News

eFunds acquires Evergreen, announces earnings

July 25, 2002

SCOTTSDALE, Ariz. -- eFunds Corporation (Nasdaq: EFDS) has purchased another ISO, California-based Evergreen Teller Services.

The purchase price for Evergreen, which has more than 1,600 ATMs mostly located in California and the northwest United States under contract, was $9.4 million. With this acquisition, eFunds says it has approximately 14,300 ATMs in all 50 states and Canada under management.

Evergreen is eFunds' fourth ATM acquisition in less than a year, following Access Cash in October of 2001, Hanco Systems in February of 2002 and Samsar ATM Company last May. (See related story eFunds across America?)

According to a news release, eFunds plans to consolidate the Evergreen ATM network into its Access Cash business over the coming months and plans to continue to look for acquisition candidates.

Gus Blanchard, chairman and CEO of eFunds, said in a news release, "eFunds continues to believe there is untapped opportunity in ATM services and merchant processing among networks, financial institutions and retailers. We intend to expand the terminal network, and at the same time, improve the profitability of the machines already deployed."

eFunds anticipates that the consummation of the transaction will contribute incremental revenues of approximately $7 million during the balance of the year. As reported in a conference call earlier this morning, the Evergreen acquisition added $1 million in revenue during eFunds' second quarter.

The company's ATM Management Services segment, as its ATM business is called, contributed $27.5 million in revenues during 2002's second quarter, up from $18.3 million in 2001's second quarter. Operating income increased to $2.1 million, up from $870,000 last year, while corresponding operating margins improved to 8 percent from 5 percent a year earlier.

Total eFunds net income for the quarter was $3.9 million, or 8 cents per diluted share, on revenues of $133 million. The results included $10.4 million in restructuring and other pre-tax charges, as well as the pre-tax benefit of the reversal of $5.5 million in accruals for receivables allowances ($2.5 million) and performance-based employee compensation ($3 million) that existed at the beginning of the quarter.

Excluding the $10.4 million charge, net income was $11.2 million, or 24 cents per diluted share. Excluding the restructuring and other charges and the benefits recognized from accrual reversals of $5.5 million, net income would have been $7.4 million, or $16 cents per diluted share.

Based on the results, eFunds is increasing its guidance on earnings for the year to $527 million to $542 million, up from the $520 million to $535 million it had predicted on June 5. The company increased its earnings per diluted share forecast to 65 cents to 80 cents, up from 55 cents to 80 cents.

The ATM business was the focus of several analysts' questions during the conference call. Responding to one such question, Mick Spilsbury, eFunds' new senior vice president of product management, acknowledged that both the company's ATM and electronic payment businesses were under a great deal of downward price pressure.

Spilsbury said a key part of eFunds' ATM model is the significant cost savings it gains by taking over the transaction processing of the portfolios it acquires. "The key dynamic is to take the processing away from wherever it is and bring it in-house," he said, noting that processing costs fall to about 3 cents per transaction on the eFunds' platform, versus about 8 cents if processed on another platform.

The conversion process is becoming easier with every ATM acquisition, Spilsbury added.

Responding to another analyst's question, Spilsbury said that both branding and the distribution of new products, two areas often mentioned in the same breath as ATM deployment at eFunds, constitute a small part of the company's revenues to date.

However, he added, "They're the gravy on the top of our core transaction processing, and the margins on that gravy are pretty high because we've already invested in the real estate and the infrastructure."

Both Spilsbury and Blanchard alluded to possible ATM opportunities in non-U.S. markets.

"We're always looking for opportunities to expand our presence internationally," Blanchard said. "The independent ATM deployment game as played by international sales organizations is played in many parts of the world."

Spilsbury mentioned eFunds' ability to provide switching capabilities to independents in Europe and elsewhere. "We recognize that we have new business opportunities to explore, and that may be one of them," he said.

Tom Hannon, who sold his Hanco Systems to eFunds last February, in the past year has established two ISOs in Europe, Hanco ATM Systems in the UK and Hanco International ATM Ltd in Ireland. (see related story European expansion for Hanco)