環匯 (GPN) 2003 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Global Payments teleconference call. At this time, all lines are in listen-only mode. Later, we will have a opportunity for questions and answers, with instructions given at that time. If you should require assistance during the call, press zero, followed by *. Your conference call today is being recorded. I would like to turn the conference call over to your host, president and CEO, Mr. Paul Garcia. Go ahead, sir.

Thank you. Good morning and welcome to Global Payments conference call for first quarter of 2003. Joining me as always, Jim Kelly, CFO, and Jane Forbes, investor relations. I want to remind you some of the comments made on this call may contain forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

While these statements reflect our best current judgment, they are subject to risks and uncertainties that could cause actual results to vary. These risks and uncertainties are discussed in detail in our 10-K. For the agenda. The agenda for the call follows. I will give an overview of first quarter results, review trends we observed during the quarter and discuss recent events. Then Jim will discuss the financial results in detail and review the integration status of last year's acquisitions. I will then talk about 2003 outlook. Lastly, we will have a question-and-answer session. For norm normalized Q1 results.

We reported strong results for first quarter ended August 31, 2002. Revenue grew by 15% to $128 million, resulting in net income of $14.6 million for 14% increase over prior year. Diluted earnings per share grew by 15% to 39 cents. This growth was partially due to inclusion of full quarter of results from our National Bank of Canada portfolio acquisition.

Our CIBC and imperial portfolio acquisitions have annualized. In response to requests from many of you for more information, we are now explicitally reporting our organic growth rate, excluding impact of national bank acquisition, organic revenue growth for the quarter was 7%. In addition, our organic revenue reflects low teen growth in the direct channel, offset by declines in indirect and funds transfer channels. Additionally, we reported free cash flow growth of 21% to 21.2 million dollars for the quarter, up from $17.6 million last year.

Now, for Q1 trends. Our domestic direct transactions during the quarter grew in the high teens. This organic transaction growth compares favorable to market trends, which demonstrates we are gaining market share in both domestic direct and ISO channels. In addition, average ticket in spread remained stable over the quarter. We believe that this is a result of our diversified mid-market segmentation, as well as our success in the small merchant markets through ISO partners.

Our Canadian transactions for the quarter continue to grow in low to mid-teens. In addition, our average ticket in spread have held constant. We continue to further penetrate the Canadian market and successfully cross between VISA and MasterCard portfolios. Since our cross-selling initiatives began, we have commitment to approximately $1.6 billion in new annual process file. Further, we estimate an opportunity of $3.4 billion in additional processed volume is available in the Canadian market through the cross-selling initiative.

Many of you have asked about revenue split between processed dollar volume and transactional-based revenue. We believe this to be approximately 50/50. In other words, 50% representing processed dollar volume, based revenue. 50% representing transactional-based revenue. Transactional revenue includes fees charged per transaction, plus monthly merchant fees, statement fees and equipment revenue, as well as all other fees that do not relate to process-dollar volume. This 50/50 split was calculated using total company revenue and reflects strategy with respect to our billing methods across the business units. Our split is another example of why we believe we are insulated from the unfavorable impact of possible slow economic growth.

Moving to recent events. We continue to make significant advances in development of ISO sales channel. To that end, we signed two new ISO agreements with Healthcard and on-line Services, which has potential to generate several thousand merchant contracts per quarter. Our U.S. direct sales force is active and has successfully signed thousands of mid-market merchants this quarter. A few of the more notable signings were Ford Field, which is the new Detroit Lions football stadium. Arthur Barren Shoes, a shoe chain. Thomas Kinkaide galleries. Norstram Group, which consists of theme restaurants. Utility Serve, a merchant that supports utilities and (inaudible). Our Canadian sales force continues to cross-sell MasterCard and VISA services. We have signed several thousand small merchants this past quarter.

In addition, we continue to sign larger Canadian merchants, a few of which are Boutique San Francisco, a large retailer based in Montreal. 407-ETR, a toll highway in the greater toronto area, and the Mark James Group, a restaurant chain in Vancouver. We continue to add new check merchants for guarantee and gaming products.

The following merchants represent a cross section of recent signings. Sam Musics, Illumination Stores, Grand Casino, Conquieta and Imperial palace. We continue to grow cash and win through Comerica merchant alliance and added six new Hyatt casinos. We renewed several clients in funds transfer business, Shitnun bank, IND and Swede bank. We continue to be very business in the product area and providing merchants with best in class product support.

We support product releases and also offer connectivity to over 250 third-party vendor applications that enable us to accept most any type of transaction. In summary, we had a very successful quarter. I will ask Jim to review the results in detail.

Thanks, Paul. I will be covering the following. Review of first quarter income statement, comments on cash flow statement and balance sheet, and update on integration of recent acquisitions. For the quarter revenue grew by 15% to $128 million. As Paul mentioned, 7% of this represents organic growth and driven by low teen growth in our direct business offset by declines in indirect and funds transfer businesses. We are defining organic revenue growth as GAAP revenue, excluding acquisitions that have not yet annualized. We have calculated growth by excluding 8.5 million in revenue, that we reported in current quarter as result of the October 01 national bank portfolio acquisition.

Due to our cross-selling efforts and the merging of former CIBC and National Bank of Canada sales force, we are able to estimate the amount to be 8.5 million. Indirect business continues to decline in the high single digits as forecasted. Our funds transfer business declined 15% to 3.1 million, primarily due to scale-back and facility consolidation of U.K. operations announced last quarter. This U.K. business was not profitable during fiscal '02, excluding this impact, funds transfer would have declined in high single digits.

In first quarter of fiscal '03, operating expenses were $102 million, resulting in margin of 19.8%, as compared to 20.4% in the prior year quarter. The first quarter operating margin decline was primarily due to the ongoing investments made in direct and ISO sales channel, increase in ISO business and related impact of growth in commissioned payments to ISOs, which are reported as SG and A expense and nonrecurring conversion costs like duplicate labor relating to national Bank back-end conversion. These expense increases were offset by ongoing implementation of cost reduction and acquisition integration initiatives. Robber

Also in the first quarter, net income grew 14% to 14.6 million, and diluted earnings per share grew 15% from 34 cents to 39 cents, excluding prior year first quarter trademark impairment charge relating to change in accounting principle as described in latest form 10-k. Effective tax rate is 37.4%, as compared to prior year rate of 38.2%, as result of the impact of recent acquisitions and tax planning initiatives.

Our share count decreased slightly from prior year quarter due to impact of out of the money options. Now, for the cash flow and balance sheet. Global reported 21.2 million in free cash flow for the first quarter as compared to 17.6 million for the last year, resulting in a 21% growth. This strong cash flow is due to growth in our direct card business and the National Bank of Canada portfolio acquisition. We are defining free cash flow as net cash from operating and investing activities, excluding business developments and changes in working capital.

During the quarter, we paid off $22 million on our line of credit, leaving us with 150 million of our credit facility availability. During August, however, we drew down $8.5 million for working capital needs primarily to fund U.S. interchange, resulting in debt balance of 8.5 million as of August 31st. As previously discussed, we fund interchange for majority of U.S. merchants during the month. In early September, we collected this interchange and paid down 8.5 million credit facility balance. Our cash flow strategy remains unchanged and is three-fold. First, to pay off debt arising from timing of working capital needs. Second to pursue accretive acquisitions. To continue to make capital investments in our business. Capital spending for the quarter was 5.2 million, primarily for new Canadian service center, purchased and developed software, Canadian merchant terminals, and communication equipment.

We continue to anticipate spending for capital in the range of 15 to 25 million for fiscal '03. The increase in our trade accounts receivable is primarily due to national bank portfolio acquisition and decrease in accounts payable and accrued liabilities was due to timing of income tax payments. Now, turning to acquisition integration update. As stated earlier, we are realizing synergy from acquisitions as we leverage our scale. As I said in the past, we have been focusing our attention on National Bank back-end conversion. I am pleased to say we currently completed first phase of this conversion successfully. We anticipate completing the conversion of all merchants by the end of the month.

In addition, we plan to migrate National Bank's front-end to third-party processor, combining with the VISA portfolio within the next 10 months, taking us down to a single front-end platform for Canadian business. These integration synergies have been factored into fiscal '03 guidance. Paul will now address guidance. Paul.

I will now discuss fiscal '03 guidance based on results and current outlook, we are reaffirming full year revenue guidance of 495 million dollars to $514 million, which is 7% to 11% growth over fiscal '02, with normalized diluted earnings per share of $1.35 to $1.41, 10 to 15% growth over $1.23 EPS for fiscal '02.

We are very encouraged by the trends we have seen in our business and believe we are gaining momentum toward accomplishing long-term performance goals. Also as a reminder, guidance does not factor in impact of potential acquisitions. We are please wide progress over the last quarter and anticipate continued success in the new fiscal year. We are pleased to go to questions.

Ladies and gentlemen, if you would like to ask a question, press the 1 on your touchtone phone. You will hear a tone indicating you have been placed in queue. You may remove yourself from queue by pressing the pound key. Pick up the handset before pressing numbers. A question in cue from the line of (inaudible) from Credit Suisse First Boston. Go ahead, please.

Good morning and congratulations on a great quarter. Just a question on the competitive environment you are seeing out there. I remember last quarter you commented that on the smaller merchants you are dealing with, you had seen lots of that. Is that continuing at this point?

I think the competitive environment is pretty constant. We are seeing the same players after the mid-market and smaller merchants that we have seen. , in the past. The larger merchants, competition gets a little more keen in that area, consequently, spreads from the largest merchant segments continue to be more challenging. That is why we focused on mid-market and through ISO markets, smaller merchants.

Can you just update the relative size of the direct versus indirect business at this point? What the split is and in the merchant service revenues?

80% of the merchant revenues total. 82% is from our direct business.

Okay.

18% from indirect.

Lastly, any changes that you have made recently on either the direct or the ISO channel that have helped boost that growth and particularly on ISO side, I had heard some things about potentially? Changes in your strategy?

Let me address the ISO first. We had a gentlemen that was in charge of all the sales activity that recently departed. That is not a favorable development. He left with our best wishes. He was Hayden Landers. He left to join Great Payments, who he worked for previously. The company is in Tennessee. Hayden is from Tennessee and actually has children from a previous marriage in Tennessee. It worked for his life. We are sorry to see him leave.

The business reports to Jeff McWey, executive vice president and Jeff reports to me. We added recently hired talent to the business. And we are delighted with our ISO sales channel. There is a major show today, as we speak, in satellite Seattle. We were a major sponsor of the show and are there in force. We had a couple of great signings in the quarter and have more in the pipeline. We are delighted with the ISO business.

In terms of the direct, I am probably more pleased with our direct sales efforts than I have been since I have been with the company. We, during the quarter, brought in more fee and discount revenue from direct sales force than we ever have in any previous quarter. What we have in place is starting to work. That is a credit to some new talent onboard and basic locking and tackling, good products, the whole - probably all comes under consideration. We are pleased with that and looking for both channels to continue to drive business.

Great. Thanks. Nice job.

Our next question to the line of John Mathis with Goldman Sachs. Go ahead, please.

Good morning, Paul and Jim and Jane. Quickly, Paul, you touched on it a couple of times and Jim, as well, in terms of acquisition what your appetite is and what they could look like?

We have nothing to announce. We are interested and are pursuing opportunities both domestically and internationally. I would suggest that those are going to be more tactical than strategic in nature. It will be in the payment space. It is business we are currently handling. We are looking for accretive acquisitions in a reasonable time. Other than that, I can't add much.

Likely to be more along the line of bank portfolios or ISOs?

We love bank portfolios. We are looking at those. ISO portfolios can be problematic. As long as you understand what you are getting, which could be an treating asset unless you are looking in ongoing revenue stream from new business, that is problematic for us because we service the ISO community. I don't want to put ourselves in a position to compete with them. So, unless you can buy an ISO portfolio right and understand that it is going to decline without replacing it, we are not as bullish on those.

There are some ISOs who have nearby businesses I think are exceptions to that. There is other payment- type businesses, both in the U.S. and overseas, that are of interest to us, as well.

Okay. And on the indirect side, what efforts are underway there to try to reinvigorate that business?

John, we discussed last quarter the signing of Sears. That isn't a traditional piece of business, it is indirect. It is a buyer of our credit card authorization processing and settlement services. It just happens to be a Sears card as opposed to bank card or debit card. That is good news. We will have a signing of bringing the first merchant up and live for Sears in the next couple of weeks. We have a good pipeline of that business coming. That is good news.

We also continue to stay very close to all of our banks, but that channel is not growing. I mean, unless we find more Sears opportunities, I don't think we can just manufacture interested financial institutions. There are less involvement in the business than there were five years ago and will probably be less five years from now. We continue to be clever and quite frankly, make it a less significant part. You noticed teresa's question, we were 80/20, now we are (inaudible). We continue to make progress.

Strong first quarter. What has this done to your assumptions you had going into the year for revenue and earnings and transaction volumes?

Well, we are pleased with the quarter. But, we are not changing guidance. We are reaffirming guidance for the year. We are not seeing anything making us leap out with new guidance.

And you don't expect the macro conditions to remain stable from here?

Yeah, we are feeling good about our performance in this economy. Obviously if something dramatic happens that affects all of us, all bets are off. What we are seeing in a fairly troubled economy, we are performing very well and are pleased.

Good quarter. Thank you.

Go now to Tony Wibel with Salomon Smith Barney. Go ahead, please.

Good morning and congratulations on a phenominal quarter. Could you comment on on-line debit operations? It has been a while, have you been (inaudible). I noticed a recent study you guys had moved up the rankings as far as number of transactions. Question two is the Sears deal. What size merchant is Sears look tog sign up? One merchant is coming on board, will these be larger merchants or community merchants?

First thing on the on-line debit. We - our debit volume continues on-line debit. Our signature debit we consider it a regular credit transaction. That is a very significant growth area for VISA and MasterCard, in general. We are participating in that.

But, the pin-based debit is growing faster than credit card transactions for us. It is still a small part of what we do. We discussed last quarter I think your question. What are we doing about that? We are using all of our sales forces, whether feet on the street or ISO agents, as well as telesales group to solicit existing and new business for debit applications. We have a number of pre-packaged things that try to take away anybody's objections. For merchant not to accept a debit, understanding the economics is not a good decision. Pretty easy sale, but getting in front of them. To that end, we are approaching 40% increases in the business. So, it is paying off. It is still not huge for us.

The report you are mentioning, they just put that in front of me. I can't comment on it. I will be happy to chat with you separately about that report and the veracity of it. We are gaining. Now, in Sears, the merchants are varying in sizes. They are contemplating very large national merchants, names you will recognize. In fact, their objective is to sign only national merchants with names that you could recognize. They kind of run the gamet. Think noncompetitively, everything from travel and entertainment, hospitality, airlines, personal services, and that is going to be the great preponderance of merchants Sears will sign. We will have a couple up shortly.

Would this first merchant be somebody of a national caliber?

This is probably not the most sexy of the ones we will be signing, but it is a national merchant of personal services type of nature.

Great. Congratulations again.

Thank you so much.

To the line of Dan Pearlman with Legg Mason. Your line is open.

One might when look being at budgeting, we expect to see operating margins kind of expand. Along that same question, how long - just remind me, how long it takes when you sign up an ISO partner for it to be running at what you consider to be full capacity?

This is Jim. In order of your questions, in terms of margin improvement, we continue to work on that as ordinary course relative to acquisition integration, which has helped, as well as other programs. The ISO model is in its nature a bit more expensive than the average for direct business. As a result, I think you will see us within the 18 to 18 and a half percent range we expected for this year. In terms of an ISO up and running quickly, generally there is two types of ISOs that we would sign, those of a larger nature signing 2 to 500 accounts a month. Then, smaller ones.

If we sign a larger one, typically this is a business that has been up and running for some period of time and they are moving toward a new relationship. Generally, once signed, they are a strong producer out of the box.

Okay. And with this new accident I-payments out there, which will probably be a public competitor out there and they are focusing on the ISO market, except more from an acquisition standpoint, are you butting heads with those guys in terms of signing new ISOs?

Dan, this is Paul. I-Payments, (inaudible) have indicated they would like to be a significant customer of ours. In fact, they are giving us business. They have a roll-up strategy. They are not necessarily building any of the things they will be purchasing, core data processing, authorization settlement, customer support. They will be in need of purchasing some or all of those services. They have indicated they are interested in doing it with us. That was another reason that Hayden's departure was with mixed emotions. He will be a significant partner and he left with our good wishes.

Great. Within your key market verticals, which I think there are about eight you guys target. Can you give me some sense of which ones really showed strength in the quarter? Which ones were either showed weakness or were maybe a little bit below what you would have hoped for? I am talking in terms of government, restaurant, universities, things of that nature?

I don't have exact data. We didn't necessarily observe any weakness. Strengths would be pretty much along the lines that we talked about some of the more notable signings. We got City College in New York city, that continues to add. Those are two good type deals. A number of schools are associated with that, from book stores to tuition. That in and of itself moves the needle into the education space. Utility business is a strong vertical for us. We have a program with physicians and are signing a bunch of business. Restaurants continue to be - because of the depth and breath of our restaurant products are strong. We don't measure comp store sales. All we can tell you is our transactions are up, our average ticket is steady. You know, we are seeing everything green lights go to us.

Great. One last quick question in relation to Minaris. Have you taken any customers away from them in the quarter or even right outside of that? It sounds like you are gaining share there. Could you quantify that in some way, shape or form?

I don't know if it has been at their expense. We think they are a good competitor and good people. We have grown. I suspect we are growing a little faster than our competition. By definition, we are probably taking a little from those guys, but can't put my finger on anything at this point.

Thank you very much.

Question from Jeff Baker with US Bancorp Piper Jaffray. Please go ahead.

Great quarter. Paul, my question. If you can give us the linearity of your business as you went threw the quarter? Talking about spending trends and what you have seen in September? I know the average ticket was solid, but can you talk about throughout the quarter how it went?

Jeff, I will try to be as granular as I can. We look at average ticket from various portfolios of business, Comerica, Canada, our direct business, our ISO business. They all held up pretty constant. Our domestic direct average ticket is little bit higher than the Canadian. That may be a function of more mid-market and smaller merchants in that.

It all held up well. You know, we had solid growth along all the portfolios and other than that, I can't give too much insight.

What about specific vertical markets? I mean, obviously airlines and travel related stuff continues to struggle, but outside of that any kind of concentration that you guys may have?

Well, as we discussed earlier, we have a pretty heavy concentration in restaurants, retail, utilities, government, healthcare and we saw good solid growth in all of them. Now, we don't have a lot of TV-type business. We have the e-part, entertainment and travel business. That is getting whacked. We don't have a lot of it, so, overall in all segments, we are seeing nice, solid growth. Once again, just a caveat. I don't want this to fly in the face of what we are reading about the economy. We don't measure comp sales. It is possible we have merchants or lots of merchants who may be down in comp or down in total. Because we are adding new business constantly to that, we measure overall number by portfolio, and they are all up.

I know this is kind of like looking into a crystal ball. But, if purchasing and spending where to come back to normalized levels and those customers of yours that moved from instead of being down on same-store sales basis, if you want to use that terminology, went positive, what kind of growth could you see out of the company?

I have been in the industry for a lot of years. I remember days when your business, you could fire your wholesales force and business would agree at 15%. Just the base business, net of any attrition, would grow through the roof. You know, the bank card revenues are not that robust, but it is possible we could return to the hay-days of pretty good growth. We are recognizing we live in the world we live in. Our growth is going to primarily come from adding new business aggressively.

Good job. Thanks.

A question in queue from the line of Cartik Veyta with Midwest Research.

Couple of questions. I noticed over the last two quarters, more focus on mid-sized merchants. It seems though the names are more familiar. But, as you move throughout the year and maybe into next year, could the fact more mid-sized merchants impact gross margin in any way?

We think mid-sized merchant is a very profitable merchant. We are looking at the biggest guys, 20 to 40 basis points for the 300,000 to a million guys, probably 40 to 50 basis points. For the little guys, you make more. National merchant, you are lucky if you make (inaudible) over interchange are clearly not unheard of. So, I think what you are saying if I am not mistaken is that your mid-market seems to be trending up to larger mid-market guys and does that by definition bring you down?

You know, thousands and thousands of signings, mid-market guys you never heard of, 300,000 in bank card volume. The handful we mentioned are names you heard of, at lower spreads than little guys, but clearly not going to have the impact to cause margins to erode.

Great. Kind of on the acquisition side, seems as though pricing is fairly steep. Would the fact - are there opportunities out there you could see yourself doing that kind of go along with the pricing you would be willing to pay?

Great question n. bake-offs we don't necessarily do as well because of - we are pretty disciplined on having accretive deals. So, we pursue those and in some cases, we may get fortunate. We are not encouraged in those opportunities. There are lots of other ones that are smaller. We bring something unique to the party. The fact we are not a massive competitor with lots of tentacles and markets is appealing. I think CIBC found that very appealing. They liked the fact we are solely focused on this business and liked the team we assembled and brought into our provision. A lot of other people would have liked to have done that deal with national bank of Canada and other deals we have done. There are opportunities out there where our size and focus and the fact we can offer something unique to somebody in a market at a larger competitor may not be able to, encourages us we will be able to do some deals.

Thank you very much.

We have a question in queue from the line of Gary Prestontino from Barrington Research.

Good morning. On some of the new business signings, the small regional markets merchants can you give us a sense, are you taking this share away from the banks, remaining banks that are still processing? I am talking about the smaller regional banks? Or are you taking share away from the larger competitors you have that are non-bank processors? What is the hook that gets the merchant to change to move to you?

I think the answer is both. We are taking from smaller financial institutions that are just kind of not terribly focused on this business and their merchants are prone to sales pitches that will take them away. But, the largest market share belongs to a very tough competitor. We do take some business from them from time to time. And it probably falls into three buckets. A relationship, we spend our time getting to know the customer. Our sales people are everywhere. So, we can say we have been to your restaurant. We have shopped your store. We know what you do and know we can do something better, faster and cheaper.

So, we sell our service, the sales person sells themselves, we sell our product. Lastly, our prices are not too bad. Summary, we are taking business from regional banks and taking business from big guys. They are not telling their merchants they love them everyday. We are in there telling them we would love to love them. That is what we are doing.

Ladies and gentlemen, if you have questions, take this opportunity to press the 1 on your touchtone phone. Go to the line of Matthew Bosnoc with J.P. Morgan.

Good morning. Could you give us an idea where the economic assumptions are for consumer spending? I mean, at least generalized, is it up, down or the same? Or maybe more specific?

Matt, I am not prepared to answer that. I will tell you that we are assuming - I can't give you particulars on consumer spending. We are not assuming any significant change when we provide guidance. We are saying the economy is pretty much the way it is now, kind of stumbling along. It is something significantly bad were to happen, then all bets are off. The lid came off and things got fabulous, then I would say we would benefit from that. I can't be more specific.

That is helpful. In terms of organic growth, picking up and I guess it is coming a lot from ISO channel. How is that coming in? Are ISOs converting client base or bringing on new business and giving it all to you? What does that look like? Are you buying contracts?

Mon of that reflects purchases, number one, or we would tell you about it. Number two, it is not conversion to business. Because that is a tough sale. It is convincing them we get the ISO business and are there to support them. We have services and products that meet their needs and are appropriately priced. We have an organization that is responsive. That is a challenge. We are constantly making investments and trying to make that better and better. We have some ways to go. The ISO business is demanding. Hopefully we get better everyday. We focus on getting better everyday and are committed to do so. That is where the growth is coming from.

7% organic growth, how would you break that out into going out and getting new customers versus current customer base growing because they are selling more product?

Matt, I don't have any idea. I am not going to guess. Tell you what, we will look into that and next quarter, see if we can give insight on that one.

Could you tell us the difference between domestic direct sales versus ISO?

Meaning what it actually means or -

No, just an idea of which is being more productive in terms of driving growth?

They are both good. They are a little different. Domestic direct sales come from our proprietary sales force, larger merchants at lower spreads. We can keep more of the spread. On the ISO business, it is more merchants and affluent numbers, bringing in more contracts than we are signing ourselves. There are 15,000 ISO sales selling on our behalf. They are bringing in lots of customers.

But, they are selling merchants at higher spreads than we are selling mid-market, they keep a significant amount of that. That is why the SG and A costs are increasing and reflects success in that market.

Is that number high?

Probably closer to 3000. I stand corrected.

3000 relationships with -

Relationships move all the time. We sign relationships with ISO and ISO in turn has relationship with agents. Those agents come and go. Our best guesstimate, as we are just as curious as you, something in the range of 3000.

Seeing 3000 feet on the street on behalf of ISOs.

That is helpful. As relates to organic transaction growth. Can you give us an idea of what U.S. versus Canada looks like on dollar volume basis? Trying to get a sense of the different economies.

U.S. is stronger than the Canadian, but there has been no change relative to the quarters. Relatively consistent the last two quarters.

Did I hear correctly on Canadian, you are seeing mid to low teens growth in transaction? Or did I misunderstood your comment?

Yes.

That is correct is this

Yes.

Wasn't organic growth rate up there mid-single digits when you acquired them?

We were referring to revenue, but yes. The Canadian has not grown as quickly as the U.S., the numbers I cited in my formal comments spoke to transactions. You didn't misunderstand.

Pick up for growth for you?

There has been because of our cross-selling efforts. We signed over a billion dollars and it is starting to hit the books. We have been successful in that effort. National Bank of Canada has been a pleasant surprise. CIBC is more mature. They had 60% of VISA market. That is a tougher story and kind of grows more along the line of market in general. We had a smaller MasterCard piece, they are in line of big opportunities. You are seeing pick-up there.

Sounds good. And could you I know you talked about the cross benefits and margin improvement from consolidation of platforms. Sounds like that will be offset by bring being on larger margin ISO business? Is that the case? Could you give us an idea of any kind of joint gross dollar value or margin improvement, talk about the additional expenditure reductions you expect to get and when over the next four quarters?

In terms of the integration synergies, as we have said, those are factored into the guidance and we don't break out how much savings comes from a back-end conversion, versus front-end conversion and other initiatives related to those integrations. In terms of margin, we will see 18 and a half percent range during this year.

Thank you.

Thank you.

Question from the line of Dan Pearlman with Legg Mason. Go ahead.

Thanks. I wanted to know what kind of growth you are seeing in your check business, your verification guarantee? To the extent that the economy is weakening, what levels or losses are you having to guarantee? Are they increasing or staying flat or declining?

In terms of the check business growth, our primary growth is coming through the gaming business. We signed and provide a guarantee product to casinos in the form of plastic card called VIP card. We effectively take your check information or banking information and move that to a card. You use it at casinos that are signed up with the program. There was actually a trade event this week out in Vegas. We have done a really good job in terms of growth in that area.

In the guarantee business, the growth has been more traditional growth in the high single and low double digits. That is consistent with what we have seen historically. In terms of losses, as the economy slowed in recognizing the risk to us relative to bad check writers, we have been very judicious in turning down certain classes of check writers and as a result, I don't see an increase in loss year over year even though the economy is slowing.

(inaudible).

We control it on every single transaction. If the customer at point of sale, does not meet the criteria, it gets bounced into operation center in Chicago. At that point, we can either accept or turn down, which is what the contract provides.

Also, there is another fairly significant product line in the check business that is simply verification. That is lower cents per transaction as opposed to more robust fee. There is no loss for that. That is simply giving access to database.

The way you get paid verification is fixed fee and guarantee is more of percentage?

That is correct. On the verification side, real opportunity comes in in collecting the check and keeping the fees assessed to the consumer for bouncing the check. The merchant would get back on $100, full $100 and if there is $15 fee assessed, we keep that.

Got you. On the ISO accounting, you guys actually expense the cost of that sales commission versus capitalizing it, is that correct?

Yes, we are not purchasing the merchant contract, we are processing. It is merchant contract betweens sales, sponsor bank and merchant. We have a contract with the ISOs that pay them a commission on the business that comes in. Just like our direct sales force, all our sales related expenses are expensed in the quarter they are incurred.

Good. How many direct sales people do you have now and how many total ISOs partners do you have now?

300 direct sales people. It has been constant. went down a little bit and then we added some. Just over 50 for ISO relationship.

Thank you.

We have a question from the line of (inaudible) of Suntrust Robinson Humphrey. Please go ahead.

Good morning, Paul and Jim. Question for you. One, can you give some color on organic growth going forward for the year?

In terms of revenue guidance 7 to 11%, as Paul said. We are comfortable with that range. That was total reported revenue as opposed to organic. We haven't given guidance on organic for this year.

However, keep in mind the one acquisition that hasn't annualized does so in October. Looking at pure numbers. Our guidance doesn't include any unsourced acquisitions or not specific acquisitions identified. You are getting closer to a pure organic number.

Okay. One more question, can you tell us why the mid to teen growth in Canada? I am confused, is it transaction or revenue growth?

Transaction.

Thanks.

No further questions in queue at this time. You may proceed.

Thank you very much for joining us on the call today. I thank you for your investment and interest in Global.

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