Euronet Worldwide, Inc. (EEFT) Q1 2012 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen. Greetings, and welcome to the Euronet Worldwide First Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Jeff Newman, Executive Vice President and General Counsel for Euronet Worldwide. Thank you. Mr. Newman, you may begin.

Thank you, Ben. Good morning, and welcome everyone to Euronet's quarterly results conference call. We will present our results for the first quarter of 2012. On this call, we have Mike Brown, our CEO; Rick Weller, our CFO; and Kevin Caponecchi, the President of Euronet Worldwide on this call. Before we begin, I need to make a disclaimer concerning forward-looking statements. Statements made on this call that concern Euronet's or its management's intentions, expectations or predictions of future performance are forward-looking statements. Euronet's actual results may vary materially from those anticipated in such forward-looking statements as a result of a number of factors, including conditions in the world -- in the market for the company's products and services, foreign's -- foreign currency exchange fluctuations; the company's ability to renew existing contracts at profitable rates; changes in fees payable for transactions performed for cards bearing international logos or over switching networks, such as card transactions on ATMs; and changes in laws and regulations affecting the company's business, including immigration laws. These risks and other risks are described in the company's filings with the Securities and Exchange Commission, including our annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-Q -- 8-K, sorry. 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 or -- and undertakes no duty to any person to provide any such update under any circumstances. The company regularly posts important information on the Investor Relations section of its website. Now I'll turn the call over to Rick Weller, our CFO. Rick?

Thank you, Jeff. I, too, extend my welcome to everyone on the call. I will begin with the first quarter financial results on Slide 5. In the first quarter 2012, Euronet delivered revenue of $297.6 million, operating income of $15.8 million and adjusted EBITDA of $35.4 million. Our cash EPS was $0.33, in line with our guidance. You may also notice on our income statement a $4 million gain related to step acquisition accounting. I'll point out that we did not include that $4 million in our cash EPS. I will discuss the segments in more detail when I get to segment reporting in a few slides. Let's now move to Slide 6, please. On Slide 6, you can see the 3-year trend in transactions for all 3 segments. Following a pattern similar to what we shared with you in our February call on the fourth quarter's results, all segments posted double-digit transaction growth. EFT's 29% transaction growth this quarter was driven by our operations in India, Pakistan and Poland, together with our cross-border acquiring business. Epay segment transactions grew by 10% compared to the prior year. This increase was largely attributable to growth in the U.S., U.K., Germany and our ATX subsidiary, offset by declines in Australia. I'll point out here that the Australian decline is not a new point but simply a decline on a year-over-year basis as we have not yet lapped the third quarter event of certain retailers going direct with the mobile operators. The money transfer segment declined -- continued its upward momentum, with total transactions increasing 26% during the quarter. This growth was driven by an increase in U.S. transfers of 15%, including a 17% increase in transfers to Mexico, our largest corridor. Transfers initiated outside the U.S. increased 12%, despite European economic and regulatory pressures. And finally, the strong growth trend continued for non-money transfer transactions such as check cashing, bill payment and mobile pop-up. This quarter, these non-money transfer transactions grew 113% compared to the same quarter last year. Next slide, please. On Slide 7, we present our segments' results for the first quarter. As has been the case for the last several quarters, FX rates impacted our segments' results. This quarter each segment's revenue, operating income, and adjusted EBITDA were unfavorably impacted by the fluctuations in these FX rates. On the next slide, we have presented the results adjusted for currency changes in order to provide a more clear picture of the business when compared to the prior year. Let's move to the next slide please where we will focus on constant currency dollars. On Slide 8, I will cover the segment highlights starting with EFT. In EFT, revenue increased 22%, operating income increased 5%, and adjusted EBITDA increased 17%. Revenue expansion was attributable to a 41% increase in ATMs under management, value added services, and growth in transactions in all EFT countries bar one small country. We also saw a lift from our 2 fourth quarter acquisitions, which included ATMs from Diebold's cash4you Network in Poland and PayNet in Romania, as well as from new agreements in India. The operating income growth is -- of 5% for EFT may appear at first observation to be light, but knowing that last year's first quarter included the recognition of just over $1 million of nonrecurring deferred revenue, I would point out that without this onetime item, operating income would have grown commensurate with revenue. For the epay segment, revenue grew 16%, operating income grew 2%, and adjusted EBITDA grew 6%. Revenue growth outpaced earnings, largely because of the Cadooz acquisition, where vouchers sold are recognized at face value. Operating income expansion was primarily attributable to increased volume in the U.S. prepay market, combined with non-mobile content in Germany and the September 2011 acquisition of Cadooz. This operating income expansion was largely offset by declines related to 2 matters we reported to you last quarter in our earnings call: first, Brazil where certain mobile operators have changed their distribution strategy; and second, in Australia where certain retailers entered into direct agreements with mobile operators. I emphasized that both the Australian and Brazilian matters are not new matters, but simply have not lapped their timing and accordingly, they impact the year-over-year comparisons. In the money transfer segment, revenue increased 15%, operating income increased 57% and adjusted EBITDA increased 12%. This expansion was driven by the 26% transaction growth across Europe, North America and Asia, I commented on a few slides back. Revenue grew commensurate with the 14% growth in transfers, together with the contribution of the 113% growth in non-money transfer transactions. With the smaller revenue per transaction from non-money transfers, the non-money transfers clearly moved the transaction needle more than the revenue. Operating income reflects the benefit of certain intangible assets being fully amortized and is partially offset by increased expenses from the continued focus on expanding our send and received networks. Finally, corporate and other expense was higher due to stock-based incentive compensation recognized in the first quarter related to improved company performance. Next slide, please. On Slide 9, we present our balance sheet for the quarter. The cash increase was attributable to operating free cash flows produced during the first quarter, offset by the acquisition of the remaining 51% in our Middle East JV and debt payments made on the term loan and revolving credit facility. During the quarter, we reduced our debt by about $4 million, and we did not repurchase any shares. At the current stock prices, we do not have any strong plans to repurchase shares this quarter. As I mentioned on the fourth quarter call, the remaining balance of the original $175 million convertible bond is classified as short-term, driven by the October 12 first put -- first call date in the bonds. As you can see from our available cash on hand, together with the free cash flows we expect to generate over the next 6 months, and unused capacity on our $265 million revolving line of credit, we will have no problems meeting a likely put, of these bonds. In summary, our balance sheet remains strong with modest leverage. With that, I conclude my comments and turn the presentation over to Mike.

Thank you, Rick, and thank you to everybody who is joining us this morning. As I begin my comments on the first quarter, I reflect back to the meetings that I had with many of you where I shared my satisfaction about the number of new agreements we've been able to sign, the fact that we have lapped the German in fee reduction, and how we have positioned ourselves for growth. I am pleased that these sentiments translated into double-digit growth in revenue and transactions across all 3 of our segments. This growth was achieved because of our focus on 3 key principles: more agreements, more products and more locations. On the theme of "more", you will notice that we have introduced a new background for our slides that is based upon the theme of our annual report. This year's report drew upon an analogy between the spice trade and our strategy to grow this business, as well as the diversity of our global business. As the spice trader was able to gain access to a wide variety of spices, the business became more valuable because of the additional products they could provide to their customers. We thought they were interesting parallels with what we are doing, growing through more agreements in EFT, more products in epay, and more locations in money transfer. Now I'll take you through how we were able to deliver on all 3 of these areas, beginning with EFT, our legacy business on Slide #12. Slide 12 represents our first quarter financial highlights for our EFT segment. Since Rick walked us to these numbers a few minutes ago, I won't repeat those comments here. This quarter, I was able to spend some time in Europe talking to our business leaders in different countries. These discussions all centered around a number of opportunities that are coming our way, many because of the challenging European economy. Banks are more open to discussions with us because of our abilities to turn their ATM estate from a cost center into a profit contributor. These discussions have led to more deals being signed than ever. While each deal takes some time to implement, we should start to see the financial impact of a number of the deals that we have signed over the last quarter and this quarter, a little bit later in this year. Now let's move on to Slide #13, and we'll discuss the specific highlights of the EFT segment. Slide 13. In Q1, we signed an agreement with China UnionPay for acceptance of their card on all ATM and POS terminals we operate across Europe. For those of you who may not be familiar, China UnionPay is the national card scheme in China, and in 2010, China UnionPay surpassed Visa and MasterCard as the market leader for the number of payment cards in circulation. While the usage on these cards is still far below the major schemes, this is an emerging payment product around the world and we're excited to offer this to our customers. The team continued to focus on expansion of our recently deployed automatic deposit terminal networks and during the quarter, we signed network participation agreements with BRE Bank and Post Bank in Poland, Citibank in Romania, AquaBank in the Czech Republic and Tatra Raiffeisen Bank in Slovakia. In India, we continued to see success with our Brown label ATM deployment strategy. We deployed, and are transacting with, 205 Brown label ATMs this quarter over last. As of March 31, we also installed an additional 550 Brown label ATMs, which are not included in our total ATM count quite yet, as they were pending their very first cash bill. This tremendous level of activity demonstrates the opportunity for this strategy in India, and for our team's ability to execute. Congratulations to the Indian team by the way. While our initial deployments have produced good results, we expect these ATMs to have a net cost in the second quarter before making nice contributions in the third and fourth quarters of this year, subject to the typical ramp up of installing new ATMs and new locations. Now let's move to Slide 14, and here we present a number of additional achievements from our EFT segment this quarter. In Hungary, we signed 2 agreements with GE Budapest Bank to provide value added services on their ATM network. We also launched a number of value added services on our customer networks in Croatia, Serbia and Ukraine, as well -- pardon me, as well as our own i.e. Beat Network in Romania. In January, we completed the acquisition of 51% of the shares of the Euronet Middle East joint venture from AFS, making it a wholly-owned entity. Euronet Middle East serves customers in Egypt, the UAE, Bahrain, Algeria, Qatar and Oman through card processing and ATM outsourcing services. During the quarter, we added about 1,400 ATMs, which brings our total managed ATMs to 15,614. This growth is primarily attributed to the acquisition of ATMs from Diebold's cash4you Network in Poland, Brown label ATM, I previously mentioned, and the 241 ATMs deployed from previously announced outsourcing agreements in India. Our outsourcing backlog stands at 402 units. While we don't include the India Brown label agreements in our outsourcing backlog, we have agreements for approximately 850 additional machines, which we expect to deploy over the next several months, which doesn't include the 550 waiting-for-cash, as previously mentioned. In summary, I think this quarter demonstrates the momentum of the -- that the EFT segment -- segments continues to achieve. Now let's move to Slide 16 and we'll discuss epay for a little bit. On Slide 16, we present the epay financial results on an as-reported basis. During the quarter, epay segment saw a strong growth in several markets. In the U.S., we saw a nice volume expansion from our mobile top-up products, and in Germany, we continue to see high demand for our non-mobile content. Revenue and profits also benefited from the impact of our third quarter 2011 acquisition of Cadooz. As Rick mentioned, we continue to face previously announced headwinds at Brazil and Australia. While we prefer not to have these, I can tell you we're working hard to adjust our strategy and expand our product portfolio to overcome the challenges in these 2 markets. Now let's move on to Slide #17 for some specific highlights. Slide 17. In Italy, I'm pleased to say that we have strengthened our relationship with Vodafone. We have always been able to provide Vodafone prepaid top-up to our customers there in Italy, but our distribution was through an indirect agreement. During the quarter, we signed a direct distribution agreement, making us only the third company to have direct distribution agreements with all 4 mobile operators in Italy, which is Europe's largest prepaid market. Also in Italy, we signed agreements with 2 grocery store chains to sell mobile top-up on approximately 1,300 POS terminals. In Spain, we signed agreements with 2 gas station chains to distribute mobile top-up on their 200 POS terminals. And finally, in the Middle East we extended our processing agreement with our largest epay customer there called SaleCo for an additional 5 years. In addition to signing new agreements, we launched the mobile top-up for several customers, including in Veto Max Food in Germany, Like a Mobile in Poland and Compass Group in Australia. Move onto the next slide, please. Here on Slide #18, we highlight our continued success in expanding our non-mobile product portfolio on the epay segment. Examples of this expansion includes the launch of Xbox gift cards, as well as rebranded, PIN-less long distance across all of our retail outlets in the U.S. In Brazil, we continued to expand upon our success of implementing the customer the -- I'm sorry, the country's first gift card mall by signing the agreements to launch similar gift card malls with 3 additional retailers. This quarter we are able to capitalize on the synergies that exists between our segments. We signed an agreement with OMV to issue, distribute and process our closed loop gift cards in 5 European countries. We signed a deal with Paysafe in Slovakia to sell and load prepaid cards on Citibank's POS terminals. Paysafe by the way, is the leading provider of prepaid payment solutions in Europe and this agreement extends distribution for Paysafe to Slovakia. Both of these deals were made possible because of the relationships that we had within our EFT segment. Now let's move on to Slide #20, and we can talk about our money transfer segment. Here you can see on Slide 20, our as-reported money transfer financial highlights for the quarter. For the last several quarters, I've been talking to you about our money transfer team's focus to expand our network. The expansion not only increases our geographical presence but also increases our penetration in markets where we currently operate. In the first quarter, we saw the benefit of the strategy reflected in our financial results. I am pleased with our first quarter results and excited about the opportunities we continue to see in this segment as we go forward. Let's move on to Slide #21 where we will talk about the segments in more detail. Slide #21, we focus on the growth in our money transfer network. Year-over-year, our total network grew by 45%. This growth occurred over the last 4 quarters, including the first quarter of 2012. Key drivers of this quarter's growth were the 10 new correspondence that we launched, which when combined, add 4,000 locations to our network. The most significant of these were Elektra Mexico and in VakifBank in Turkey. Elektra is a leader in the money transfer industry in Mexico with unparalleled brand recognition. This agreement was previously an exclusive relationship on an excellent correspondence, which was held by Western Union for a long time. In the third quarter of 2011, we announced that we had signed a deal with VakifBank marking our first entry into Turkey. I'm pleased to say that we are live with this service and after 1 month of operation, we have seen good transaction volume to this quarter -- corridor. We continue to focus on South Asia where we have launched correspondence in Sri Lanka and Bangladesh, 2 corridors where we are having great success. In addition to these launches, we signed 12 new correspondence in 9 countries during the quarter. The most significant of these being the Postal Savings Bank of China, which has a payout network of 1,300 locations. While China Postal has approximately 36,000 branches across the country, only 1,300 are authorized to perform money transfer payouts for us at this time. This is our first direct cash payout relationship in China, and we're working hard to go live before the end of the second quarter. Here again, the China post-agreement, was made possible because of our EFT relationships. Now let's move to Slide #22. In here we show the quarterly transaction trends over the last 3 years. It's really nice to see these things going up like they have. Money transfer transactions grew 14% in the quarter, driven primarily by the focus on network expansion. We continue to see a recovery in the U.S. with the U.S. initiated transfers increasing 15% compared to the prior year. This includes a 17% increase in transfers to Mexico, the second straight quarter we have seen double-digit increases on our largest corridor. In addition to the U.S. expansion, we continue to see growth in Europe, despite economic and regulatory headwinds in the E.U. The growth in Europe is primarily attributed to our focus on expansion to the Payment Services Directive license we are granted in late 2009. Non-money transferred transactions such as check cashing, bill payment and mobile top-up continues to see a very strong growth, with 113% increase over the same quarter last year. While these products still represent a small percentage of revenue and op income, they differentiate us from our competition. As you can see, the money transfer segment had an excellent quarter, and we positioned ourselves for our continued growth moving forward. With that, let's turn on to Slide #23, and we'll kind of, summarize everything that happened last quarter. Number one, we met our cash EPS guidance of $0.33; each of our divisions delivered double-digit revenue and transaction growth over the prior period; the EFT segment achieved ATM growth in Poland and India; expansion of Value Added Services portfolio in products in Europe; and the continued momentum in signing agreements with banks; Epay benefited from the expansion in the U.S. prepaid business; continued demand for non-mobile content in Germany; new deals in Italy; and from the acquisition of Cadooz; money transfers saw a volume expansion across North America, Europe and Asia; and finally, we expect our fourth quarter adjusted cash EPS to be approximately $0.39, assuming constant FX rates. This concludes the presentation and now we would be more than happy to handle questions. Operator, will you please assist?

[Operator Instructions] And our first question today comes from the line of Chris Shutler from William Blair.

Obviously, a very strong growth in the ATM count in EFT, just wondering if you can give us a little bit more clarity in terms of where the incremental machines came from in the quarter and then, maybe more importantly, if you were to look at the current base of machines that you have for the 15,600 machines, is there a way to think about the -- if you weren't to add any new machines, just what the -- how much incremental profitability do you think could be driven off, of that base? So maybe you could start there?

Well, first of all, to answer your first question, which was kind of where we put them in. I mean, the 2 big areas where we installed were Poland and India. In both cases, this was the cash4you, plus a few other ATMs in Poland, and it was outsourcing agreements, plus the Brown label stuff in India. Both of those are kind of brand-new brand -- brand new locations. They're just now branded with our brand. So customers now who have agreements with certain banks and network participation agreements with Poland, for example, know that they can come those ATMs. So we'll -- we expect to see some ramp up on those -- on transactions and profitability of those. The Brown label ones by the way, we got a big chunk of them coming in, you saw we've got about over 500 of them just waiting for cash plus the 200 we've put in. Those are brand spanking new. I mean, we haven't even got the cash in them yet. And we -- and these are new in new locations, but I'd like to point out in -- when you look at India, for example, India has, on a per capita basis, about 1/4 of the ATMs per capita, as China does and China is about 1/10 of what Europe is. So what you've got here is a lots of cards, lots of people, and not very many ATMs in India, which is why, when we did our pilot in the fourth quarter of last year, we saw such very good results of picking good locations and seeing people coming up today -- coming up those ATMs. But we would expect those ATMs to actually be a drag in our P&L in that second quarter because we've got the full depreciation and op expenses and so forth. It costs us darn near $1,000 an ATM to run an ATM, but we won't have the offsetting -- we won't have the offsetting revenue yet in the second quarter, and we'll see that more in the third and in the fourth quarter.

And then, the second question was just related to basically, if your existing machines were all at productivity, is there a way that you could frame out, how we should think about the -- more profitability?

Well, our -- it depends on the market. And we've kind of said this before, so if we do -- like a Brown Label model, our target there is call it $225, $275 somewhere in that kind of range, for profitability per ATM once it's ramped up, but we won't probably see that until third or fourth quarter and that's net of all our costs. So that's pure profit -- our op profit, yes, pretax profit. And then in Poland, the cash4you ATMs, it's probably a similar kind of number, and those are going to probably be a little bit faster coming online than the ones in India, because actually, they were there. They were just branded under the cash4you name which is not quite as well known as ours. They're quite a bit, less well known as ours.

Okay, that's helpful. And then, is there an update on -- in terms of India on the White Label opportunity there?

Yes, just real briefly, I wouldn't tell you that it is in a materially difference stage, but it is moving forward. It has had some traction in India so what -- the way I would characterize it, is as positive development. But we're also always a little bit careful here on trying to predict just how well things have moved to the Indian IRB over there. We've seen starts and stops there but the net-net is it appears to be positive development on the White Label front in India.

I mean, when you actually -- there's a lot of politics involved in India, a lot of bureaucracy. I think sometimes get ahead of themselves when -- I mean, they can't seem to get out of their own way. The reality is they -- they've got similar kinds of population to China, but with 1/4 the ATMs and I think, people are starting to demand a difference here. And the first thing the Reserve Bank of India did finally was, they kind of, opened the spicket and they said, "Okay, you can do this Brown label model." And people have been asking for White Label forever and they kind of, did a compromises that you can do this Brown label thing for the time being. So it's moving. Kevin, I don't know if you've got another qualitative comment, but...

My qualitative comment, Chris, is that we have a nice backlog and it's continuing to grow for Brown label. And that's where our focus is. They are cautiously optimistic that something can happen with White Label. But for the -- I would say for the next several quarters, it's all about Brown label.

Okay great. And then just a couple of quick questions on epay, if you don't mind. First, the shift, yes, with the situations in Australia and Brazil, which I know have been disclosed on the past. How should we think about the timing of each of those going away? It sounds like Australia is sometime in Q3, so maybe just a little bit more clarity there? And then Brazil is sometime in Q4, or do you think that either of those could be resolved sooner?

That's about right.

Yes, that's about -- this is Kevin. That's about right. Australia third quarter, Brazil fourth quarter, so ...

And any potential for Brazil to get back sooner.

Not really Chris. That's a tough situation and while we're -- we remain optimistic that we'll figure out a strategy for some recovery. It's not going to be a quick fix.

And in fact -- I would just add that in Brazil, we've been successful at getting some agreements with some very respected content providers to distribute. We're not at liberties to talk about that yet, but we think that we're building the base of retailers that we need to be successful, with those kind of products in Brazil. And we're just not -- or those particular retailers are -- that we've got the content from, are just not quite at the point of going live with yet, but we do expect those yet to go live in 2012. And so I think, as Kevin said, it -- we kind of see that Brazilian thing being a little bit more in that fourth quarter, to see some resilience there.

Yes, Rick that's a good point. When I commented it's not a quick fix, I meant, not a quick fix on the mobile top-up side. But just like in all the other markets, we've got a strategy to diversify the portfolio by focusing on non-mobile. And we've got some pretty significant brands that we'll be launching in the coming months in Brazil.

And those same brands, they're big brands. They all want Brazil. Brazil is an enormous market. They're doing their best to get in there as fast as they can and they're just dealing with some issues, the kind of, start-up issues.

And we have very good success with those brands today in our other markets. And so, we feel reasonably confident that we can have the same kind of successes in a market like Brazil.

Our next question comes from the line of Mike Grondahl from Piper Jaffray.

Mike, could you just reiterate the backlog again in the ETF business? You said a couple of numbers there and just maybe delineate the difference between the 402, I think it was, in the 850.

Okay 8 -- okay so when we signed an agreement with the bank for Brown label in India, that's the differential. India is kind of a, it throws a little bit of a kink in all your calculations. When we signed an agreement with the bank to put in these ATMs, we don't put that into our backlog because we still have to find the locations. We have to get the bank to approve the locations. We got to bring the thing live. And so for that reason, we don't put it into kind of, backlog. Backlog would be contracted, where a bank would have a contractual obligation to see that those ATMs are installed in a given timeframe. So we've got like 400 left dish in back -- in contracted backlog. We've got 800 in -- 850 in our Brown Label, you could call it, semi-backlog. And -- but we've got to go out and find those locations. But just looking at what our Indian team did, they did an extraordinary job ramping up towards the end of first quarter, getting all these things in. We're basically in a period of about 1.5 months, they've put in 700 ATMs. Yes, they've put in about 700 ATMs, basically bolted them down, but they got 200 of them live, and other 550 are sitting there waiting for cash. So that's kind of the difference.

So just so -- Mike, I would say that there's essentially 3 components of it there. There's the 400, which are outsourced through backlogs. There's the 550, which are installed waiting for cash fill, and there's the 800-plus that are yet to be installed.

Great, so Mike, your goal of 20,000 that we talked about last quarter. It seems a lot more in view after what you've done this past quarter.

I thought you might think so.

Yes, certainly. And then 2 more quickly. Could you give us the mix of value added services in epay? And just sort of, some of the progress you made with iTunes, it looks like in Europe and a couple of countries?

You're talking about the mix of it. What we -- we don't necessarily disclose the mix of our non-mobile stuff, but we have disclosed that our non-mobile makes up, kind of a mid to upper teens number of our total of epay segment, okay?

Transactions, right?

Of transactions and slightly higher than that on gross margin basis. Okay? Because we make a little bit better gross margin on those products on average than we do on the mobile.

Right, do you see that transaction mix expand in the quarter?

Yes.

And we've seen it expand in every quarter for the last 8 or 9 quarters.

And with -- this is Kevin. And with respect to iTunes, we've announced exclusive expansion. We've done an exclusive contract to expand in 8 new countries across Europe and we continue to evaluate other countries. So our expectation is that, we'll continue to grow iTunes organically in the countries that we've already launched and expand with iTunes into new markets.

And it's iTunes but I think, one of the things that we've seen that's quite helpful in our business is that iTunes is a great product on its own. It kind of helps draw more and more customers into the mix there, into the malls, if you will, the virtual malls. And so, it's -- it kind of, helps complement the other product.

Improves other products.

Yes, well in -- when we're selling things like Xbox as you saw now, then Amazon gift cards and Sony PlayStation and the Paysafe card, all these -- what you need from a retailer is a complement of products. You can't just go in with one, even if you take...

It's your spice analogy.

Yes, exactly.

What we're finding is in some markets, product X is helping us with the retailer and product Y -- and market Y, it's a different product. And so when you have the mix of products, it -- the overall impact is great. We're quite excited about the announcement we made around Microsoft in all of the Microsoft products and those are just now starting to ramp up in Europe this quarter.

After being live in New Zealand and Australia for some time.

Correct.

Great, and then, last question is just, Mike, any surprises, positive or negative so far to the year that you think you can capitalize on? Or fix if you need to?

Well, there's really no surprises. We know our challenges. We know our opportunities. I mean, we're just out here, just hoping in trying to get it all done. But we haven't seen really any surprises. I don't know Rick, can think of...

I mean -- and I don't think -- it's not new. We talked about the Brazilian thing there. We were clearly disappointed with a change in the distribution strategy down there. That's really the only thing that we've seen here that was different than what we expected. And as Mike said earlier in his comments, we're -- we've got a number of adjustments going on in with our strategy and we think that we'll be back where we need to be there. But I think, you take that one and the rest are -- we've been very pleased with what we've seen in terms of, execution really, across all parts of our business.

I guess, probably for you guys who follow us plus you follow other companies. So you don't have quite a close eye on it and thus, you have to read your headlines. But I would say, the biggest surprise that continues to me, is the fact that the European kind of, unstable economy, and weakness of the bank's balance sheet, just everyday amazes us. It just brings more people asking for our services and products. So these banks who have formally thrown me right out of their office, they're all -- they're calling us up, asking us for deals. So it's really -- I would say, when I was in Europe in last -- over the last couple of months, I go there about once a month, and I just walked away saying, "Crisis, what crisis?" Because to my EFT division, I don't see one, because it's driving more business my way. And it isn't a surprise, but it's only been working damn hard on. You're seeing more and more collaboration of our divisions, too. You saw that with several other comments we have throughout this text. On money transfer, I guess one last thing, pleasantly surprised with how money transfer is turning around here in the U.S. That's another thing that I -- if you guys were ever out with me or listen to me over the last couple of years, I said, "We're making investments in money transfer," The smart kind of things to do: expanding our distribution; beefing up our teams; getting more and more presence in Europe and so forth. And I said, "If we can get any kind of a secular economic recovery. I'm going to look like a genius." But it isn't like we're doing these things different that we were doing but when you start to see a burgeoning economic recovery, like we see here in the U.S. you see the numbers, so that's it. Well, I better probably let -- I better cut you off and quit talking and let the next guy ask a question, sorry.

Our next question comes from the line of Greg Smith from Sterne Agee.

I just wanted to ask about the Elektra deal in Mexico, how did that come about? And why did they move away from exclusivity?

I don't know. All I know is we have been -- we've actually been a -- have used Elektra outside of Mexico for distribution of our money transfers for some -- quite a bit some time now. And we've been saying they've got such enormous brand recognition and ubiquity within Mexico. They're huge. We've been asking them, "Can we ever distribute for you in Mexico?" And they have -- always up to heretofore, had the exclusive contract with Western Union, and I think they made a decision recognizing that Western Union doesn't own all the markets and by any means not near all of the market in going to Mexico. And so they decided to open it up to nonexclusive player. I mean, they still pay out for Western Union, but they pay out for us now, too. So it's been a wonderful for us.

Okay and then, what about Russia? Do you have a presence there with RIA and is that an opportunity?

We have some sketchy pay out. That's probably one of our weaker places that we're -- that we continue to build out and we're looking to do so.

Because we are spotty.

But I'd say we're kind of, spotty there and that's one of our areas to focus on.

Okay and then just last question, can you comment on the press reports about potentially, some sort of private equity deal with your business in India? The ATM business?

Yes, I mean, we've had more darn rumors and comments on us than you can shake a stick at, over the years. So we just -- we don't comment on rumors. So we'll just leave it at that.

[Operator Instructions] Our next question comes from the line of Peter Heckmann from Avondale Partners.

When I look at the acquired revenue, can you quantify that for me in the quarter? Especially Cadooz, we -- I expect it maybe a little bit bigger drop from seasonality in Cadooz but it looked like it probably contributed more than my expectations? And then, as well with the cash4you Network, can you talk about how many of those ATMs were producing fully in the quarter? And where you are in the process of relocating those?

So the cash4you, I understand that -- so that was about 500 or so, 540-or-something-like-that ATMs. They were already planted and operating in Poland. Now, we're going to go through that network and double-check. We got them all brought over to our system now. And so now it's just a question of seeing -- of those, which ones are the highest performers, which ones we may need to move. One thing is like I'm -- I intimated, our brand is probably, tenfold as well-known as the cash4you brand. So what we're seeing is now people see our brand on that same ATM. So we're watching the ramp up of additional transactions going to our marketplace. So we will continue to adjust it, just like we do everything in Poland. We probably -- in any of our IAD markets where we have them, we've probably take out 5% to 10%, of the kind of the lower tier performers in any given year and relocate them.

We did -- when we looked at the analysis on those machines, so we expect that we -- absent what our brand and our network participation agreements that we have in Poland may do, we would expect to -- have to move probably 20%, to 25% of those machines. As Mike said, we typically we'll find that we have to relocate 5% to 10% of them. But in this case here, we might have to relocate a few more. We wanted to -- we want to give it a couple of months or so, to see though, how consumers, how customers in the Polish market react as a result of our Network Participation Agreements and whether or not, we can see that we've just really got more brand lift there than what we might have been giving ourselves credit for. So we expect 20% to 25% of those to -- at some point, have to be moved. And the others, while we got them installed by the end of the quarter, as Mike said earlier in his comment there, we do have to see a little ramp up on those. We expect those to happen more quickly, than just the newly-planted ATM but we don't expect them to start pumping at 100% overnight.

Yes, I think our last one was brought live on the 15th or the 17th of March, so just now.

Okay, okay. And then, so a little bit of discussion on Cadooz and some of the follow-through to the first quarter? And any new thoughts there, as regards -- the potential of entering new markets, leveraging existing retail relationships?

Well let me take the first part of that, and then I'll let Mike or Kevin comment on the last part of it, on the new relationships. But in terms of the revenue numbers and that from Cadooz, as we said in our release that they -- that the increase was largely related to the Cadooz acquisition. We don't disclose the specific numbers, but I think, you can interpret well enough from that. And as it relates to the other couple of deals: the Romania PayNet and the 51% of the Euronet Middle East, those were -- what I would characterize as nice little contributors to the EFT segment. They did not -- they didn't make up the weight of the growth in that segment. I would tell you that 80% roughly or more of that growth in that segment was from just plain old organic growth. It didn't have anything to do with these 2 acquisitions.

Okay, okay. And when we look at the ENME deal that was contributing on the income from unconsolidated affiliates line, now that you've taken a 100% ownership of that, would we expect that line item to disappear? Or are there some other small JVs that might be out there?

Yes, we do have a couple of other JV interests out there. So that number will go -- that line item will go down a little. But we do have some other interests out there.

We got that JV in Pakistan for instance, we're quite happy with.

There we go.

And we've got like in...

There's some in Asia. We've got a couple of other little ones.

Okay, okay. And last question, I'll let somebody else come in. Just talking about money transfer, I mean, that constant currency growth was nice and stronger than I expected. Do you think that's -- that rate is something that we can continue in 2012 if we can continue to see the U.S?

Well, I'm looking at my crystal ball here. It's still a little fuzzy, but I'll tell you, well you just look -- our rate that we're seeing is, it didn't -- it just didn't pop in. We have seen an accelerating rate over the last 4 or 5 quarters. So I don't see it just shutting down and turning around. So maybe we'll keep at our current rates or maybe a little bit more acceleration as the economies get better.

And the internal drivers that -- would help us capitalize on opportunities, we are continuing.

Yes, when you see things like, now that we've got Elektra, that's going to be wonderful for Mexico. We've got Turkey. We were totally blank in Turkey. For 5 years, we've been trying to get a good and decent agreement in Turkey. And we've got a great one with these, VakifBank guys, with over 500 locations. So every time you do those it takes -- you have to market that you've got a new corridor or a new payout location to your customers. And as word of mouth gets around you'll see that will continue to ramp up. Next question?

Our next question comes from the line of John Kraft from D.A. Davidson.

I just wanted to clarify a couple of things on the Mexico transactions. The 17% growth versus 10% last quarter, I think 2% the quarter before, those are all apples-to-apples number?

The numbers were -- they were, let's see 10% in Q4. It was around 4% or 5% in Q3 and it was about breakeven in Q2 of last year.

Okay and that's all apples-to-apples and excludes the bill pay, the check cash, and all that, right?

Yes, no that's just wires to Mexico.

It's -- obviously appears that you're gaining some share from Western Union. And on their call yesterday, they talked about some compliance challenges in that market. So is this a short-term window that you think you can gain some share with? Or is this a compliance issue that you're going to have to deal with at some point, beyond that?

We don't see a -- we've got great compliance. We don't have any issues there. I'm not quite sure what compliance that they're -- that they talk about, to be frank. But what that -- what they're doing is what they're doing. All I know is, is we've got great presence to Mexico, always have. Adding Elektra only adds more fuel to the fire. We have a strong country manager in the U.S. who's kind of lighting our U.S. market on fire. And so we're -- you don't win this by one little thing, or it doesn't go all against you with one thing. I mean we -- we've got a multi-faceted strategy and we're executing on all those. And we see the results.

I -- John, I would add that, as Mike said, we don't know what Western Union's compliance issues are. And they've not disclosed a lot and I'm sure we probably feel about the same way. What we have seen in the press is it's probably been a little bit more on that Mexican border, kind of related area. And so if I take that into account, and I look at our growth across the United States, we are seeing rather even growth in the Mexican business across the U.S., and so that might imply.

We saw pretty strong growth up in the northeast, just in the last quarter.

So that might -- if the Western Union compliance matters are more targeted to the southwest part of the country, it might indicate that we're just having good, nice, across-the-board success, as Mike said, for that number of reasons. Whether its effective sales, if it's good products structure, it's good payout structure, it's adding more payout and it's market recovery.

Yes, I think that's it. And I appreciate the color there. One more follow-up if I could, regarding the price of revenue I should say per transaction, that's been ticking down now. Is -- I assume the bulk of that is due to these non-money transfer transactions or is that you lowered...

And that's a very large piece because we're doing hundreds of thousands of those transactions now where we make $0.20 each, instead of our usual $4 or $5. Also, you'll see us -- we're more successful in Mexico it's an extremely competitive market. And we make, as I mentioned before in Europe, typically we make about 1.5x the gross margin per transaction in Europe, as we do in the U.S. So when you see real kick up in our success in the U.S. that can help drag you down a little bit too but the big thing is exactly what you pointed out, is when I do a top-up transaction or something like this, I don't make as much as the wire by any means.

Our final question today comes from the line of Mike Grondahl of Piper Jaffray.

Just a couple of quick follow ups. One, do you have the weighted average ATMs for the quarter?

We do. I don't happen to have it right in front of me, though.

No problem, I'll call you later. And then with Microsoft can you just -- and Xbox, can you just kind of highlight for us. I know you mentioned they had been in Australia and New Zealand for a while. When exactly did they start in Europe, and kind of what's your expectations there? And I know they started recently in the U.S.

Yes, so -- this is Kevin. We started in Europe this quarter. The decision to go to pos Sup are -- all I can say about our expectations is we're again cautiously optimistic. There's 2 facets of it: There's Microsoft Office i.e. getting rid of the distribution of the CD-ROM and the box and all the logistical costs and stuff associated with that product in the shelf space and the retailer and converting that to pos Sup activated products. So that's one component. And as you correctly said, the other part is the distribution of Xbox Live, which is a product that parents and young people are very attracted to. So I think it's -- as Rick said earlier, it's a nice complement to our full suite of products that we are watching across Europe.

Great. And then, lastly guys, you did mention 8 new countries for iTunes. Can you disclose which ones those are? And are they live yet?

I can't disclose which ones they are, I'm not -- I can't recall exactly what we said but they're in Europe. And they are -- about 3 of them are lives. And we're ramping those up and we've got 5 more to go.

And thank you to everyone for taking the time to spend an hour with us today. Thank you very much. So this is Euronet signing off.

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