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Euronet Q2 net income slips

23 July 2007  |  1412 views  |  0 Source: Euronet Worldwide

Euronet Worldwide (NASDAQ: EEFT), a leading electronic payments provider, today announced its second quarter 2007 financial results.

A significant factor in Euronet's second quarter results was its acquisition on April 4, 2007 of Ria Envia Inc. ("RIA"), the third-largest global money transfer company. Commencing in the second quarter, Euronet included the results of RIA in its consolidated financial statements, together with the related equity and debt issued to complete the acquisition. RIA's operating results are reported below under the newly established Money Transfer Segment.

Euronet's second quarter 2007 financial highlights included:
  • Consolidated revenues of $237.1 million, compared to $153.8 million for the second quarter 2006.
  • Adjusted EBITDA of $30.4 million, compared to $21.3 million for the second quarter 2006.
  • Operating income of $15.9 million, compared to $12.2 million for the second quarter 2006.
  • Net income of $8.6 million, or $0.17 diluted earnings per share, compared to net income of $11.1 million, or $0.28 diluted earnings per share, for the second quarter 2006.
  • Diluted cash earnings per share of $0.29, compared to $0.29 for the second quarter 2006 (see reconciliation of diluted cash earnings per share in attachments.)
  • Transactions of 310.9 million, compared to 221.4 million for the second quarter 2006.


Segment and Other Results

As previously stated, beginning in the second quarter 2007, Euronet reported the results of RIA as a separate business segment, the 'Money Transfer Segment.' This segment also includes the company's existing money transfer business, which was previously included in the Prepaid Processing Segment. The Segment results reported below have been restated for prior periods to reflect the existing money transfer business in the Money Transfer Segment and the combination of the EFT Processing and Software segments for comparative purposes. These restatements were for comparative purposes only and had no impact on Euronet's consolidated results.

The EFT Processing Segment reported the following results:
  • Second quarter 2007 revenues of $45.7 million, compared to $39.6 million for the second quarter 2006.
  • Second quarter 2007 adjusted EBITDA of $13.2 million, compared to $12.3 million for the second quarter 2006.
  • Second quarter 2007 operating income of $9.2 million, compared to $8.8 million for the second quarter 2006.
  • Transactions processed for the second quarter 2007 of 146.9 million, compared to 113.6 million transactions processed for the second quarter 2006.


The EFT Processing Segment completed the quarter with 9,858 ATMs owned or operated compared to 7,866 ATMs at the end of the second quarter 2006. The year-over-year improvements in revenue, operating income and Adjusted EBITDA were primarily attributable to a 25% increase in ATMs under management together with the related transactions processed over those and other ATMs under management. Expansion over the prior year of the EFT Processing Segment's adjusted EBITDA and operating income was partially offset by continued investments the Company has made to position itself for expanding card processing opportunities across Europe, investments to expand in additional Eastern European markets and the effect of certain rate concessions granted by the Company in prior periods to extend contracts through 2011.

Euronet owns and/or operates ATMs in Hungary, Poland, Germany, Croatia, the Czech Republic, the United Kingdom, Greece, Romania, Slovakia, Albania, Serbia, Montenegro, Ukraine, India and China.

The Prepaid Processing Segment reported the following results:
  • Second quarter 2007 revenues of $142.2 million, compared to $113.4 million for the second quarter 2006.
  • Second quarter 2007 adjusted EBITDA of $13.7 million, compared to $12.2 million for the second quarter 2006.
  • Second quarter 2007 operating income of $9.9 million, compared to $8.7 million for the second quarter 2006.
  • Transactions processed of 160.2 million in the second quarter 2007, compared to 107.7 million processed in the second quarter 2006.


The year-over-year improvement in revenue was primarily attributable to organic transaction growth as well as the benefit from the first quarter 2007 acquisition of a U.K. based prepaid processing company that contributed approximately 10% of the segment's revenue growth when compared to the second quarter of last year, but had a minimal impact on the segment's operating income.

The Prepaid Processing Segment processes electronic point-of-sale prepaid transactions at approximately 358,000 point-of-sale terminals across more than 183,000 retailer locations in Europe, Asia Pacific, Africa and the U.S.

The Money Transfer Segment reported the following results:
  • Second quarter 2007 revenues of $49.2 million, compared to $0.8 million for the second quarter 2006.
  • Second quarter 2007 adjusted EBITDA of $6.2 million, compared to negative ($0.5) million for the second quarter 2006.
  • Second quarter 2007 operating income of $1.4 million, compared to negative ($0.6) million for the second quarter 2006.
  • Transactions processed of 3.8 million in the second quarter 2007, compared to 0.1 million processed in the second quarter 2006.


"I am very excited about this quarter's addition of RIA to Euronet's EFT and Prepaid Segments," said Michael J. Brown, chairman and chief executive officer, Euronet Worldwide Inc. "In just the first three months of our ownership of RIA, we have made significant progress towards integrating Euronet's Veloz business with RIA, cross-selling prepaid products through RIA agents and stores, cross-selling our money transfer product through prepaid retailers and expanding RIA's payout network through the EFT Segment's banking relationships across the globe. While we were disappointed to see a weakening of growth in transfers to Mexico before we closed on the acquisition, we have seen a consistently improving trend since February. More importantly, however, RIA saw second quarter 2007 transactions sent from non-US locations grow 68% over those of the second quarter 2006. These high growth rate international markets match up very nicely with our prepaid markets and were very key to our decision to acquire RIA. RIA's an exciting business and I believe we are off to a great start with this initial quarter's results."

Corporate and Other had $4.6 million of operating expenses for the second quarter 2007, compared to $4.7 million in the second quarter 2006. This small decrease is attributable to share-based compensation.

Euronet's interest expense for the second quarter 2007 was $7.7 million compared to $3.7 million in the second quarter of 2006; while total indebtedness was $568.8 million as of June 30, 2007 as compared to $353.5 million as of March 31, 2007. The Company's unrestricted cash on hand was $282.3 million as of June 30, 2007 as compared to $419.5 million as of March 31, 2007. The increases in interest expense and total indebtedness and the decrease in cash were directly applicable to Euronet's financing to complete the acquisition of RIA.

Euronet also announced that it expects cash earnings per share for the third quarter 2007 to be approximately $0.31 to $0.32 per share.

We believe that adjusted EBITDA and cash earnings per share provide useful information to investors because they are indicators of the strength and performance of our ongoing business operations, including our ability to fund capital expenditures, acquisitions and operations and to incur and service debt. These calculations are commonly used as a basis for investors, analysts and credit rating agencies to evaluate and compare the operating performance and value of companies within the payment processing industry.

The Company's management analyzes historical results adjusted for certain items that are non-operational, not necessarily ongoing in nature or that are incremental to the baseline of the business, and management believes the exclusion of these items provides a more complete basis for evaluating the underlying business unit performance.

Adjusted EBITDA is defined as operating income excluding depreciation, amortization and share-based compensation expenses. While depreciation and amortization are considered operating costs under generally accepted accounting principles, these expenses primarily represent a non-cash current period allocation of costs associated with long-lived assets acquired in prior periods. Similarly, the expense recorded for share-based compensation does not represent a current or future period cash cost.

Cash earnings per share is defined as diluted GAAP earnings per share excluding the impacts of a) foreign exchange gains or losses, b) discontinued operations, c) debt restructuring charges, d) share based compensation, e) tax-effected intangible asset amortization and f) other non-operating or unusual items that cannot be accurately projected.

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