Euronet Worldwide, Inc. (EEFT) Q3 2012 Earnings Report, Transcript and Summary

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

Thank you, Saheed. Good morning, and welcome, everyone, to Euronet's Quarterly Result Conference Call. On this call, we will present our results for the third quarter 2012. We have Mike Brown; Rick Weller; and Kevin Caponecchi, on the call. Before we begin, I'd like 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 world financial markets, general economic conditions, technological developments affecting the market for the company's products and services, foreign exchange fluctuations, the company's ability to renew existing contracts at profitable rates, changes in ATM and other transaction fees, changes in laws and regulations affecting the company's business, including immigration loss. These risks and other risks are described in the company's filings with the Securities and Exchange Commission, including our annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Copies of these filings may be obtained via the SEC's EDGAR website or by contacting the company or the SEC. Euronet does not intend to update these forward-looking statements and undertakes no duty to any person to provide any such update under any circumstances. The company regularly posts important information on the Investor Relations section of its website. Now I'll turn the call over to Rick.

Thank you, Jeff, and welcome, everyone. I will begin with the third quarter financial results on Slide 5. In the third quarter 2012, Euronet delivered revenue of $316 million, operating income of $24 million and adjusted EBITDA of $42.6 million. Our cash earnings per share was $0.42, aided by about $0.01 of tailwind from foreign exchange rates since we last provided guidance. I might also point out that the reported 14% growth in cash earnings per share would have been approximately 22% growth if foreign currency exchange rates remained the same year-over-year. While I might be a bit biased, I'd say these are some outstanding results. I will discuss the segments results in more detail when I get to segment reporting in a few slides. Let's move to Slide 6, please. On Slide 6, you can see the 3-year trend in transactions for all 3 segments. The EFT segment continued to show strong transaction growth of 22% in the quarter with expansion across virtually all markets. Poland, Romania, India, Middle East and our cross-border acquiring business achieved the largest growth. While we have since -- while we have seen nice transaction growth from our cross-border acquiring business, we are still working to get to second customer. The epay segment saw a modest 2% transaction growth in the quarter. This increase was largely attributable to expansion in North America and Germany, offset by declines in Brazil, Australia and Spain. Old news, but still impacting our year-over-year comparisons. Finally, Ria continued to see strong growth with total transactions increasing 25% during the quarter. This transaction growth was driven by increases in both money transfers and non-money transfers. Money Transfers increased 14% in the quarter, driven by a 19% increase in U.S.-initiated transfers. U.S. growth included an 18% increase in transfers to Mexico, marking the fourth straight quarter we have seen double-digit growth in transfers sent to our largest corridor. Transfers initiated outside of the U.S. decreased -- increased, I'm sorry, increased 7%, despite the challenging economic climate in Europe. Consistent with previous quarters, we continued to gain traction with our non-money transfer volumes such as mobile top up, check cashing and bill payment, achieving 86% growth over the prior year. And you may recall, the non-money transfer transactions earned significantly lower revenue per transaction than money transfers. On Slide 7, we present our segment's reported results for the third quarter. On a year-over-year basis, foreign exchange rates had a significant impact. For example, the average euro in the third quarter last year was valued at $1.41 compared to this year's quarter, where it was valued at $1.25 or an 11% decrease. We saw similar declines in the Polish zloty, Brazilian real and Indian rupee. In order to present a more clear picture of the business results, on the next slide, we have presented our earnings adjusted for currency changes. Let's move to the next slide, where I will focus on the constant currency results. Now on Slide 8. In the quarter, the EFT segment, constant currency revenue, operating income and adjusted EBITDA increased 47%, 80% and 65%, respectively. It's hard not to get too excited about results like this. Growth was driven by a 37% increase in ATMs under management, transaction growth in virtually every market and the increased value added sales. This quarter's growth really underscores the contribution of the network and product expansion we've been telling you about. But you can see that revenues outgrew both ATMs and transactions. This is the result of value-added services together with the recurring revenues paid by banks to access our ATMs. Value-added service revenue is seasonally higher in the third quarter, which is consistent with peak tourism patterns. We also saw nice contributions from 2 acquisitions we made in the fourth quarter last year: ATMs from the cash-for-you network in Poland and Paynet, in Romania, which Mike will talk more about in a few minutes. While we did incur additional costs related to the deployment of these new ATMs, operating margins expanded nicely, both sequentially and year-over-year. Our epay segment saw a revenue growth of 6%, while operating income and adjusted EBITDA decreased 22% and 10%, respectively. Revenue growth was from our September 2011 acquisition of cadooz, where voucher revenues are recognized at face value. The year-over-year story this quarter for epay remains largely unchanged from the second quarter. Decline in operating income stems from continued pressure related to the 3 matters previously announced, that is the change in the mobile operators distribution strategy in Brazil, the struggling Spanish economy and the full quarter impact of certain retailers going direct to mobile operators during the third quarter last year. However, on the brighter side, while the year-over-year story remained unchanged, the sequential story shows some improvement. We saw modest growth in Brazil and we anniversary-ed the Australian matter, all resulting in the third quarter epay constant currency revenue and operating income being up 1.4% [ph] and 1%, respectively. Moreover, revenues per transaction, gross profit per transaction and operating income per transaction expanded over the second quarter. While we are not where we want to be, we can see the promising signs of our refocused efforts. In the Money Transfer segment, constant currency revenue grew 13%, operating income grew 38% and adjusted EBITDA grew 16%, continuing the double-digit constant currency growth we have seen in the 3 previous quarters. This growth is driven by 25% total transaction growth resulting from an increase in network locations and the product sales. Gross margins came in a bit due to the heavier growth in transfers to Mexico, but more than offset by EBITDA and operating margin expansion year-over-year. Another very strong quarter for our Money Transfer segment. Let's move now to Slide 9. On Slide 9, we present a few highlights of our balance sheet for the quarter. Cash increased as a result of cash flows generated from operations and from temporary working capital changes related to settlements in the epay segment. These increases were offset by $61 million in payments on the revolving credit facility. As we expected, on October 15, we repurchased substantially all of the $171 million principal amount of the convertible bonds using cash and availability on our revolving line of credit. Additionally, earlier this month, we announced that we had exercised the right to increase the borrowing capacity on our revolving credit facility from $275 million to $400 million, retaining our liquidity flexibility. While we don't have any immediate plans for the use of the increased capacity, it will provide additional liquidity as we consider further opportunities for growth. After the October 15 repurchase of our convertible bonds, our total debt position of approximately -- our total debt position stands at approximately $260 million and it's approximately $60 million less than it was a year ago, reflecting a consistent trend of deleveraging. Moreover, after the convertible repurchase, we have approximately $180 million of availability on our revolving line of credit after subtracting borrowings and open letters of credit. I would also like to update you on our share repurchase activity. You will see in our Q that during the quarter, we repurchased approximately $1.3 million worth of shares under the board of authorization from last year. Going forward, we will continue to consider repurchases in light of the share price and liquidity flexibility. Before I wrap up, I want to provide a bit more color around our EPS guidance. As you likely noted in our press release, we said that our cash EPS would be $0.47 per share before our nonrecurring tax charge of up to potentially $0.04 per share as a result of federal alternative minimum tax and state income tax expense related to the fourth quarter repurchase of our convertible bonds. Here's what's going on. The convertible bonds were issued 7 years ago, including a feature whereby, under the tax code, we were required to take a noncash interest tax deduction for the difference between the coupon and the higher -- and a higher interest rate. Then upon conversion of a bond into shares, the noncash interest expense tax deductions would be realized to the extent the market value of shares at the date of conversion would exceed the conversion price. Any amount not realized upon conversion would then be reversed in the period of conversion or redemption. But because we do not generate net positive taxable income in the U.S., the additional noncash interest expense deductions were merely added to our net operating loss carryforwards. Since the market price of our stock was lower than the conversion price, the bonds were put to us and we repurchased or redeemed them. We will, therefore, be required to reverse the previously deducted noncash interest expense tax deductions. This essentially reduces taxable income, which would be -- produces taxable income, which would be entirely offset by utilization of the NOLs that were created over the past 7 years due to noncash interest tax deductions, which should mean no tax. Now here's where the rub comes. In the alternative minimum tax calculations, the use of NOL carryforwards is limited and accordingly, results in a tax payable stemming from noncash tax items. To make matters a bit more complicated, one of the larger states where we operate has, in the past, enacted limitations on NOL utilizations for state tax returns in an effort to solve part of that state's budget deficits. While that state has not yet enacted a similar NOL limitation this year, we anticipate it may well happen, given the state continues to have significant budget deficits. In summary then, we then want to give you a good picture of how our fundamental business is expected to perform in the fourth quarter. And I think you will see that $0.47 is a strong showing. But at the same time, we want to be forthcoming, we're fully transparent as to what may develop as a onetime nonrecurring highly unusual tax item. With that, I conclude my comments and I hand it over to Mike.

Thank you, Rick and welcome everybody, to the call. I'm very pleased with the earnings growth from our EFT and Money Transfer segment, both aim to work hard to expand our network and to leverage that growth, offsetting the softness that we have within the epay segment. I will get into more detail in the next few slides, but I believe we have the right strategy and we are well positioned to deliver strong earnings as we finish out this year. So let's move on to Slide #12 when we can talk about the EFT segment, our legacy segment that we started the company with, 18 years ago. Here on Slide 12, we present our second quarter financial highlights for the EFT segment. Our EFT team continued their trend of delivering exceptional results with 80% operating income growth in the quarter on a constant dollar basis. For the last several quarters, we have been telling you about the expansion of our networks and our product portfolio to include additional ATMs and value-added services. Our success with this strategy has been stunning. As Rick mentioned, we saw a seasonal lift in the revenue from value-added services in the third quarter, so we expect to see strong growth as a result of network expansion in the fourth quarter from EFT. The benefit from the seasonality in the third quarter though, will make it hard to keep up with the third quarter growth rates. Now let's move on to Slide 13 and we can talk about our specific EFT highlights for the quarter. There's a lot of words on this slide, I apologize, but I'll kind of go over some of the high points. You can see that we signed and launched a number of new agreements during the quarter. We deployed 3 new IAD networks. For those of you who don't remember, IAD is kind of the industry's term for independent ATM deployer, one in each in Spain, Italy and Hungary. This adds to 8, the existing countries where we operate independent ATM networks, bringing our total IAD presence to 11 countries in Europe. As Rick mentioned in his comments, we have also seen some good contributions from our 2 acquisitions that we made in the fourth quarter of last year. We acquired ATMs from the cash-for-you network in Poland, which have been very profitable for us. We also acquired Paynet, which you may remember, provided similar ATM and POS outsourcing services to our existing business in Romania. During the quarter, we renewed outsourcing agreements with 4 existing Paynet customers. Two of those banks, NexteBank and Credit Agricole, also extended their outsourcing agreement to include value-added services. Additionally, we were able to sign network participation agreements with NexteBank and Libra Bank for participation in our Euronet-owned IAD network in Romania. As you can see, we have really been able to utilize the synergies between these 2 businesses to create value for our bank partners and our business. We also launched the kiosk project, that's through our joint venture in the United Arab Emirates, to provide bill payment and Money Transfer services. Euronet is now integrated with about 90% of the billers within the UAE. We currently have 230 kiosks live, making us the largest kiosk driver in the UAE. Our software team has also renewed agreements with 8 banks, these are long-term maintenance agreements that provide very nice profits to our business. So let's move on to Slide #14. On Slide 14, you can see that we continue to have success with our value-added services. During the quarter, we launched these products to our customers' ATMs and POS networks in Greece, Serbia and Montenegro. We continue to see strong demand for value-added services. This is evidenced by the new agreements we've signed to provide these products on our customers' ATM and POS networks in 5 countries. During the quarter, we deployed 320 ATMs, bringing the total ATMs that we operate to 17,370. We currently have an outsourcing backlog of 339 ATMs. And as a reminder, this backlog total excludes ATMs we plan to deploy through our own IADs and India's brown-label deployments. Before I conclude my comments on EFT, I would like to give you an update on our ATM deployments in India. During the year, we have deployed almost 1,400 brown-label ATMs, bringing the total for us to just over 1,800. The ramp up of transactions on these ATMs has been slower and more uneven than expected. We continue to evaluate site selection in order to improve the profitability of these ATMs and expect these ATMs to contribute to our financial growth in the coming quarters. Thank you to our EFT team for your hard work and delivering exceptional results for this quarter. Now let's move on to Slide #16 and we can talk about the epay segment. On Slide 16, well, we've got the epay results on an as-reported basis. While the story for epay isn't as good as we'd like, we're starting to gain some traction. As Rick mentioned earlier, we lacked the impact of certain retailers in Australia going direct with the mobile operators since September of last year. We also saw sequential constant currency revenue and operating income growth when compared to the second quarter of this year. While this is not a success yet, we're optimistic that our tactical plans are taking hold and we're starting to gain momentum. The good news in epay is that we continue to see nice contributions from 2 of our biggest markets, the U.S. and Germany. In addition, we saw strong nonmobile growth with an increase in contributions of 24% year-over-year, excluding cadooz. I am confident that as we lap the negative events and continue to introduce additional nonmobile content and other value-added products, the epay segment will achieve solid earnings growth in the future. Now let's move to Slide #17 and we'll present the highlights from our mobile business. As you may recall, in December of last year, we launched the first gift card mall in Brazil with GPA, the country's largest grocery retailer. During this quarter, we expanded that content sold in GPA locations to include Terra, the largest online media company Latin America. Also in the third quarter, we signed an agreement to sell mobile top up in GPA locations. Our launch with GPA will be the first-time top up has been sold in a large chain -- in large chain retail stores in Brazil. We have seen many of our prepaid markets in other countries make the transition from top up being sold exclusively to independent retailers for it's being offered in large retailers and we're excited about this opportunity in Brazil. We also signed a processing agreement for distribution in Mobitel, a mobile operator in Egypt, and our ATX subsidiaries. And when this agreement goes live, it'll add another country to our prepaid markets. In Spain, we signed agreements with 2 retailers that add MVNO brands to their stores. We'll add 8 MVNO brands into Telandcom and 13 MVNO brands to Carrefour locations. Now move on to the next slide, please. On Slide #18, we present selected highlights from our nonmobile business. During the quarters, we launched Facebook gift cards in 31 retailers across 9 countries. We also brought Xbox live to Australia, the third country we are now disturbing this product into. Last quarter, I talked to you about the opportunities that we see with software distribution. We continue to see this as a significant opportunity. And this quarter, we extended our agreement with Adobe to include -- exclude some retail distribution in Australia and New Zealand. We expect this distribution to begin in the fourth quarter. Additionally, we signed global distribution agreements with Kobo, a digital book content provider similar to Amazon. With this agreement, we will distribute Kobo gift cards in Europe, Australia and New Zealand. Finally, we aced a deal with Autogrill, the world's largest travel dining company serving airports and motorways. Through this agreement, we will distribute iTunes and other nonmobile content in their retail stores. While I'm not pleased with our third quarter epay financial results, I'm encouraged by our sequential quarterly growth. I see a lot of positive things happening within our epay segment and we continue to refocus our sales initiatives, add additional nonmobile content and roll out additional value-added services, and I'm confident we'll see good growth return to this segment. Now let's move on to Slide #20 where we'll talk about our Money Transfer segment. On Slide 20, we present the reported financial highlights for the Money Transfer segment this quarter. I mentioned to you in the last quarter's call that we are seeing positive developments in the U.S. market, and my view of the market and the industry certainly has not changed. Money transfers from the U.S. grew 19%, including 18% transaction growth from the U.S. to Mexico. However, this quarter, growth from the U.S. was not just to Mexico, 9 of our top 10 U.S. send corridors saw a transaction growth of at least 10% over the prior year. The numbers tell a very good story, one that's been building for several quarters now. Ria delivered another very strong quarter with solid leverage to the bottom line. But in this quarter, I'm sure the numbers tell the entire story. There are many factors that support the 4 straight quarters of double-digit growth Rick mentioned earlier. However, the performance can largely be attributed to one factor, and that is execution. The U.S. team has done an outstanding job over the past year of cultivating its agent relationships, diversifying and growing its agents' base and working with its correspondent payout agents to offer incentives that are attractive to our customers and provide residual benefits to both Ria and its partners. As a result, our U.S. team has positioned themselves to convert opportunities into results, and the results that you see here are quite simply the bounty of all the hard work that's been invested over the last 2 years. Now let's move on to the next slide. Slide 21, year-over-year, our total network grew by 21%. Key drivers for this quarter's network growth were the 21 new correspondents that we launched, which combined with new locations launched through existing correspondents, added approximately 11,000 locations to our network. We continue to strengthen our position in top-remittance markets such as India, Pakistan and Nepal. In Pakistan last quarter, we mentioned the launch of the National Bank of Pakistan, and in this quarter, we're glad to have Muslim Commercial Bank as our new partner, with over 1,000 locations already launched. This agreement with MCV, by the way, is a direct result of the synergies of our EFT and money transfer businesses, where our EFT relationship with this bank led directly to the correspondent payout agreement. In Nepal, we launched nearly 1,000 new payout locations with International Money Express and we signed a new country agreement with Panos Remit, which includes more than 100 locations across the country. Panos Remit is a very important partner because it allows us to do home delivery in that market. This country is a key market for our businesses in the U.S. and the U.K., considering that these are important immigration destination countries for more than 900,000 Nepalese living abroad. In addition to these launches, we signed 10 new correspondents of 8 countries during the quarter that will be launched in the upcoming periods, and I'll tell you about those when they come. African markets continue to be very important for our business in Europe, so we continue to focus efforts on developing a stronger footprint in the region. As an example, we signed new agreements with Wafacash in Morocco and First African Savings and Loans in Ghana. We've had great success in those 2 markets. Morocco, by the way, is the third-largest remittance market in Africa and receives over $6 billion worth of remittances annually. To put this in proper perspective for you, the Moroccan market for transfers is about 1/4 of the size of the huge Mexican market. Next slide, please. Here on Slide #22, we covered money -- we covered the growth in money transfers from the previous slides. Maybe we could just focus on the graph at the right. On our non-money transfer transactions, we continued to deliver strong growth as a result of our continued efforts to add additional products to our core money transfer capabilities. This quarter, our non-money transfer transactions posted an 86% growth over the same quarter of last year. The bulk of the growth is from our success in cross-selling mobile top ups to Ria agents in Europe and the U.S., with particular mention of the growth in our transactions from Italy. Additionally, we saw a nice 27% growth in bill payments and check cashing transactions, which increased 55% in the U.S. and Canada. As you can see, the Money Transfer team delivered another very strong quarter. I look forward to a strong finish to 2012 from our Ria team and then we'll now move on to Slide #23 to wrap up the quarter. So very briefly here, on Slide #23 in our summary and outlook, you can see that our cash EPS was $0.42, including about $0.01 of tailwind from FX rates. EFT benefited from ATM expansion, transaction growth and virtually all markets and very strong value-added services growth. Epay begins to pare down its losses with emerging sequential growth. Money Transfer realizes the earnings expansions from the strong transaction growth and great execution. On October 15, we repurchased substantially all of the remaining $171 million of convertible bonds. We maintain our strong liquidity position by increasing our revolver borrowing capacity from $275 million to $400 million in October. And finally, we expect our fourth quarter adjusted cash EPS to be approximately $0.47, assuming consistent foreign exchange rates with the potential caveat Rick explained earlier. With that, I conclude my comments and I'm happy to take questions. Operator, will you please assist us.

[Operator Instructions] Our first question comes from Mike Grondahl from Piper Jaffray.

Mike, could you talk a little bit about the EFT backlog, kind of by region, and how you think that'll play out over the next year? And then maybe secondly, attached to EFT is, what type of drag were the India ATMs and how do you see that ramping up?

Okay, so where we see the growth, okay, as we kind of -- first of all, let's break down where our kind of our, say, 2 or 3 areas that we see ATM expansion in. So that we could say Europe and we can kind of break it down in both Western Europe and Central Europe. And then in also India, those are the 3 areas for growth of ATMs in the last year and over the, probably as we see, coming up in the coming year. Now with respect to India, as Rick said, we've got a lot of ATMs in India. We've got kind of uneven results, I've kind of mentioned that on prior calls before as well. So we are still assessing that, we're relocating a few ATMs, we're making sure that we find a secret sauce that matches site selection for India, just like we have in all the other markets where we have IAD. So for the time being, you're not going to see a lot of ATMs growing in the coming quarter, we're assessing, relocating and figuring this all out, but then we could see some additional growth once we get this all figured out. Because we've got some really interesting and exciting projections for that market. You asked about the drag on as target to Europe, you've asked about the drag on it. So we've got 1,800 working ATMs in India and they're ramping up in their transactions. So therefore, you don't make money on the outset, and we're losing right now about 600k to 700k per quarter on that drag. So when you look at our EFT results, had we not made the investment that we're excited about in India, that would've brought darn near another $0.01 a share to us this year and would have improved those results in the EFT segment even more. So that -- I'm sorry, that's 600k to 700k per quarter, because if you multiply it by 4, that's $2 million to $3 million a year. So now let's go to Europe. We have started in Central Europe, everybody knows that. We continue to add to our IADs across Central Europe, both the ones that we own and also doing outsourcing agreements and other kinds of deals with banks in Central Europe. That continues to be a strong market for us. We kind of dominate several markets or we're getting to the domination stage or kind of like that where we have a really strong presence, we don't really dominate. But in Poland, we have 18% of the ATMs as an example, and that's a really strong showing amongst us and the other banks. So we'll continue to make investments in these Central European markets as we see them being profitable. What has changed though over the last year or so, maybe 2 years, is the crisis. And in this segment, I keep saying, crisis. What crisis? Because the crisis is causing the banks to take a hard look at their expenses and their balance sheets and their assets that don't produce revenue for them and an ATM -- a group of ATMs and ATM network for a bank as a nonrevenue producing asset mostly. So what we've done is we've gone to these banks and we are closing deals and we're discussing deals, operate those ATMs for them to do outsourcing for them to seldom value-added services, et cetera. So we will see probably more growth in Western Europe with new deals over the next, say, year or 2, than we've probably seen in our history. And that's exciting, because now we've kind of unlocked 2/3 of the ATMs in Europe. We're also finding that we can outsource other services to banks and not necessarily have to operate their ATMs for them. So we can give them access to a number of value-added services and that's -- this innovation that we do here has been profitable for us over the last couple of quarters and will continue to be, moving forward. But probably, when it really comes to our P&L, Mike, Europe, both Central Europe and Western Europe, will be the primary growth drivers for EFT as we move forward over the next 12 to 18 months.

Great. And then just real quickly, the buyback you guys talked about, was that 1.3 million shares in the September quarter or was that a cumulative number?

No, that was $1.3 million. So it's kind of a weeny amount. But we've picked them up where we saw a good buy and we will continue to be selective and take advantage of the market opportunity for buyback of stocks. So we've still got, I think we were authorized to buy back up to $80 million -- I'm sorry, Rick, correct me. Yes, so we bought back $17 million worth of the $100 million the board has authorized us to do a year ago.

Our next question comes from John Kraft from DA Davidson.

I wanted to circle back on a couple of issues. One specifically into the U.S. to Mexico corridor at 18%, it looks to me like that may be your strongest ever, at least I've seen for a while. And Mike, you suggested that the execution is the rationale there for the success, but I'm assuming here that there's also some share gains from some of your larger vendor competitors and is it also fair to say that there's an improving industry outlook overall, maybe related to housing?

I can't tell you exactly where the new money is coming from. But certainly, there -- I think with our kind of a slightly recovering economy here, the first people that most businesses sign on are temporary workers, whether that's in construction or production or whatever. Immigrants are classically kind of temporary workers, so you tend to see your recovery, your economic recovery first and maybe our neck of the woods before you see it in the full-time guys. So execution, when we talk about execution, we point out that we've actually been cultivating new and stronger relationships with lots of new agents over the last 2 years. And then as the economy started to turn, we were able to capitalize on that. And with respect to market share gains from our competitors, I don't have their data versus my data right now, you'll have to see how they all come out. But obviously, having an 18% gain, which is the largest gain we've ever had to Mexico, it had to come from someplace. And I don't think the number of transactions to Mexico, although we haven't seen Bank of Mexico's number get through anywhere near 18%.

And while that 18% is the largest we've had since we have owned Ria, Ria in its past, it's had numbers like that, representing that the market is available out there.

Right.

Got you. Okay, that's helpful. And then one more, if I could. Going to some of the struggling epay areas, it doesn't appear that the changing strategy in some of the new vendors in Brazil or the go-direct strategy in Australia has spread to other markets or other vendors within those markets, is it fair to put those issues behind us?

I think so. I would have to say that we don't really have time on this call to go into it in detail, but I have a number of times. Those are -- you hate to promise that something like that could never occur again. But I would tell you that the models chosen in for sure in Brazil, and maybe even in Australia, are a bit counterintuitive and don't match anything we've ever seen before. And I think for that reason now, you've seen them for a year, everybody's seen them for a year and nobody's doing anything like that. In Brazil in particular, every mobile operator we know in every single other market is moving away from small distributors towards large distributors, because they don't want to get stuck with a receivable from a bunch of little kind of fly-by-night companies. They like the fact that you have larger companies with balance sheets and transparent financials, because don't forget, we only get paid, call it, 7% or 6.5% commission, but we have to break -- we have to give the rest, the whole face value you left that back to the mobile operator. So the receivable that we have -- that they have on their books is considerably higher than the amount of profit we make per transaction. And sometimes, and we've seen this happen time and time, market after market, some of these guys just basically take the money and run.

So John, I would add just a couple other observations to that, is that the challenge that we do talk about from time to time is that we're in so many different markets and it's a little harder to understand our business, because we're not just a U.S.-type of base business. And that's also the beauty of our business is that we are diversified across a number of markets. And what we have not seen things like that, trends or activities like that, marketing approaches spread from market to market or even within the same mobile operator ownership group that may operate in different markets because they just are different cultural approaches to their marketing and consumer usage patterns and things like that. The only thing that we do see that's consistent from market to market is the efficiency of use of electronic top up. And so we obviously take advantage of that and then we'll continue to deploy, as again we've seen consistently market to market, is the interest in the nonmobile product, so that we leverage each one of those point-of-sale. But again, I would just say that the diversity is what we benefit from and we do not see those kinds of things top from market to market.

And our next question comes from Chris Shutler from William Blair.

Let's start in EFT. So you added Spain and Italy to your IAD network in Q3, and that's your first ATM presence, I think, in those 2 countries. So maybe -- can you just talk about the opportunity there in terms of breaking out a couple of years, how many machines you think you might be able to install there and just what the competitive environment looks like?

Well, first of all, we've only got about like 5 or so ATMs in each, because we both -- we went live just kind of like last month. We don't have many in there right now, so really, it didn't change our numbers. But the fact is we're able to take advantage of our PSD license and acquiring license to go into these 2 markets, and bringing our number of markets up to 11. Spain and Italy are 2 huge markets. And when you take a look at what's happening, actually, the number of ATMs in Spain has gone down, 5% or 6% over the last 2 years, because banks are removing, are closing down branches and closing down ATMs. What we recognize is that there are opportunities across several countries in Europe to take advantage of the fact that the bank [indiscernible] and there are opportunities that have ATMs in well-placed locations and give consumers a good and transparent or good and -- a good experience and has good ubiquity for where they are. So I can't tell you how many, but I mean, you think there'd be at least a couple of hundred in each market and maybe more, so we'll see. We just -- what we do in every market is we keep adding ATMs until we realize we're getting into kind of a profit saturation point in between all the different kinds of transactions that we sell on our ATMs. What's interesting is that number just keeps getting bigger and bigger as we offer one more services to those customers and more and more revenue streams to ourselves.

And then a couple of questions on epay. I guess, I mean, there's a lot of moving pieces right now in that segment. So if you group out the areas that aren't performing so well, so Brazil, Australia and Spain, can you just maybe walk us through what the -- kind of what the basic growth rates is in the other country, the other big countries in that segment, whether it's U.S., Germany, et cetera? Just so that we have some idea what we should be looking at as sort of a normalized growth rate when you do come out of these issues?

Yes. Well, Chris we'll, for competitive reasons, not give you the numbers on each one of those markets. But as Mike said, in the value-added services, we saw good strong, very strong double digit, like 24% kind of growth on a year-over-year our non-value product. I mean, on nonmobile product. So that's kind of an overarching observation, so that's obviously good. Also recognize that or I'll just point out that the change that we saw, the change that we saw in Australia and Brazil was pretty substantial. So recovering off of those takes a fair bit of work. But I think it's fair to say in the U.S. market, we've seen good double-digit transaction growth in the Germany market, it's been one of the key fuelers of the nonmobile product. And so, seeing good double-digit growth in those numbers year-over-year, you can anticipate that Germany, again, was a good strong growing country. We had a couple of other smaller countries that are continuing to contribute to the growth cycle places like Italy, where we're still a distant third player in a very big mobile top-up market. We're continuing to make inroads, as Mike mentioned, one of these larger customers we've signed up here was in Italy, we'll continue to that. So I think if you'd take a look at those other markets kind on balance, we'd probably see something like mid to upper single-digit growth rates coming out of those kind of markets with a bit of an advantage tilted towards nonmobile.

The upper single digits you're talking of profitability?

Yes.

Okay. And then the last one is on the -- you didn't talk, I don't think, about the Sydney transport deal at all on the call. Just give us...

Yes, the update on that is I think we'll go live here in the fourth quarter with a pilot. But the pilot doesn't mean it's not going to go live. The pilot just means we've got to work all the kinks out of the system. And as we -- after we do that, we'll start to roll that out across next year.

Over which quarters?

Go ahead, Kevin, you've got the updates.

Chris, this new project, it actually involves 3 phases. The first phase is ferry boats, the second phase is trains and the third phase is buses. That rollout is over a long period of time, over 3 years. The first phase is ferries, so we'll be doing a pilot going live in December with one of the ferry boats. If that goes well, gains traction, they'll expand it to more ferries in 2013. And at the end of 2013, we'll start a pilot with trains and it'll go like that.

You'd just like to get them to add airplanes in there and then we'd have those 3...

Our next mission comes from Jason Nacca from Sidoti.

Just a quick question with cadooz. Now that you've got it for over a year, and I think should have some better visibility, can you provide some insight on what you're seeing on the conditions in the corporate side, particularly in Germany and other countries alike?

Asked about cadooz.

Oh, cadooz. Well, cadooz is -- we're cautiously excited about what they've got on their plans for the fourth quarter. It's a funny game there, because a lot of these corporations use them as kind of Christmas-time incentives to their employees or to gather new customers. So it's one of those things where everybody kind of crams everything in, in the last quarter, that's a big quarter for us and we see those revenues realized over Q4 and Q1. So we're cautiously optimistic that we're going to have a record-breaking quarter for cadooz in Q4. We'll let you know at the end of the year on our next call.

I'd say that there's 2 other things I would add to that, Mike, and that is, Germany is one of the strongest and certainly biggest economies in Europe. And as we see that economy being strong, corporations being strong, the corporations are continuing to do things to promote their products and things like that. So that's been helpful to us. I think even as we kind of reflect backwards, we've seen some really nice wins on the cadooz side coming out of the corporate sector there. So good strong economy, a big economy in Germany. And so that all plays to our favor. The second thing is, Germany is one of these countries where they offer companies some nice tax incentives to pay for things like meals or other types of things for employees that get worked into these voucher programs that cadooz offers. So there's a couple of things that kind of go really well for us here terms of macro trends here, the strength of the business environment in Germany, together with the added incentives for things like being stimulated by their tax structures. So a good piece of it.

I guess the final thing I would say, Rick, is that we're similar to other businesses. We're constantly evolving and creating new products. And the cadooz businesses has produced about 3 or 4 new products that seems to be gaining traction in the market. So we're pretty happy with that business.

Okay. And just one more question. Last quarter, we talked about some cash payout locations in Thailand, about 1,700 that you added. Can you provide me with some color on this expansion, what you're seeing in Thailand, if you're gaining any traction and some other Southeast Asian region?

Well, we mentioned a few here for Asia. We mentioned the ones around India, Pakistan, Nepal, et cetera. Of course, Malaysia, we're focusing on. We're always focusing on places like the Philippines. I don't have any specific information for you other than that's just our focus. We just keep adding more and more payouts in more and more countries, and better ubiquity. Because you've got to have a payout that's close to where the family member lives of the guy who sent them back money. So if we -- when you have twice as many payout locations and twice the ubiquity, you can get more and more customers. So that's just kind of an ongoing mantra, you'll hear me talk about that every quarter until I croak. So nothing specific other than we'll just continue to work it. Right, thank you.

I'm showing no questions at this time, sir.

Okay, good. Well, I thank you, one and all, for taking an hour with me and I look forward to talking with you again in another quarter. Bye-bye.

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