Euronet Worldwide, Inc. (EEFT) Q1 2014 Earnings Report, Transcript and Summary

Greetings, and welcome to the Euronet Worldwide First Quarter 2014 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call 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, Bridget. Good morning, and welcome, everyone, to Euronet's Quarterly Results Conference Call. We'll present our results for the first quarter of 2014. On this call we have Mike Brown, our Chief Executive Officer; Rick Weller, our Chief Financial Officer; and Kevin Caponecchi, President of Euronet on the call. Before we begin, I need to make our 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 technological developments affecting the market for the company's products and services, technical issues associated with the operation of our complex processing systems, including security bridges, changes in ATM and other transaction fees and changes in laws and regulations affecting the company's business, including immigration laws and anti-money laundering regulations. These risks and other risks are described in the company's filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Copies of these filings may be obtained via the SEC's EDGAR website or by contacting the company or the SEC. Euronet does not intend to update these forward-looking statements and undertakes no duty to any person to provide any such update under 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.

Thanks, Jeff. And welcome to everyone joining us today. I will begin my comments on Slide 5. In the first quarter, we delivered revenue of $353 million, operating income of $24 million, and adjusted EBITDA of $43.6 million. Our cash earnings per share was $0.46, a $0.01 ahead our guidance. The numbers included about $0.03 favorability from taxes, which was offset by $0.02 from the write-downs of certain customer acquisition costs in the money transfer segment. Foreign exchange rate movements were immaterial, only impacting cash EPS, by about a 1/4 of $0.01, since we gave our guidance. With respect to taxes, about 1/2 of the tax benefit was from the realization of certain deferred tax assets in foreign jurisdictions, and the other 1/2 driven by a favorable mix of profits from countries with lower tax rates. While I'm always glad to deliver lower tax expense, I would expect our tax -- our cash earned -- our tax effective rate to be in the mid to high-20s for the balance of the year. Overall, this was a good start to a year with year-over-year earnings growth of 21%. I will give a bit more insight to the results when I get to segment reporting in a few slides. Next slide, please. On Slide 6, you can see the 3-year transaction trend for each segment. EFT transactions grew 9%, driven by growth, which was spread across our markets. This growth was offset by the loss of IDBI agreement, we told you about last year. Excluding the loss of that agreement, transactions would have grown by 12%. This transaction growth was largely driven by the 14% growth in ATMs, year-over-year, also adjusted for the IDBI machines. epay transactions grew 1% compared to the first quarter of 2013, driven by growth in India and Germany. These volume increases were partially offset by declines in the Middle East and Brazil. Finally, total transactions for Ria increased 9% year-over-year, including 12% growth in money transfers, partially offsetting the money transfer growth with a year-over-year decline in non-money transfer transactions of 3%, due to the discontinuation of a high-volume, low-margin product in Spain. As you can see, in the money transfer, revenue growth of 13%, the 3% decline in non-money transfer transactions did not have a significant impact on the results. Money transfers expanded in all send regions. This double-digit growth was the result of successful agent sales efforts together with the addition of about 20,000 more network locations. We are pleased to finish the quarter with the 12th consecutive quarterly double-digit increase in money transfers. Next Slide. On Slide 7, we presented quarterly financial results for each segment on a reported basis. Foreign currency had some impact on the results with increases in the euro of 4%, the British pound of 7%, the Polish zloty of 3%, offset by declines in the Australian dollar of 14% and the Brazilian Real of 16%. But essentially, the pluses were offset by the minuses. We can go to Slide 8, where the impacts of currency movements have been excluded. Here on Slide 8, I'll start with the outstanding quarter of EFT. Revenue increased 20%, operating income increased 88%, and adjusted EBITDA increased 33%. This growth was primarily from transaction increases across our markets driven by more ATMs under management, greater demand for value-added products, and additional cards under management. In this year's first quarter results, we we're able to recognize a $1.5 million in transaction revenue due to strong transaction growth related to a particular outsourcing agreement, where in the first quarter we had more transactions than in past years, which allowed us to recognize revenue at a higher pricing tier when compared to previous years. epay revenue declined 2%, operating income increased 1%, and adjusted EBITDA decreased 2%. The results include continued declines in Australia and Brazil, largely offset by increased demand and non-mobile content. Transaction declines from customer promotional events at cadooz contributed to the revenue decline, but have a marginal impact on operating income and adjusted EBITDA. Money transfer delivered 13% revenue, growth while operating income and adjusted EBITDA declined 38%, and 22%, respectively. Revenue expansion was driven by a 12% increase in money transfers across our markets. You may have also seen in the press release, the operating income includes $1.5 million write-down, a certain customer acquisition cost. Excluding the write-down cost, operating income and adjusted EBITDA would have declined 10% and 7%, respectively. During the quarter, we incurred acquisition-related expenses, you'll recall the announcement of the HiFX opportunity or acquisition a few weeks ago. And we've made investments in our digital service and the development of the Walmart-2-Walmart product. Without these upfront costs, margins and profits would have expanded nicely. Finally, in all segments, revenue and gross margin per transactions remained relatively constant, year-over-year. Let's move to Slide 9, and I'll review a few balance sheet highlights. On Slide 9, our balance sheet is presented for the end of the first quarter compared to the end of last year. We ended the quarter with $292 million in cash, the $83 million increase was result of cash generated from operations, borrowings from the revolver to fund ATM network cash and the timing of cash receipts and disbursements. Debt increased of approximately $40 million, largely due to cash used to fund ATM loads and to cover normal timing driven cash needs. All in all, leverage rates remained about the same. You may recall our announcement earlier, this year, related to our credit facility. We expanded our credit facility from $466 million to $675 million, with several favorable improvements in terms, including the extension of the maturity out 5 years to April 2019. The extended and expanded facility significantly strengthens our capital position and flexibility to support many years of strong growth. We are pleased with the new agreement, and we believe it reflects the strength of our financial position. Overall, this was a strong and very exciting quarter for Euronet. Nothing like starting the year with 20% earnings growth. Now I'll turn it over to Mike, who'll start on Page 11.

Thank you, Rick. And welcome to everybody joining us today. We had a very exciting start to 2014. We realized that the recent announcement of our partnership with Walmart has generated some new parties interest in Euronet. So I thought I would start by giving you a brief overview of the company. I founded Euronet almost 20 years ago to make cash more convenient to customers in Eastern Europe through the deployment of ATMs. These ATMs became the basis of our EFT segment, which now includes our own independently deployed and shared ATM networks, ATM, POS, debit and credit card outsourcing services, as well as a host of value-added products. For the full year of 2013, the EFT segment processed approximately $1.2 billion transactions and accounted for 21% of our consolidated revenue, and a whopping 43% of our adjusted EBITDA. In 2003, we formed our second segment through the acquisition of epay. epay was one of the first processers to convert scratch cards to electronic pins for prepaid mobile airtime at the point-of-sale. epay has evolved from a mobile pop-up provider to an electronic distribution and cash collection network, offering prepaid mobile top-up, as well as content from leading global brands, such as iTunes, Google Play, Microsoft, Xbox, Sony PlayStation and Facebook, just to name a few. In 2013, we processed $1.1 billion transactions, which accounted for 53% of our consolidated revenue and 34% of our adjusted EBITDA. Finally, in 2007, we created our third segment, through the acquisition of Ria, the third largest global money transfer provider. When we purchased Ria in 2007, they processed $4.5 billion in money transfers through a network of 42,000 locations in a 13 send [ph] countries. In the 7 years since this purchase, Ria has seen outstanding growth. In 2013, Ria processed $9 billion in money transfers through a network of 216,000 locations in 22 send [ph] countries and accounted for 26% of our consolidated revenue and 23% of our consolidated EBITDA. We recently announced the acquisition of HiFX, a provider of a cap-based money transfers for high net worth individuals and small- and medium-sized businesses. Ria together with HiFX, will be responsible for purchasing around $25 billion in foreign currency this year. Through these 3 segments, Euronet has grown to become a worldwide leader in processing secure electronic financial transactions, responsible for dispensing, collecting and transferring $62 billion in cash across our segments, annually. Now let's move to Slide 13, we'll talk about the first quarter highlights from the EFT segment. Okay, Slide 13. As you can see, our EFT team had another outstanding operational quarter with income growth of 94%. This growth is a continuation of our momentum in this segment, which delivered 40% operating income growth in 2013, and 35% growth in 2012. This strong growth is not a result of a single deal. It is the result of the work we have put in over the last 3 years. To draw on words from our previously issued annual report: These result are the culmination of adding more units, more products in more locations, which yield the strong results you see in EFT. Now let's move to Slide 14, I'll talk about the details. On Slide 14, you can see some of our selected highlights. During the quarter, we expanded our footprint by launching our independent ATM deployed network in Denmark. In a global partnership with American Express, we have started rolling out ATMs in Copenhagen. American Express adds another world-class company to our list of partners, and I'm excited that our plans included installing more ATMs in more markets and providing more value-added services to these devices for discount. As you may have seen in the press release, we recently issued announcing our purchase of Carpatica banks placed of more than 200 ATMs, doubling our independent ATM network in Romania. The bank also signed an agreement to become the fifth member of our shared ATM network there. This is a breakthrough agreement in Romania and strengthens our asset purchase proposition in this large and growing market. In Poland, we signed an agreement with Orlen, the largest fuel chain in the country, to exclusively deploy ATMs at Orlen gas stations. We have already started adding ATMs to these gas stations and plan to continue rolling out additional devices during the second and the third quarters of this year. Finally, we signed an agreement with Veropoulos, a large greek supermarket chain to install POS terminals and provide POS switching services across their stores. This agreement is in addition to the agreement we told you about in the fourth quarter with MasterCard, where we have been deploying contact list POS terminals to a number of the merchants in Greece. Slide #15. Over the past several quarters, we've been telling you about our coupon dispensing agreements with various brands in Poland. These campaigns continued to gain traction in the market. In the first quarter, we successfully completed a campaign with the largest local beer producer and the biggest cable TV service distributing 650,000 coupons on certain ATMs around the country. Additionally, we launched Pure Commerce as DCC acquiring product with DFS, a leading global duty free market and First Data in Hong Kong. This project is being rolled out to all DFS terminals at the Hong Kong airport and we expect the roll out to be completed in the middle of the second quarter. We're excited to partner with First Data and extend our relationship with DFS. We also signed agreement to introduce Pure Commerce as DCC solution to leading hotel chains in Singapore, including Grand Hyatt, Marriott, Holiday Inn and Novotel hotel. We're pleased with this expansion in the Asia-Pac region, which is a vibrant and growing place. We added 247 ATMs in the quarter, net bringing our total ATMs managed to a count of 18,558. The largest increase, these were in India and Europe. The brown label ATMs, we installed during the fourth quarter have ramped up nicely and we except them to continue to our second quarter earnings -- to contribute to our second quarter earnings growth. Between India and Europe, we have an internal goals, a roll out in additional 1,500 ATMs through the remainder of 2014. It's worth repeating, as this was an outstanding quarter and a great start to the year for EFT team. With such exceptional growth, we expect to see strong results from EFT for the year. Now let's move to Slide 17, and we talk about epay for a minute. The epay segment held its own year-over-year, and ended the quarter with modest transaction growth, which resulted in a slight increase in operating income. While this quarter's results did not reflect the year-over-year growth trajectory, I remain confident that we'll see growth in this segment through our continued focus on providing mobile operators with innovative solution to help them operate more efficiently, and introducing our leading global content in to more retailers across more channels and more countries. I expect epay's results over the next couple of quarters, to be similar to the first quarter until we get to our seasonally strongest fourth quarter. With that, let's move on to Slide 18, and we can talk about the highlights -- some of the highlights of this quarter. Okay. First, we'll start with our core mobile business. In Europe, SIM card activations represent a new customer for mobile operator. In our European markets, we have made a strategic decision to place more focus on SIM distribution. In particular, we've used our technology to create a new SIM card to allow mobile operators a more efficient distribution of phone numbers. This will help solve the issue of a shrinking supply of mobile phone numbers in certain markets. In the first quarter, we launched SIM distribution for Lebara across our network in the U.K. and in Germany. We -- and in Germany, we enabled point-of-sale of SIM activation in Lotto Berlin and Lotto Schleswig, and Holstein locations in Germany. We continue to search for ways that we can use our technology to help mobile operators run their business more efficiently. We also signed a mobile pop-up [ph] and SIM activation agreement with a large national retailer in the U.S. We won a national agreement after a successful pilot program at a limited number of stores. As many of you know that while our segments are functionally different, they have many synergies that allow us to cross-sell our products. In the first quarter, our EFT and epay teams partnered to sell mobile top-up through the VIAMO smartphone app in Slovakia. VIAMO is a peer-to-peer micro-payment engine that is heavily supported by the 2 largest banks in Slovakia. VIAMO allows users to pay their peers or purchase products within the app. Through VIAMO's partnership with Euronet, users will now be able to add minutes within the app on their mobile phone by using funds from their bank accounts. Now let's move to Slide #19. On Slide #19, you can see our non-mobile highlights. We continued our efforts to diversify our epay business with additional non-mobile content. For the first quarter, non-mobile made up 38% of our total gross profit, up from 28%, for the same quarter last year. As you can see on the page, we continue to rollout leading global content to major retailers across the markets where we operate. The most significant contributor to this growth was the continued expansion of Google Play. We added the product to retailers in Austria, Spain and France during the quarter. With the larger number of Android phones in Europe, Google Play is a high demand product that we continue to see increased sales across our markets. For the past several quarters, we've been telling you about our technology that allows our retail and bank partners to digitally distribute leading global content. We continue to execute these deals. And in the first quarter, we signed an agreement with Optus, a leading mobile operator in Australia, to distribute iTunes digital posts [ph] to their online platform. Last quarter, we announced our agreement with PayPal, to allow its customers to purchase our leading global content with funds in their PayPal accounts, online or on PayPal's mobile app. In the first quarter, we continue to run a number of successful campaigns with PayPal, and we're very pleased with how this partnership is developing. In another example of the synergies between our segments, our EFT and epay teams, partnered to distribute non-mobile content. In addition to the POS distribution and switching services agreement with Veropoulos, that I mentioned in Greece -- that I mentioned in the EFT segment, we also signed an agreement to distribute iTunes in mobile pop-up to the same retailers POS terminal. In Germany, we signed an agreement with Finanz-Informatik, the leading processor for all savings banks in the country, to sell iTunes through their online and mobile banking application. This agreement is similar to the post finance agreement in Switzerland we mentioned last year. And we will provide all savings banks in Germany with the opportunity to quickly offer their customers iTunes through their banking application. While we expect epay's results to hold their own over the next couple of quarters, we are excited about the different ways our technology can help our mobile operator partners, more efficiently run their businesses and help our brand partners reach a larger consumer base, quickly and easily. Now let's move on to Slide #20, and talk about money transfers. Slide 20. This was a very exciting quarter for our Money Transfer segment. And we told you earlier in the quarter, we signed an agreement to acquire HiFX, a provider of online initiated international payments and foreign exchange services. HiFX offers account-to-account money transfer services, which is an adjacent markets to Ria's traditional cash-to-cash tight money transfers. We are still awaiting regulatory approval, but expect this agreement to close in this quarter. As you know, we announced our partnership with Walmart, to power the Walmart-2-Walmart domestic money transfer service. Walmart-2-Walmart is an innovative, new money transfer service that offers competitive pricing and convenience for the 95% of Americans who live within 15 miles of Walmart store. We believe, the product's simple transparent pricing structure is competitive relative to other products in the market, and is made possible by the product capability and strong compliance culture of Ria, together with the size, technology and scale of Walmart. Customers using the Walmart-2-Walmart service can send up to $900 between any 2 of the more than 4,000 Walmart locations in the U.S. at everyday low pricing without sacrificing quality. We view this product much as like when we launched ATMs 19 years ago. We deployed these ATMs with a mission to bring secure, convenient financial services to people that never had them before. That was our original mission, way back then. We believe that the strength of the Walmart brand and the U.S. customers' familiarity with Walmart locations, combined with the simple pricing structure, we will appeal to a broader audience of customers needing to send money in the United States. We are very excited about this partnership, and believe it is a testament to our commitment to customer service and also to our financial strength. Walmart-2-Walmart went live in the U.S. stores late last week. And Walmart initiated their full marketing campaign on Monday. While it is still too early to speculate about or discuss the impact to our financial results, we are very pleased with this relationship with Walmart. The addition of HiFX and Walmart will serve to further strengthen our growth for the second half of this year. So now let's move on to Slide #22, we can talk about various achievements in Q1. Okay. Total network locations grew by 10%, the first quarter compared with -- in the first quarter compared to last year's first quarter. This growth combined with the April launch of the 4,000 Walmart locations brings our total to 223,000 locations across 135 countries. Our Ria team continues to do a great job at strengthening our footprint in key remittance markets, while maintaining high quality and reliability. In Bangladesh, we added 2 key correspondent banks, Pubali and Rupali, which are well-known banks within the company with excellent services. Bangladesh is a top-10 remittance market with more than $14 billion in remittance inflows annually. These agreements expand our network to more than 6,000 locations in that important market. Nigeria is another important global remittance market, receiving more than $20 billion in annual inflow. We expanded our network in Nigeria with 700 new locations across 3 new corresponding banks. Our pipeline to add new correspondence across our network remains strong. During the quarter, we signed agreements with 11 new correspondents in 7 countries. These new agreements will allow us to continue to improve our service in Nigeria, Ghana, and Morytania. Finally, you may have seen earlier this week that we unveiled a new riamoneytransfer.com website. This new website offers our customer a more friendly layout, a responsive design for PCs, as well as mobile devices, including tablet and additional features that allow customers to more efficiently send a transfer. As Rick mentioned in his comments, we have made significant investments in our digital solution over the past year. And as this new website provides a secure, easy-to-use option to send money from the convenience of your home or on-the-go, 24 hours a day. On Slide #23, we highlighted Ria's transactions for the quarter. During the quarter, transfers initiated, inside and outside the U.S., both grew at double-digit rates. For the past couple of years, we have presented those numbers separately due to differing economic climates, between the U.S. and the global markets. Now that both the U.S. initiated transfers, including those sent to Mexico, and non-U.S. initiated transfers have returned to double-digit growth, we believe separating -- the separate disclosers really no longer necessary. Money transfer transactions grew 12% year-over-year, with the growths virtually across all markets. This represents the 12th consecutive quarter that we have achieved double-digit money transfer growth. Non-money transfer transactions declined 3% due to the previous explained discontinuation of a high-volume, low-margin product in Spain last year. Removing the impact of this product, the non-money transfers grew a strong 18% year-over-year. As I reflect back to when we acquired Ria 7 years ago, Ria was primarily a U.S, Latin American business. Today Ria is a very different business with about half of all the transfers initiated outside the U.S. This quarter marked the addition of a new chapter for Ria. We continue to build on the existing momentum of the core business plus we are adding domestic money transfer now with Walmart, the world’s largest retailer, our business-to-business money transfer option to our pending acquisition of HiFX and a new online money transfer service. Ria continued to have a very healthy core business. And with the addition of HiFX and Walmart combined with our investment into digital, we are excited to continue to build Ria -- to build the Ria of the future and to expand its opportunities for growth. Now let's move on to Slide #24, it'll wrap up the core. Well, we delivered cash EPS of $0.46, a 21% increase over first quarter last year. We announced 2 new exciting agreements, the acquisition of the account-based money transfer provider, HiFX, and our partnership with Walmart, to power the Walmart-2-Walmart money transfer product. EFT had an outstanding quarter, driven by continued growth of our ATM networks, strong demand for our value-added services and additional cards under management. epay results were impacted by continued declines in Australia and Brazil, largely offset by continued non-mobile growth. Ria entered a new era marked by its strength of its core business, it's entry into the domestic money transfer and large retail and by the pending acquisition of HiFX, a B2B money transfer service. Our balance sheet, as usual remained very strong with great cash flow generation. We amended and expanded our credit facility. The increased facility respects -- I'm sorry, reflects again the strength of our earnings performance and our financial position. Finally, we expect Q2 2014 adjusted cash EPS to be approximately $0.57 assuming consistent foreign exchange rates. With that, we will be happy to answer your questions. Operators, will you please assist?

[Operator Instructions] Our first question is from Mike Grondahl, with Piper Jaffray.

And I just got a question on each division here. But the first one, EFT, the operating margin clearly expanded more than what we envisioned. It was up about 700 bps, year-over-year. And you mentioned this $1.5 million kind of 1x fee. Can you talk about, is that recurring at all? And what else is really driving that large margin improvement?

Okay. So that was a big one, and that's a bit of a shift. So let me take out that contract work. That contract had some -- basically, it had lower transaction revenues until you reached a certain quantity of total transactions for the year, and then a higher rate would kick in. Well, because we've been continually growing transactions in that market under that contract, it was interesting, in the old days we probably hit that higher pricing tier in the fourth quarter; and every year, with growth in transactions that pricing tier kept be -- kept it moving forward. This year, it just barely made it into Q1, so we were able to bring an additional $1.5 million of revenue in the first quarter. Which I guess, you could say, if we didn't grow from last year would be -- would mean that we would kind of sacrifice the following quarters. Basically, robbing Peter to Paul, in subsequent quarters of Q3 and Q4. However, why we're excited about this is, the reason that it did hit Q1 is because we continue to grow those garden transactions. So we were off to a great start with that quarter. So if I were you I'd probably be trying to compare apples-to-apples. Rick, you can correct me, but if you kind of take the $1.5 million out than you could a little bit closer to last year's numbers, right?

And it is recurring.

And well it's recurring in the fact that the contract's going. And if we continue to do this big numbers, we will hit that same threshold early next year, as well. So you'll see it, so next year will kind of match this year. It was a like a 1x deal that just came in and then disappeared.

And Mike, I would add that the other opportunities that gave us nice margins in the EFT segment was, again, continuation of good value-add product. Continuation of growth and profitability of our ATMs -- as we mentioned the Indian brown label ATMs that we deployed in the fourth quarter continued to ramp-up nicely and they are going to be -- they're exiting in first quarter, going into second quarter with a incremental contribution to operating margin. So it's a number of events. We called out that one particular item, but there is a number of other things in there, that just a dynamic or fundamental improvements in the business that contribute to those results.

Okay, okay. And then, in epay, how do you want us to sort of think about revenues there for the year? I guess, this is the second quarter, the mobile side was probably a little bit weaker, and the non-mobile side offset that but it really didn't lead to growth. And Mike, you said something about sort of flattish and whatnot, can you just help us a little bit with the revenue, some comments? And just margins -- but margins were fine.

If you just kind of analyze the segment, last quarter, Q4, about 40% of our gross margin was delivered by non-mobile product, and somewhere like around mid-30s-ish for the whole year-over-year, okay? So like you're seeing here, as we continue to grow our non-mobile content, we got nice margins on that. And -- but what you finding is that tends to make us that much more seasonal. So where you're seeing other folks, who focus mostly just on the non-mobile content, you see there might be 60% of their business in the last quarter. We're not nearly to that point yet because we've got this still strong mobile, but you're going to see a lot more action on the latter half of the year than the first half of the year in the epay segment, just because of the shift into more and more non-mobile and as we launch more and more non-mobile products -- like this, Google Play, across 3 new markets we just mentioned. We got 3 more markets, I think we need to get it to -- isn't that right, Kevin? In the next 90 days or so. That tends to continue to help us.

Okay. And 1 follow up on that. Did gross margin dollars grow? I think in the fourth quarter, you said there were up 5% even though revenue wasn't.

They were pretty flattish, Mike.

Okay. And then, just lastly guys, how do you think about the operating income in money transfer kind of trending the rest of the year from this low point in 1Q?

I'll explain -- ask your question a little bit differently? I'm not quite sure I follow you, Mike.

Sure. In the money transfer division, operating income was really weak at $3.9 million; you had the charge and some of the Walmart expenses and whatnot, and the Ria online expenses. I assume that operating income sort of bounces back and trends back, but how do you guys see that?

Yes, we will see a recovery in operating income in the money transfer division. As we said, we've got some pretty good sized investments that we've made there. And we expect those investments will be contributing towards the numbers, especially, as we move in the second quarter, and then, obviously, throughout the balance of the year, Mike.

And our next question is from Peter Heckmann with Avondale Partners.

Another question on the prepaid side. Is there a way to think about prepaid? I think one of the things that investors struggle with is not only is the mobile and non-mobile, but it's also the varying ways of revenue recognition in terms of gross versus net. And you mentioned in the press release that cadooz voucher sales were down a bit. If I remember correctly, those are the ones that are recorded at face value. How is that dynamic impacting some of the optics within the prepaid? And is there a way that -- or is there a better way to kind of think about prepaid -- it -- normalizing for these different methods of revenue recognition, kind of looking at more like on an net to Euronet basis? Maybe that is just a gross profit basis, but can you talk about how that dynamic of revenue recognition might be impacting the revenue growth as well?

Yes, Pete, I think it had a little bit of impact this quarter. But I'd say, on the balance, it's not having that much distortion in the process. It's a little bit in there. You are right. It's sometimes -- it kind of discuss that through that to the net revenue or to the gross profit kind of a number there. But I don't think it's that much in the grand scheme of the map. And as Mike said, as we kind of take a look forward here, we are expecting epay to pretty much hold its own, if you will on a year-over-year basis as we go forward. And as we get into the fourth quarter, we expect to see a little bit more bump because of the strength of the non-mobile product coming in there. But I don't think that cadooz stuff is doing too much to cause distortion at this point.

Okay, okay, that's helpful. And then, so the investments within money transfer appear to be roughly $3 million. And I would assume that there is some carry on costs in terms of upfront merger integration, as well as support for the Walmart-2-Walmart deal. But if I heard you correctly, so we would expect to see money transfer absolute dollar operating income bounce back, or begin to leverage these investments in the back half? And then, in terms of just maybe getting into some of your thought process for ramp, but over the next 4 quarters kind of directionally, where are we thinking of money transfer operating margins kind of coming out? At the same margins levels we are seeing over the last 3 or 4 quarters or...?

Well, Peter, I don't know the exact numbers. But, obviously, we have several Q1 events for money transfer are in kind of non-repeatable. We had that startup costs with the Walmart stuff. And now a days, with new guests [ph] you can't -- you expense your acquisition expenses when you do -- whether you did the acquisition or not, at the time. So that's kind of the high effects thing won't repeat. And then that write-off with that one single retailer's $1.5 million loan repeat. So then, I think it's the repeatable in there, as only the money that we're spending on Ria digital and in our whole digital strategy. So that's good. And then, you've already seen the ramp-up that I don't include in any of that, which would be just the ramp-up of our staff to handle the Walmart-2-Walmart product, so that will continue. But the nice thing is 3 of those expenses that contributed to lower margins in Q1 aren't repeatable. So we would expect our margins to continue to expand nicely through the year, especially, as we see this new Walmart-2-Walmart product continue. So we just don't know what those numbers are going to be. But it will certainly add a very nice profit, we believe, for the segment.

Okay, that's helpful. And then last question, I'll get back in the queue. Can you kind of talk about your thoughts in terms of owned ATM climate for the year in terms of giving us some sort of probable range?

Well, we've been -- this is my same key of answer, but it has on the every phone call for the last, like 10 years. Or at least the last 3. We don't know how many ATMs we're going to be assigning in outsourcing or APP deals like Romanian deal. We just don't know because they're outsourcing our hard deals to sign a very long close cycle. There is a lot of politics involved. So it's hard to estimate that. So for that reason, we've never put -- we -- when we show you our guidance for the next quarter, we don't put anything in there for an unsigned, unimplemented deal. So I can't tell you for sure. I imagine it will continue to get them like we have been. But for sure, when it’s in our power, we're going to try to put it in as many well-placed ATMs as we can that can be profitable for us. And we told you that our goal for this year is 1,500 more ATMs. I'd like to hit that goal. It would be great if we can even beat that goal. But it is a ATM-by-ATM battle. You just would not believe the headaches it takes to put an ATM and you got to negotiate with the tenants, then with the landlords and with the municipality for rights to change the facade of, a lot times, these historic downtowns. You got just -- it's just a fricking hassle, but the nice thing is, last year, we put in down here 2,000 ATMs, then everyone of those was the ATM-by-ATM battle. So we got the staff on hand. We know how to win those battles. But I'm not telling you, it's get any easier. But we got our goal, and we've got the staff and we want to put them in.

And our next question is from Chris Shutler with William Blair. Christopher Shutler - William Blair & Company L.L.C., Research Division: So I want to start with epay, as well, if you don't mind. So Mike, I was just hoping if you could give us, just stepping back kind of State of the Union in that segment. I mean, specifically, Australia and Brazil, I mean, those continue to be drags. Just maybe review for us what's going on there, how big those geographies are today as a percentage of total profitability in the segment? Just to get a sense of how much additional drag there is from here?

I think I'll have Rick try to figure what percentage of our total profit is, Australia and Brazil together?

Out of the -- out of our consolidated operating income, it is in probably about the 6-ish percent range.

And also, it's you're asking what can you perceive? You'll notice that Rick called out that those 2 currencies really took a -- really took a headbutt over this last quarter. So it's not just loss of business, but when you see your currency is bad, and then we have to translate all that back into dollars, where we're fighting a headwind there. Christopher Shutler - William Blair & Company L.L.C., Research Division: Yes, understood. But as a percentage of the -- I guess, just thinking about the segment overall, since you called out those 2 as the drag in the quarter, how big are those as a percentage of the segment?

Well, let's see. Of the segment here, they would be -- let's see...

He will be calculating. Christopher Shutler - William Blair & Company L.L.C., Research Division: Okay, that's fine.

It's around 10%, I think.

I got the number on top of my head for consolidation, but let me just kind of -- for the full year, it might be around, a little north of 10% a little bit, but less than 15%. Christopher Shutler - William Blair & Company L.L.C., Research Division: Okay, got you. And not to beat a dead horse here, but I mean, is there any sign of that pressure abating? Because obviously, we're seeing good growth on the non-mobile side, I'm just trying to figure out if you see stabilization?

Maybe Kevin can comment a little bit on Brazil. On Australia, we do have some good things coming. I mean we have that transport product that's rolling out now nicely. In fact, they've put in 300 locations now, and going to grow to a lot. Maybe Kevin will be the best guy to give the color on that?

Yes, Christopher, what we've said in the past is Brazil was impacted by shift in mobile operator strategy. As of now, we don't anticipate that if the mobile operator is going to reposition themselves, but there is some discussion about it. So we haven't given up on Brazil, but it's going to be -- continuing to be a tough fight. In Australia, it's the result of mobile operators going direct to consumers. That's a bit unique to Australia, because of high credit card penetration in Australia. We're trying to offset that with more and more non-mobile products in Australia.

And why don't you talk about the transfer projects?

In the transport project, again, as we described before, we are closely aligned with the government. The Australian government is rolling out a card, somewhat what you see in the U.K. with the Oyster card, it's a trap, it's basically a card that every consumer in Australia will hopefully use for public transportation, and we'll be -- epay will be the load point for all those cards that would to be loaded with cash.

That should give us nice boost in there. Christopher Shutler - William Blair & Company L.L.C., Research Division: Okay. And then, in the EFT, it sounds like your commerce had some nice implementations in the quarter. So as you look at the implementation timelines, Mike, and where you're seeing this year relative to last -- I mean, are -- is there -- is that kind of on track to meet your projections for incremental operating income there in '14?

I think that they have -- the nice thing is, they signed about everybody we wanted them to sign last year. But the signatures were quite a bit later in the year than we originally expected. So by time you rolled them out, and you start to see the revenues start to flow in, it was delayed. So -- but the nice thing is all the ones that we did get rolled out late in Q1, we're going to start to see the revenues in the next 3 quarters. So these guys still have the potential to do okay for us, they're little there. They didn't meet their internal projections, a little slower than what we would -- we had hoped originally. But I still think they're going to be about definitely a value -- valuable asset to the company. And it allows us to talk, again, chains of retailers, chains of people on a much bigger scale than we would have otherwise. You saw that we've got those 3 very high-profile hotel chains in Singapore. We're going to those same hotels in other places in Asia to try to do the same kind of things. So I think it's all going to work out. Christopher Shutler - William Blair & Company L.L.C., Research Division: All right. And then...

But they're actual revenue contribution in Q1 was not much. What we did do -- finally, fricking -- is we got them all, we got all these darn terminals lit up, because Christmas was over and everybody could pay attention to us. So now it's time to make some money. Christopher Shutler - William Blair & Company L.L.C., Research Division: Got you. And then, just final one in money transfer, kind of following up on some other previous question there. Can you call out the kind of the nonrecurring? Because you talked about the $1.5 million of customer acquisition costs, I know digital is kind of recurring expense. So how much, to the extent possible, of the aggregate can a Walmart and some of the acquisition-related stuff, was that? Or is there a better way to think about what will Walmart be in Q2?

Well, let's see, Pete, we're trying to be -- sorry, Chris, it's about -- I mean, this the second time, I'm calling you... Christopher Shutler - William Blair & Company L.L.C., Research Division: No problem.

I think your much better looking than Pete.

We're trying to be a little careful about, well, we say or don't say with respect to exact with the Walmart numbers because it's just too early to kind of tell. But I would tell you that the 3 of those particular items exceeded -- they exceeded $2 million. And I would tell you that the -- certainly, we're going to continue to have expenditures moving forward in the digital space. But at some point, we expect to see volumes come forward with that. And we will continue to have expenditures at and even increasing expenditures to support the Walmart-2-Walmart rollout. So those expenses are going to go away. What will go away is the expense related to acquisition type of stuff. So we tell you the kind of nonrecurring acquisition-related expense and that write-off that we had, the $1.5 million, it won’t be there, and probably another $0.5 million or other stuff won’t be there. So out of the total operating cost of this quarter about $2 million, probably, will not recur. The other parts related to digital and the Walmart-2-Walmart will continue, as those products ramp-up and rollout.

And our next question is from Mike Grondahl with Piper Jaffray.

A couple of new developments in the quarter, for example, the Orlen, the fuel stations in Poland, what's the opportunity there with ATMs? I mean, how many units could that be?

There -- I don't remember the number on the top off my head, Mike. I think it's several hundred. And as far as the -- but I'm not -- I can't remember that. No, hold on a second, I think we found some. I don't know. Maybe we'll just say conservatively 100 now, and then I'll update you in the next quarter. It is the -- it's the biggest gas station chain in Poland. But I think we're able to kind of pick and choose which ones that we go into. Maybe that's why I'm thinking several hundred and only 100. But it's kind of a new channel for us. We were able to [Technical Difficulty]

[Operator Instructions] Ladies and gentlemen, thank you for your patience. That does conclude the conference. Thank you, all. You all have a great day.