Euronet swings to Q2 net profit

Euronet reports the following consolidated results for the second quarter 2011:

• Revenues of $279.8 million, compared to $244.2 million for the second quarter 2010.
• Operating income of $18.8 million, compared to $16.5 million for the second quarter 2010.
• Adjusted EBITDA(1) of $37.4 million, compared to $32.6 million for the second quarter 2010.
• Net income attributable to Euronet of $11.9 million, or $0.23 diluted earnings per share, compared to a loss of $1.5 million, or $0.03 diluted loss per share, for the second quarter 2010.
• Adjusted cash earnings per share(2) of $0.35, compared to $0.30 for the second quarter 2010.
• Transactions of 503 million, compared to 406 million for the second quarter 2010.
• See the reconciliation of non-GAAP items in the attached financial schedules.

Euronet Chairman and Chief Executive Officer, Michael Brown, said "Our business has proven to be adaptable by quickly overcoming more than $15.0 million in annual operating income impacts of the previously announced Polish and German ATM rate changes. Our success in developing and selling value added products, renegotiating contracts with service providers and expanding in new markets, combined with the strengthening of currencies of the countries where we operate, resulted in all segments contributing to double-digit percentage improvements in cash EPS, revenues, operating income and adjusted EBITDA over the prior year."

Euronet generates over 75% of its revenue from non-U.S. operations. The results for the second quarter 2011 reflect the strengthening of foreign currency exchange rates to the U.S. dollar when compared to the second quarter 2010. Applying the average foreign currency exchange rates of the second quarter 2010 to the second quarter 2011 consolidated results, revenues, operating income and adjusted EBITDA would have been lower than reported amounts by $26.2 million, $2.8 million and $4.0 million, respectively, resulting in year-over-year increases in revenues and adjusted EBITDA of 4% and 2%, respectively, and a year-over-year decrease in operating income of 3%.

Segment and Other Results

The EFT Processing Segment reports the following results for the second quarter 2011:

• Revenues of $50.4 million, compared to $46.5 million for the second quarter 2010.
• Operating income of $9.2 million, compared to $8.2 million for the second quarter 2010.
• Adjusted EBITDA of $14.5 million, compared to $12.7 million for the second quarter 2010.
• Transactions of 233 million, compared to 197 million for the second quarter 2010.
• ATMs operated of 12,058 as of June 30, 2011, compared to 10,408 as of June 30, 2010.

Applying the average foreign currency exchange rates of the second quarter 2010 to the second quarter 2011 results, revenues, operating income and adjusted EBITDA would have been lower than reported amounts by $4.6 million, $0.9 million and $1.4 million, respectively, resulting in a year-over-year decrease in revenues of 2% and increases in operating income and adjusted EBITDA of 1% and 3%, respectively.

In less than a year, the EFT Processing Segment overcame the Polish and German ATM rate changes that reduced annual operating income by over $15.0 million. This recovery was driven primarily by developing and selling value added products, renegotiating contracts with ATM service providers, expanding into new markets and increasing ATMs under management.

Transaction growth of 18% was primarily attributable to the Company's European cross-border, Indian Cashnet and Polish operations.

The epay Segment reports the following results for the second quarter 2011:

• Revenues of $156.5 million, compared to $137.6 million for the second quarter 2010.
• Operating income of $13.5 million, compared to $9.6 million for the second quarter 2010.
• Adjusted EBITDA of $17.9 million, compared to $13.4 million for the second quarter 2010.
• Transactions of 264 million, compared to 204 million for the second quarter 2010.
• Point of sale ("POS") terminals of 588,000 as of June 30, 2011, compared to 515,000 as of June 30, 2010.
• Retailer locations of 276,000 as of June 30, 2011, compared to 241,000 as of June 30, 2010.

Applying the average foreign currency exchange rates of the second quarter 2010 to the second quarter 2011 results, revenues, operating income and adjusted EBITDA would have been lower than reported amounts by $16.8 million, $1.4 million and $1.8 million, respectively, resulting in year-over-year increases in revenues, operating income and adjusted EBITDA of 2%, 26% and 20%, respectively.

Revenue and profit expansion in the epay Segment was driven by non-mobile products, the acquisition in Brazil and transaction increases in most markets driven by customer additions and increased demand for mobile and non-mobile products. These improvements more than offset transaction declines in the U.K. and Australia, which were mostly driven by economic and competitive pressures and lower cost call plans. The 29% year-over-year increase in transactions was mostly the result of growth in markets where the revenue per transaction is low but have strong contributions to gross profit. The 26% increase in constant dollar operating income was driven by transaction growth, non-mobile products, the September 2010 acquisition in Brazil and lower operating costs.

The Money Transfer Segment reports the following results for the second quarter 2011:

• Revenues of $73.0 million, compared to $60.1 million for the second quarter 2010.
• Operating income of $5.0 million, compared to $4.2 million for the second quarter 2010.
• Adjusted EBITDA of $10.0 million, compared to $9.2 million for the second quarter 2010.
• Total transactions of 6.0 million, compared to 5.3 million for the second quarter 2010.
• Network locations of 133,000 as of June 30, 2011, compared to 104,000 as of June 30, 2010.

Applying the average foreign currency exchange rates of the second quarter 2010 to the second quarter 2011 results, revenues, operating income and adjusted EBITDA would have been lower than reported amounts by $4.8 million, $0.5 million and $0.8 million, respectively, resulting in year-over-year increases in revenues and operating income of 13% and 7%, respectively, and no change in adjusted EBITDA.

Transactions grew in all originating markets, and included a 22% increase in European and other foreign country transfers and a 32% increase in non-money transfer transactions, such as check cashing and bill payment. However, operating cost increases for store and agent expansion and marketing incurred for product launches tempered the growth in profitability.

Corporate and other had $8.9 million of expense for the second quarter 2011 compared to $5.5 million for the second quarter 2010. The increase in year-over-year corporate expense is attributable to higher stock and incentive compensation accruals.

Balance Sheet and Financial Position

The Company's unrestricted cash on hand was $225.5 million as of June 30, 2011, compared to $220.7 million as of March 31, 2011 and total indebtedness was $295.6 million as of June 30, 2011, compared to $294.1 million as of March 31, 2011.

Guidance

The Company currently expects adjusted cash earnings per share for the third quarter 2011 to be approximately $0.37, assuming foreign currency rates remain stable through the end of the quarter.