer, let's put everything in perspective. If you take a look at the top three players in the business, which is Western Union, which is significantly bigger than MoneyGram. And MoneyGram which is, call it, two, two a half times as big as us, the three of us only control about 25% of the worlds' domestic remittance.

And those guys are in the 6% range. We compete with both MoneyGram and Western Union and the 75% of the rest of the market, every single day it is really -- money transfer is a highly competitive bare knuckle fistfight kind of market. So we would expect that we will do well as we always have done well. And depending on what the reasons were that Ant bought them, they may be focusing them more or the digital side or more the Chinese corridor or something like that. You know it may actually provide opportunities for us. We do not know.

Great. And can you update us on the potential for ATM interchange increases across Europe? What are you seeing there?

We do not see any potential as we sit this minute. Okay? People have been discussing it. Banks are not held in very high esteem by the political constituencies in Europe. And at higher domestic interchange rates, you know, might end up with a consumer backlash. We have seen lots of populism and you know that kind of thing across the political spectrum all across the world. So my bet is we won't be much this year.

Okay. And just a final one from me. What you expect the tax rate for GAAP earnings to be in 2017? And your $0.73 EPS outlook for the first quarter, what kind of FX hit does that imply?

The FX would be a roughly today's rates okay. So assuming that they remain stable through the rest of the quarter. And as I mentioned, we finished the year with about a 21% effective cash earnings tax rate. And then we would expect for next year that it is a little higher than that. Because we think we will get a little stronger mix of profits from some of the higher tax rate jurisdiction markets that we're in. But that is the general zip code that we are in.

Thank you.

Next?

Thank you. Andrew Jeffrey, SunTrust.

Good morning. Thanks for taking --.

Good morning, Andrew.

So, Mike, you -- and I think appropriately so -- really emphasized the digital efforts in money transfer. And I just wonder how you think about your opportunity there? Especially as the growth continues in terms of how much of that business do you think is additive to the cash business? What are the risks or outlook for cannibalization? And how does the interplay between pricing and volume work from a long-term revenue growth standpoint?

Well, when you, let's start with your first question. When you look at digital, what Ria started with when we bought them eight years ago, I mean, Ria was really a cash remittance business, almost all cash to cash, okay? And in fact, that is the wide majority of all the domestic remittance from all providers around the world, okay?

But we recognize that there is also a different cadre of people who are either paid through direct deposit or want to do a digital transaction. And so, that is why we have made these inroads and investments into the digital side. So it is really a new market as opposed to maybe cannibalizing our current market. I do believe that over time, a number of the cash people will change to digital as they become more comfortable in their new environments. But understand that population growth in all Western countries is driven virtually all by immigration. And these immigrants come from cash-based economies.

So every time you get one person who now switches from doing a cash to cash transaction to doing a digital to cash transaction to his family, for every one of those guys, you've got another immigrant who enters the country and is used to cash to cash. So that is the reason why, for us, we just see good news all around the world because we can both see our digital and our non digital growing. And you look at our digital business, it is significant. And it sure doesn't hurt to have XE with 4.3 billion page views a year and 50 million downloads, as a digital magnet for more transactions. And we are just beginning to scratch the surface on what we can do with that asset.

That, that's helpful. Thanks. As a follow-up on XE. Do you think 2017 is a year where you see higher conversion monetization to the extent that can grow a lot faster now that it is integrated with HiFX or is that going to take a while?

I think we'll start to see that in 2017. I think 2018 might be it's true coming out year. But we're already doing quite well. We have great sign-ups with, because we had to [re KYC] everybody and depending on the jurisdiction and so forth. So there is a lot of noise and effort in the first several months afterwards. But we are going to improve that website and our customer journey considerably this year. So we will see improvements through the year and we hope to have most all that done by the end of this year. So we will see a good 2018.

Okay. Perfect. Thanks.

Thank you. Peter Heckmann, Avondale.

Good morning, everyone.

Good morning, Pete.

With the continued increase in prepaid non mobile content as a percentage of the total and that creating a bit of a mix shift, are we in a position now where we might see mid single-digit top line organic growth out of ePay? Or are we still in an environment where the declines in the mobile business are keeping us around the flat line?

Well, I think you know you could see that. We probably be just a little bit more guarded to see that we see a little bit of a subsiding of it.

But you are right. The math works in our favor now because we have got more than, nicely more than 50% now. And so as we continue to add that non mobile product. And we put a lot of good interesting non mobile product in there, gaming, software, et cetera, that has done nicely and has great markets out there. So maybe that is a bit of the finance guy in me that would say, let's continue to see how it goes. But the math is working in our direction. And our team has continued to add more non mobile products.

So maybe this year gives us a chance to have a little bit more of a breakout. As you can see in our operating income, we were able to nicely leverage that to the bottom line. So we did get some good op income growth on a year-over-year basis. So if we can see that we get that kind of mid single-digit growth numbers out of that business, it will be just incredibly helpful to us for the full year.

Great. Great. And it appears that your rollout of Netflix prepaid coincided with real strong international growth at Netflix. Is that something that can be materially or a material contributor to growth? Or is it just one of a list of things that is helping you drive prepaid content?

Right now I would, to be conservative like my CFO, I would say right now it is one of a list. But as it becomes more and more successful and more and more accepted, hopefully that will not be the case. So we have got so many things. It is both the entertainment side like you said, the streaming stuff like Netflix. And some of the local guys that we have. And then in gaming is another big growth area for us we believe this year.

Okay. Last question. I'll get back in the queue. You noted in the Amazon prepay deal in the US, was that a competitive takeaway? Or was that a basically a new opportunity?

It was a new opportunity.

Great. Thank you.

Thank you. Mike Grondahl, Northland Securities.

Yes, guys. Congratulations on the quarter. A couple of questions. The 1100 core ATM deployment in the fourth quarter, was it simply you found a good site so you put them in? Kind of timing? Or how would you describe it?

Well, when we were smaller, we used to consciously not press so hard -- even though we could find the sites, we used to consciously not press so hard in the first and fourth quarters. Because we knew they were going to be a drag on our OpEx. And that's the problem with putting in an ATM, you have to pay rent 12 months of the year even though you're making the lion's share of your profit and quarters 2 and 4.

But since we have gotten bigger and bigger and our site selection has gotten better and better, we have got more empirical data on picking site by site than any company in the world. And so we just said go for it. Go out there and find as many freaking sites as you can and put them in as fast as you can as long as they're good. And so we were able to do that. You saw us, we were really accelerated through the third quarter and continued that high pace of acceleration into the fourth quarter.

Now the first quarter, we will find out how many ATMs we put in. My bet is we will not match fourth quarter just because of the seasonality and install and concrete setting and bad weather, et cetera. But the point is, we are putting in good profitable ATMs as fast we can find them and we do not time it.

Got it. So there is some carryover momentum to 1Q, okay.

Yes. Because we're basically starting the year. And just with the winterized ones, you have got an idea these are in heavy traffic locations in the summertime. We have got 500 more of those than we had last year. So we are going to turn those babies on around Easter and then we start printing some money.

Good. Can you spend a minute, YourCash, talk about the integration in the high-level opportunity there. I mean is it taking an individual or an average YourCash ATM from X to Y in terms of profits? What are you trying to accomplish?

Well, the bulk of their business is still in the UK. The UK is highly competitive, lower margins per ATM. Now they did use third parties for some of their services which can now do internally. So we are going to have to take all those over through this year. So that is going to improve the margin some.

I do not believe that the YourCash UK-based ATMs will ever match the profitability on a per ATM basis as the ones that we have across continental Europe. But that's the ones in the UK. But let's not forget they have got a very nice estate in the Netherlands and in Belgium, and so we're hoping that those two countries particularly will continue to drive their business.

Got it. And then you mentioned I think it was millions of new debit cards in India. Do you have a year-end number compared to a year-end 2015 numbers? Just so we can get a feel of that growth and maybe where you think that number goes?

Mike, we have it somewhere in the bowels of our organization. But I do not have it at the top of my head right now.

No problem. We can follow up later. Thanks a lot, guys.

Thank you. Jason Deleeuw, Piper Jaffray.

Thanks, and good morning.

Good morning.

Good morning, Mike. Western on the higher ATM operating costs that called out in one European market. Just looking for a little bit of color on that. And then just thinking about kind of the puts and takes on the drivers of the margins for the EFT segment. India headwind, YourCash, lower but ramping. And that you have got these high-value add ATM additions. So just thinking, can we expect to have margins in the segment expand again? I understand the seasonality first and fourth quarter. But on a full-year basis can we expect margin expansion out of the segment?

Yes. I think we can. We have demonstrated over the last several years that we have expanded it. As I mentioned in my comments, if you pro forma out of there some of the India impact, we saw [yet] margin expansion this year. And so yes, I would expect that we would. And as it relates to the higher cost in the European markets. It was across a few categories, but in things like security, some card organization costs and cash supply costs. Not one particular item, but it just happened to come in one particular market.

Got it. Thanks for that. And then I was hoping in money transfer, I was hoping to get a little bit of color on how much the HiFX leads transition to Ria, how much that helped EBITDA in the fourth quarter or revenue or just if we could some sizing of the benefit to that.

Yes. We did not get much of the quarter because we had the cost to get it up and going and stuff like that. Like we have said in the past, you know, we would have expected that business to bring us in somewhere in the macro ballpark of about $6 million annually or so, in operating profit.

We really only had it effectively in the business for one month based upon the termination agreement that we negotiated with the prior processor. So it really did not have much of a bottom line benefit for us in the fourth quarter. And so as Mike said, now that we have got it effectively transitioned, we'll start seeing that come to the table for us in 2017.

Thanks. And then last question. Just wanting to get a little bit of color on the process with the Walmart renewal on money transfer. And the things to kind of think about in terms of the process to the extent that you can at high level talk about the process and the contract. Because I think that is a key question that comes up. Just hoping we could get an update on your thoughts there.

Well, at the end of the day, we have got a great relationship with them. We just added the new band, as you know. We are in the negotiations to extend that contract. We fully believe that we will be able to extend it from all the information and contracts back and forth, et cetera, that we have. But we really do not go into it much past that.

We just remind you exactly three years ago when we did this, we had actually signed the contract in February, for a go live on the 20th or 22nd of April. So, we are [right then], and it is a lot easier to renew that it is to do the thing first time. So Walmart basically seems to be right on track with how they sign contracts. So, we are not worried about that. They had been a good partner. We have in a good partner for them. And so just keep your eyes on our announcements and when we renew it we will you know.

All right. Thanks a lot, Mike.

Thank you. Josh Elving, Feltl and Company.

Did we lose you, Josh? Operator, we are at five minutes after the hour. So we will take one more question from whoever pops up.

Certainly. Alex Veytsman, Monness, Crespi, Hardt.

Good morning, guys. Good execution here. Just wanted to ask you on the EFT business, it looks like very good revenue growth for the quarter, I believe 20% constant currency. [Yet transactions were much faster] and I think what you cited is that you had a large number of low value debit card transactions and low margin ATMs. So I'm just curious going forward as far as modeling 2017 and even 2018 numbers, how should we think about the average size of those transactions? Will they stay on the low-end and will the transaction growth continue to outpace revenue? Or will they actually going to go up over time?

Well, you know, the thing that throws everybody's numbers off here is what we do in India. Because everything there is tighter, lots more transactions at lower domestic interchange fees and lots more POS transactions at much, much lower values. So I would expect it to be roughly the same. But we will just have to see what happens if we get, maybe with these nearly 20 million new cards in India that will push lots more POS transactions that are 1/20 of the value per transaction of an ATM transaction there. And that might skew it a little bit.

I probably would not focus too much on profit per transaction. I would just focus on gross profit per ATM in these high-value ones. Because that is really the trick. That is where the big money comes from.

As we mentioned, we only make several hundred thousand dollars per year on these contracts with these two banks that we have in India that we -- just switching. So and yet they have thousands and thousands of ATM transactions per month. So, it really screws up the numbers. I would not focus too much on that. I would focus more on the high-value and divide that number of ATMs into our total op profit. It might be a better way to do it.

Got it. And then just shifting gears but staying with the EFT for the, for the YourCash acquisition, how much of a quarterly run rate are you expecting for each of the three quarters in 2017?

We had said that we expected about $0.08 a share in terms of incremental cash or adjusted EPS. So if you take that number, we would expect that to be reasonably even throughout the year. The UK business for YourCash was not nearly as seasonally impacted as what the rest of our business is. But I think if you use that number, you can back into what that op income contribution would be from YourCash.

Okay. That is helpful. Thank you very much. I will go back to the queue.

All right. Thank you, operator, thank you, everyone, for joining today. We look forward to talking to you in about another quarter. Thank you very much. Goodbye.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone, have a great day.