環匯 (GPN) 2003 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Global Payments Earnings Release Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. Instructions will be given at that time. If you should require assistance during the call, please press "*0", and as a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Mr. Paul Garcia, Chairman, President and CEO of Global Payments, Inc. Please go ahead.

Good morning and welcome to Global Payments conference call for the fourth quarter and fiscal year-end of 2003. Joining me are Jim Kelly, CFO, and Jane Forbes, Investor Relations. Before I begin the call, I'd like to thank my Global Payments executive team and all of our associates for contributing to another successful year. I also want to thank our shareholders for their continued investment in our company. Now I'd like to remind you that some of the comments made on this call may contain certain 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 judge, 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. In addition, some of the comments made on this call will refer to normalized results, which are not in accordance with GAAP. Management feels that normalized results more clearly reflect imperative operating performance. For a full reconciliation of normalized to GAAP results in accordance with regulation G, please see our press release filed as an exhibit to our form 8-K dated July 17, 2003, which can be located under the investor relations area on our Web site www.globalpaymentsinc.com.

Now for the agenda. I'll give an overview of our fourth quarter and full-year results and review recent trends and events. Then Jim will discuss the financial results in detail. I will then give guidance for fiscal 2004 and update our strategy, and lastly, we will have a question and answer period. Now for our normalized Q4 results. We reported strong financial results for the fourth quarter ended May 31. Our revenue grew by 11% to $134.3 million, resulting in net income of $13.8 million for a 17% increase over prior year. Diluted earnings per share grew by 16% to 36 cents. These results reflect mid teen growth in our direct merchant channel, offset by declines in our indirect channel. In addition, we reported a 30 basis point operating margin improvement to 17.6% as a result of our acquisition integration efforts and continued cost containment programs.

Now for our full year normalized results. I'm pleased to announce another year of successful financial results. We reported 12% revenue growth to $516.1 million, resulting in net income of $54.1 million, or a 16% growth over prior year. This growth continues to be fueled by our direct card business, excluding the impact of the National Bank portfolio acquisition and a stronger Canadian dollar relative to last year, our full year revenue growth was 8%. We achieved this 8% revenue growth while also improving our operating margin by 50 basis points to 18.3%. Lastly, diluted earnings per share were $1.43 versus $1.23 in the prior year for a 16% growth.

Now for recent trends. Our domestic direct transactions continued to grow in the mid teens for the quarter. This transaction growth compares favorably to the market trends of 12% for credit and offline debit growth, which demonstrates that we continue to gain market share in both our domestic direct and ISO sales channels. In addition, our domestic average ticket in spread remains stable for the quarter, which we believe is a result of our diversified mid market segmentation. Our Canadian transactions for the year grew in the mid to high single digits. However, our fourth quarter transaction growth was modestly below this level due to reduced customer spending in our Canadian markets attributable to the SARS threat. Consistent with our ongoing Canadian strategy to diversify our existing portfolio base with small and mid sized merchants, our average merchant spread increased slightly.

Moving on to other recent events, we continue to pursue or ISO strategy of becoming the ISO processor of choice. By offering responsive service and innovative products at a competitive price. As such we recently extended ISO agreements with United Merchant Services and Total Merchant Services. In addition, we signed three new ISOs that will bring in more than 600 new accounts per month. Consistent with our domestic direct sales strategy we continue to focus on ongoing revenue growth by signing mid market merchants in various verticals to maintain our diversification. As such, our domestic direct sales force continued to successfully sign thousands of mid market merchants this quarter. A few of the more notable signings were the U.S. franchise of Lint and Sprung Lee, a retail chocolate bow-tie, marble slab creameries, an ice cream shop with more than 400 franchises. Some part, an airport parking lot change, Ford Motor Credit, Dowling College, part of the New York State University system, and finally Fink's Jewelers of the northeast regional chain. As part of our diversification strategy for our Canadian portfolio, we signed over 3,000 new small business accounts during the quarter. In addition, we continued to sign larger Canadian merchants, a few of which are [inaudible], prime restaurants, Canada drugs and Transcontinental, a magazine direct mailer. In summary, we had a very successful quarter. I'll now ask Jim to review the financial results in detail. Jim?

Thank you, Paul. I will be covering the following: A review of the fourth quarter and annual income statement and comments on the cash flow statement and balance sheet. In our press release, and as posted on our web site we included GAAP income statements and schedules, which reconcile GAAP to normalized results. We believe our normalized results more clearly reflect comparative operating performance for the period presented. GAAP result included certain one-time items, which I will discuss in detail this morning. For the quarter, revenue grew 11% to $134.3 million, driven by mid teen growth in our direct sales channel. This growth was partially offset by mid teen declines in our indirect channel and a small increase in our funds transfer revenue to $3.4 million. Also for the quarter, operating expenses were $110.7 million, resulting in an operating margin of 17.6% as compared to 17.3% in our prior-year quarter. The fourth quarter operating margin increase was primarily due to the integration of past acquisitions and the implementation of cost reduction initiatives. These cost reduction initiatives were partially offset by the ongoing investments made in our direct and ISO sales channel as well as the increases in commissions paid to our ISOs. Net income for the quarter grew 17% to $13.8 million, up from $11.8 million in the prior-year quarter and diluted earnings per share for the quarter grew 16% to $0.36, up from $0.31 in the prior-year quarter. Our effective tax rate remained at 37.4%, as compared to the prior-year rate of 38.2% as a result of the impact of our acquisitions and tax planning initiatives. For our fiscal 2004, we continue to plan for a 37.4% tax rate. Total revenue for the year was $516.1 million as compared to $462.8 million in the prior year or a 12% growth. Excluding the impact of the National Bank of Canada portfolio acquisition

Portfolio acquisition and the stronger Canadian dollar relative to last year, our fiscal 2003 revenue growth was 8%. Operating margin for the year increased 50 basis points to 18.3% as we continue to gain efficiencies in our business. Net interest and other expense increased to 3.1 million for the year, primarily due to the interest in fees related to our Canadian merchant settlement credit facility. We expect net interest and other expense to approximate this level for fiscal 2004. Minority interest grew 12% during the year to $5 million due to the growth in our alliance with Comerica Bank. We expect that minority interest will grow in fiscal 2004 at rates consistent with our overall earnings growth. Net income and diluted earnings per share for the year grew 16% to $54.1 million and $1.43.

Now turning to our GAAP results, during the quarter, we initiated the closure and consolidation of three operating facilities and their related functions into existing operating centers. We implemented the plan in April 2003 and expect to complete it during the fourth quarter of fiscal 2004. Our facility closure plan includes relocating our Cleveland merchant settlement function to our Baltimore facility, relocating our terminal deployment and related services from Winston-Salem to our Baltimore and St. Louis operations, and relocating our Salt Lake City check operation to our primary check operating facility in Niles, Illinois. We anticipate total cost and expenses associated with the plan to be $8 million, $4 million of which will be associated with one-time employee termination benefits, and the balance related to contract termination and other related facility closure costs and expenses. The fourth quarter and full-year fiscal 2003 results include a net restructuring charge of 1.3 million related to this consolidation plan.

Turning to the cash flow and balance sheet, as we define free cash flow, we reported $103.6 million in free cash flow for fiscal 03 as compared to $59.9 million in free cash flow for last year or a 73% increase. We define "free cash flow" as net cash from operating and investing activities excluding business development and changes in working capital. Our strong free cash flow growth is due to the increases in our direct card business, the National Bank of Canada portfolio acquisition, and a reduction in capital expenditures due to the timing of certain capital projects. Our free cash flow also benefited from a favorable variance in deferred income taxes due to tax planning initiatives and a favorable variance in other non-cash operating items such as provisions for bad debt and foreign currency translation adjustments. Excluding these line items, free cash flow increased 21% to $72.4 million, as compared to the prior year. The $55.4 million merchant processing use of cash during fiscal 2003 is primarily due to the change in funding for our Canadian Visa merchants.

As we noted during our last call, our Canadian credit facility was amended in December 2002 to provide our Canadian Visa merchants same-day value, which is the industry practice in Canada. Prior to this amendment, CIBC provided the funding directly to support the same-day value practice. Now global funds this practice and incurs the related interest expense. Capital spending for the quarter was $5.2 million, primarily for software and infrastructure development. We anticipate capital spending in the range of $15 million to $20 million in fiscal 2004. Finally for the balance sheet, the decrease in other current assets and the increase in other accrued liabilities were primarily due to changes in deferred income taxes resulting in the timing differences associated with the restructuring activities and our adoption of FAS 142 during fiscal 2002. As for our debt position, we had no borrowings under our U.S. credit facility at the end of the quarter. With respect to our cash flow strategy, it remains unchanged and is three fold. First, to pay off debt arising from the timing of working capital needs, second, to pursue accretive acquisitions, and finally, to continue to make capital investments in our business. Paul will now address our fiscal 2004 guidance and strategy. Paul?

Thank you, Jim. I will now discuss our fiscal 2004 guidance. We are providing full-year revenue guidance of between $542 million to $562 million, or 5% to 9% growth over $516 million in fiscal 2003. Our full-year diluted earnings per share guidance is $1.57 to $1.64, reflecting 10-15% growth over our $1.43 normalized diluted EPS for 2003. We also expect to achieve an operating margin of between 19 to 19.5%, which reflects up to a 120 basis point improvement over fiscal 2003 normalized results. This guidance does not reflect the impact of potential acquisitions. Now I'll discuss our fiscal 2004 strategy. First, we will continue to focus on growing our domestic and Canadian market share by concentrating in the mid market segment. We will continue to invest in our ISO channel and focus on providing value-added services. We are dedicated to ensuring our customers receive the best possible service. We are dedicated to providing the latest secure enhanced products and services by blending technology with our customer needs. We will continue to consolidate operations and implement cost reduction initiatives, gaining further margin improvement, and lastly, we will continue to focus on potential domestic and international acquisition opportunities. We are very pleased with our performance during fiscal 2003 and look forward to continued success in the new fiscal year. We'll now go to questions.

Ladies and gentlemen, if you wish to ask a question, please press "*1" on your touch-tone phone. You will hear a tone indicating that you have been placed in queue. You may remove yourself from queue at any time by pressing the pound key. If you are using a speakerphone, please pick up the handset before pressing the number. Once again, if you have a question, please press "*1" at this time.

Our first question comes from the line of Kartik Mehta with Midwest Research. Please go ahead.

Good morning, Jim and Paul.

Hi, Kartik.

Go ahead.

Could you talk a little bit about the trend in the indirect business in terms of what happened throughout the year? Did you notice that it was increasing or decreasing in any sense as far as attrition goes?

Well, in terms of revenues, Kartik, the indirect business did run off at a slightly higher rate as you recall historically, we were kind of high single digits, and I believe during our fourth quarter, perhaps even in the third, we discussed that this rate up ticked to kind of the low teens, and that's where the business is today.

As far as your growth of merchant base (inaudible) seems like you continue to have really good strong success from that point of view and that distribution channel. What would you anticipate as your total merchant base grows, what percentage would you anticipate will start coming from ISOs?

Well, Kartik, that business is growing, you're correct. We haven't given any guidance and we are not prepared to at this moment as to what percentage of our merchant base will be made up of ISO customers, but we promise to keep you informed.

Great, last question. As far as the acquisition landscape goes, has there been a change over the last year as the opportunities you look for?

Kartik, we have a pretty focused business development group, and spend a lot of executive time looking at opportunities too. The fact that we haven't announced any should tell you that we're pretty disciplined in looking for accretive opportunities that provide synergy and either strategic or tactical opportunity, but we're still focused, and we'll keep you informed on that front as well.

Well, thank you very much.

Thank you, Kartik.

Thank you, sir. And our next question comes from the line of Jeff Baker with US Bancorp Piper Jaffray.

Gentlemen, very solid quarter. Couple of questions. Jim, if you could cover the (inaudible) -- the foreign currency contribution, just in the fourth quarter from the stronger Canadian dollar?

We haven't broken it out specifically in terms of revenue or earnings contribution, but it was a part of, as we talked about, 11% in the fourth quarter revenue down to 8%. It was a piece of the difference that reconciles those two.

And is it about 200bps in the top line maybe?

It's probably in that range.

Ok. And then what about on the offsetting front of that, the SARS impact, Toronto basically dead for the whole quarter. Has it picked back up, and what kind of negative impact do you think you got out of Toronto?

I don't think we'll be able to reconcile to that detailed level. I'd leave it as we have a fair amount of [inaudible] business in Canada. If you were up there during the quarter, you would have noticed a substantial drop in the business. I think it's improving now, but it definitely had an offsetting impact to the favorable foreign exchange piece that we have just talked about.

About 100 bps maybe, about?

You know, I don't think I could get you to that level.

Too hard to get there? OK. And then Paul, you mentioned on Kartik's question, he asked about the ISO mix. What about from a revenue, as we look out, it was about 12% in the fourth quarter. Where was that last year in the fourth quarter, and where do you think that goes to in a year from now?

Jeff, we haven't confirmed that that is the right number. The ISOs are growing more quickly than our base, so by definition, they are a larger percentage than they were. It's just I can't reconcile back to that number because we haven't provided that. But directionally, ISOs are larger, and that growth is continuing.

OK, and then a couple of more questions. In your guidance, what are your assumptions under the Canadian dollar and the guidance that you've given?

You know, we have looked at the fourth quarter, and quite frankly, we don't expect that to continue indefinitely. We're going to continue to get a little pickup of that, but I'm not prepared to give the exact -- we of course have one in our forecast but we're not prepared to give you the exact assumption. It's not as aggressive as today's rates.

But as far as a percentage of the growth, it's basically just flat contribution in the 5-9% growth?

Jeff, I'm not sure I understand the question.

I didn't understand either, Jeff.

We take a lot of factors into account when we outline the 5-9%, not specifically just FX as Canada is about 25% of our business. But that was one of the factors that we took into account to come up with that range.

OK. All right. And last question. Paul, can you comment on the competition, any changes from national processing, First Data/Concord merger, Nova has been making some acquisitions. You see anything out there?

They all continue to be good and aggressive competitors. The only thing I can tell you that this is a kind of an obvious statement, with the pending Concord/First Data merger, First Data and Concord have not been as aggressive in the acquisition arena in the U.S., and that's an upside potential.

OK, great. Thank you.

Thank you.

Thank you, sir. Our next question comes from the line of Anthony Wible with Smith Barney. Please go ahead.

Good morning. Great quarter.

Thanks, Tony.

Couple of questions. One is real mechanical question. Do you have the -- at the end of the year, the kind of profile, the direct versus the indirect? We were roughly 80/20 before. How has that changed?

[inaudible] why don't I go to your next question. It was around 82/18. I don't know that we've put out anything different at this point.

OK. The second thing I was hoping you could talk about is just anything up to date as far as since the quarter has ended, have you noticed any kind of momentum on the volume that you've been seeing? And then the next thing I was going to ask is regarding this Citi Bank acquisition of Sears. I know it's somewhat ironic that I'm asking this, but I'm wondering what you guys really make of that and the ability to possibly grow that program that you did have with Sears.

OK. Well, Anthony, the volume -- I'm not going to share any June numbers other than I will tell you that the impact primarily fell in the T&E segment in Canada on SARS is easing, so that's good news. In terms of the Sears question, the Sears portfolio was, of course, purchased by Citi. We have an arrangement whereby we have the infrastructure that allows the Sears card to be used by non-Sears merchants, and we have not had an opportunity to chat with Citi yet about their intent, but we're hoping for some upside, but no prediction.

Right. Ok. You think Citi would be more open to using the card at other retail shops?

I would say it made a lot of sense for Sears, they were pursuing it. I think their strategy to sell the business caused them to put the brakes on just about everything, and I think it's a great strategy for Citi, it was a great strategy for Sears, so we're hopeful.

Last two quick questions. One is, any update on the Air Canada appeal hearing? And the second you mentioned POS check was a product you started rolling out. I wondered what your verification guarantee volumes were. I know it's a small part of the business. I just wonder what you're seeing there.

I'll handle the Air Canada question. On the Air Canada we were pleased to note that they have gotten concessions from all of their unions. In terms of the court procedures, they are on schedule. We are asking to, in effect, be given relief on what is a pre-funding of the transaction, paid, not flown, and the Court is considering our appeal and the motions.

The hearing was a week ago Thursday. It was before appellate court, I think three or five judges, and we're supposed to hear something by sometime next week.

On the checks front, we have seen some improvement. I'm not sure that's the economy or overall check rates as mch as just our continued focus on that business and the efforts of the team that is running it.

Great. Thanks a lot, and great quarter.

Thanks, Tony.

Thank you, sir. Our next question comes from the line of Dris Upitis with Credit Suisse First Boston.

Hi, Paul and Jim.

Were you impressed that your name was pronounced correctly?

Yeah, that's a first. Great job on the conference call.

We practice.

Just a question on the SG&A side of things. It looks like you got a lot of leverage on the gross margin, and that that was largely offset by the increase in SG&A. Is that the ISO strategy kicking in there a bit?

Yeah, it's primarily the ISO strategy. It's also, you know, a continued investment, little bit of an uptick and investment in our other sales channels, but the ISO was the lion's share of it.

And do you think that will continue to creep up as ISOs continue to become a bigger percentage or do you think we level off at this rate?

It's going to continue to creep up a little bit, but take in mind we took that into consideration when we gave guidance to 19 to 19.5% margins overall.

Ok. And the $8 million charge for the facilities, can you quantify a little bit what do you think the cost savings potential is from that on an annual basis or kind of a run rate once that's all taken care of?

Jim Kelly I think, Dris, this is a project that's going to take into this year, and we've announced it now because the charges will come over the next several quarters. I don't think we're going to see that much of an impact in this fiscal year, and it would really be reflective in next year's guidance.

OK.

Next years being 2005.

But we--I guess to look at it as an investment of $8 million now do you think that you have a few million dollars a year benefit from that?

There will clearly be a savings that will justify this closure and consolidation in dollars and also from an efficiency standpoint, we're taking facilities -- three facilities and moving them into three existing facilities, which will improve communications and service to customers. But there will clearly be an impact to the bottom line that will be reflected in our 2005 guidance.

Ok. And if you can just give the total merchants that you added in the quarter and also just preliminary thoughts on free cash for fiscal 2004.

The only merchant number I can share with you, Dris, is we said that the Canadian strategy to add more mid market smaller merchants produced 3,000. I believe we also indicated that we got a couple -- got three new ISOs, over 600. I'd be guessing on any other numbers. I don't have those. But they're into the many thousands for our direct sales force and our other ISOs. In terms of free cash flow, Jim?

I would use the adjusted number that I gave in the comments, and assume a growth rate at or above where we are on the earnings side.

Ok. Great. Thanks a lot.

Thanks, Dris.

Thank you. Sir. Our next question comes from the line of Greg Smith with Merrill Lynch. Please go ahead.

Hey, good morning. You've been very successful on the ISO front. I'm just wondering if any of the terms you offered to the ISOs are any different than any of the other processors out there.

Greg, that's tough for me to answer because I can't speak with 100% authority on all the other terms, but if the question is are we doing something that is beyond what's considered prudent business, I would say that our margins on the ISO business are very respectable, and while we are aggressively pursuing that business, a lot of those decisions are made for a lot of other reasons besides price. It's service, it's product, it's dedication of staff. We have an entire group that does nothing about ISOs, and in fact the executive management team is personally involved ISO group. I personally know all the senior ISO players myself, so I would say we just (inaudible) better products, our price something competitive, but I don't think by any stretch a price leader.

Ok. Great. That's exactly the kind of answer I was looking for. Another question just can you talk about competitive environment in Canada? You obviously have Monares and it seems like payment (inaudible) now become more aggressive up there. Is the dual processing becoming more standard of less of a competitive advantage for you? Can you comment on that, please?

Well I would say that the Canadian market is, continues to be and was competitive. Monares is a pretty aggressive competitor with Bank of Montreal and Royal Bank. Scotia was purchased by payment tech, as you mentioned, and Monares has been offering a dual product. I am not certain as of this--I know last quarter, they still did not have a dual statement. They may have that by now. I would be surprised if they didn't. But dual processing is still fairly unique. There's two major guys, us and Monares that offer it. Others have affiliations with other banks to provide it. I would say the business has not gotten any more competitiveness sincerely, Greg, and we still are very bullish on the Canadian market.

Ok. Great. And then, you know, one of your larger competitors yesterday was talking about seeing a real acceleration, even kind of in the latest quarter in PIN debit relative to signature debit. Did you see nay of that over the past few months.

Yeah. I saw those comments myself, and we did not see that mix shift. In all fairness, we have a much smaller percentage of our volume is PIN-based versus check card or non-PIN. Our debit volumes still continue to grow in the 30% range, yo know, that's about twice what our credit volume is growing, but that has remained pretty constant.

Ok. And then one more just quick question. Any thoughts on a significant dividend increase in light of the tax law changes?

We have not we're not prepared to announce any dividend increase.

Ok. Fair enough. Thanks a lot, guys.

Thank you, Greg.

Thank you, sir. And our next question comes from the line of Craig Peckham with Jeffries & Company. Please Go ahead.

Good morning. A question about a comment you made earlier on the I think the First Data Concord side has been less aggressive on acquisitions. Are you referring there to portfolios or companies or what specifically in that regard?

Well, Craig, what I was saying is that the upside for a First Data Concord merger right now is that these guys are correctly focused on getting this deal approved and closed. Consequently, these are two very aggressive competitors in the acquisition market domestically, and their domestic activities are, I think, focused elsewhere. And that was the only comment. I can't provide a lot more color other than that.

Ok. Fair enough. And I wondered if we could get a quarter-end number of merchants that you guys are processing for right now.

You know, Craig, I'd be guessing. It's increased steadily. I'll have to go back to any number we've provided in the past, and we will be happy to take that question at the next quarter.

Ok. Finally, with respect to your merchants that are coming through the ISO channel, could you comment a bit on trends and churn rates there, if there's been any change upward, downward or sideways in the most recent quarter, and maybe you could compare that to the prior quarters?

It's been pretty constant. The ISO attrition is about 20%. Our internal attrition is about 10%. That's held pretty constant.

Ok. So 20% market and you're about 10%?

What we're say something our business that we have directly is about 10%, because it's mid market and slightly larger. The ISO portfolio is pretty much in general, and ours in particular, attrited about 20%. The ISOs are a little more aggressive on the pricing. Smaller merchants have a tendency to go out of business. The churn is a little greater because the ISOs can't afford to be as close to those merchants, and those factors don't apply to mid market and larger, and consequently, we enjoy about half the attrition

Thanks, Paul.

Pleasure.

Our next question comes from the line of Wayne Johnson with SunTrust Robinson Humphrey. Please go ahead.

Yes. Hi a question on pricing. Have you seen any change in the mid market pricing in this quarter versus the year-ago quarter?

Wayne, our spread has remained constant in the mid market. We haven't seen -- just about flat. It upticked a little bit in Canada. The overall spread, both national and mid market upticked a little bit in Canada because we added a whole bunch of smaller merchants that brought that spread up.

And could you give us a comment on how you think the Visa/MasterCard lawsuit would affect you guys, if any, going forward?

That is that's a great question. There are two components to that. Visa and MasterCard both announced a price increase for the credit transactions offset by a significant price decrease for check card or offline debit card transactions. We are passing on above the increase and passing on elements of the decrease to our merchants as we speak.

So the net effect, what do you think that's going to be?

We're not giving any guidance on that, but we're hoping to have some favorable impact from that activity.

Thank you very much.

My pleasure.

Our next question comes from the line of Apurva Parikh, also with SunTrust Robinson Humphrey Capital Markets. Please go ahead. Mr. Parikh, your line is open. Please go ahead.

Most of my questions have been answered, but thanks a lot.

Thank you, sir.

Our next question comes from the line of Greg Gould with Goldman Sachs & Company. Please go ahead.

Thanks. Wanted to follow up on the ISOs. Have there been any changes or attrition in the top 10 ISOs for you guys?

No, Greg. In fact, I'm delighted I got that question. In fact, just the opposite. We have gotten re-commitments from virtually all of our ISOs, all the big ISOs that we committed or there current existing contracts and we are aggressively adding others. That ISO channel is growing very nicely.

And in those renewals, were commissions or any other incentives higher than normal?

No. We have a whole package of offerings that will entice these guys to renew and continue to do business with us. But no, nothing out of the ordinary.

Ok. And on the direct sales channel, did the sales force meet its sales quota in dollar volume and revenue signings for the fiscal year?

They actually exceeded, I'm pleased to say, because undoubtedly there's probably a couple of sales guys listening, but our sales channel actually exceeded their objectives both for revenue, accounts signed, and volumes. So we had a wonderful year in the sales channel.

Ok. Great. And one last question. Depreciation/amortization, Jim, what was it for the quarter and the outlook for fiscal 2004?

I don't think I gave an outlook for next year. I don't see any change upwards from what we spent this year on depreciation or amortization. If anything, I think it will continue to decline slightly.

Ok. Sorry, what was it for the quarter? I might have missed it.

For the quarter, depreciation and amortization combined? I don't have it in -- hang on. Just give us a second here Greg. I've got a year number.

That's fine.

$32 million. You hear that, Greg?

Yes, got it. Thanks.

Thank you, sir. And our next question comes from the line of Dan Perlin with Legg Mason Wood Walker. Please go ahead.

Thanks. Paul, I have kind of a general question for you and I know you're going to be kind of political about it, but I'm wondering, you know, why opportunities you are seeing or the posturing of some of the customers that are currently clients of either First Data or probably more specifically Concorde, and potential attrition out of that, you know, deal into your client base. I'm wondering two things. One, are you seeing any kind of pickup there in kind of the volumes coming into your area or the increase coming over into your area, and then the second thing is, in Europe portfolio of merchants, how much potential opportunity overlap can you have with like a Concord, as an example?

Well, Dan, I will tell you that because we are in a different market, Concorde is primarily debit and (inaudible) and first data, although we compete aggressively in the mid market but that's through a lot of alliances it's kind of give and take every day and we do think we're growing more quickly in that market segment than they are, but I can't point to any big customers we've taken because we're not in that business. And although that very possibly could be happening, I'm sure large merchants are going to take advantage of every opportunity to leverage a situation, that is not a market we're pursuing. So you're kind of asking the wrong company for that question.

Ok.

Now in terms of overlap with Concord, what was that question?

Well, I mean, it would seem to me that even still with Concord, they do have a basket of small merchants, and they in many instances want to participate with Concord, and, you know, maybe not First Data initially, and so putting these two companies together is going to create some frustration amongst the merchant base, so the natural attrition would be to go to people like yourself.

Yeah, I think that is a possibility with some ISOs, although neither of them were huge ISO providers, and possibly with some other relationships they have with financial institutions that are even -- or even processors who may be comfortable on doing business with one and not the other, and now with the combination, there could be an opportunity or two created there.

Ok. The other question pertains to are any of the ISOs or even in the aggregate in any particular market vertical?

You know, the good ones are all in verticals. I mean, the successful ISOs pick restaurants, for example, we do a lot of -- a lot of wireless with taxicabs and a lot of other applications, sporting events, we've a ISOs that go after that. We have an ISO that's in the medical space, we have ISOs in the medical space. The successful ISOs find a niche and go after it pretty aggressively. So the answer is absolutely yes.

Ok. The other thing is, in the guidance for full year next year, I'm wondering what the biggest swing factor is as it pertains to the 5% and 9%, revenue growth. What would be the one thing that we should be paying attention to?

Oh, I see. In other words -

I know there's a lot of things that go into that model, but usually there's something that's going to be really directionally positive or negative that's going to drive that number.

You know, Dan, that's also tough. There's so many factors that go into that. The overall economy, no one saw the SARS thing coming. I'd say I'm hard-pressed to come up with anything other than we have seen kind of an 8% organic -- remember third quarter, considered kind of a pure quarter, everything was annualized, we saw about an 8%. That didn't have too much FX in it from Canada and some of the other things that came in fourth. So that's how we came up with the 5 to 9, if that's helpful.

Ok, one last question. I'm wondering what your level of comfort is as far as leverage on your ball balance sheet with respect to acquisitions

We're proud of our balance sheet, and we are very circle speculative about leveraging it, but we clearly have an appetite for acquisitions, and I think our balance sheet makes just about anything within reason a possibility. So yeah, we wouldn't hesitate for the right accretive opportunity.

Ok. Thank you.

All right, Dan. Thanks.

Thank you, sir. And our next question comes from the line of Gary Prestopino with Barrington Research.

Good morning. As I go over my notes last quarter, you had about $2.3 billion of cross-selling volume signed and committed in Canada. Where do you stand right now with that?

You know, Gary, I didn't get a number for this quarter. You're right, we talked about - that actually goes to an earlier question someone asked on this call, I think Greg Smith from -- it was Greg Smith from Merrill asked is there still opportunities for -- you have the Master Card segment to sell Visa or you have the Visa segment to sell Master Card, and the number you quoted was our success that we announced in third quarter. We also were very successful in the fourth quarter. I do not have that number, but a couple of the merchants I mentioned in particular in Canada were cross-sell opportunities.

Ok. Thanks.

Pleasure.

Thank you, sir. And our next question comes from the line of Don McArthur with Stypo Nicholes (ph). Please go ahead.

Good morning, guys. Great quarter.

Thanks, Don.

As far as your expenses in can Canada, the revenue got the benefit from the currency. Are most of the expenses related to that denominated in the Canadian dollar or is it kind of overhead that's denominated in the U.S. dollar?

Our Canadian -- this is Jim. Our Canadian operations are primarily sales and marketing and processing, some portion of the processing as well as some limited customer service primarily French calls specifically, so there is a hybrid of expenses that are to run the business in Canada and in U.S. and it's not pure in the sense that it's totally contained in Canada. In terms of the benefit for the quarter, the expenses this year versus last year saw some improvement because of the FX on the piece that stays in Canada.

Ok. And then as far as your ISOs go, you signed three this quarter, which brings it probably into the mid 50's of the number of ISOs that you have. Are there many nor good ISOs that you'd want to get?

Yeah, we think there are. There are a number of big ISOs that we don't have, we're having ongoing dialog with those, and because of the dynamic nature of the business, this year there probably will be some new ones created that in a very short of time could get some critical mass. That's the exciting thing about the ISO channel.

The bigger ones -- with, do they have an exclusive with another pro processor or how does that process work?

It's kind of a mixed bag. Most of them either have commitments, it's pretty rare someone says it will buy a 100% of their services from anybody, but you try to get as large a commitment from everybody and try to get them to do so.

Thank you, sir. Our next question comes from the line of Robert Dodd with Morgan Keegan.

Can you give us some kind of indicate indication on what the process you're going through in looking at the acquisition opportunities, be them domestic, U.S., Canadian or maybe overseas?

Sure. Be happy to, Robert. As I mentioned a couple times on this call, and mentioned in previous, accretive is the big word that pops out. We're looking for accretive opportunities. We're looking for opportunities where we can leverage our distribution channels, our sales channels. We're looking for opportunities where perhaps our management team could bring something to the party, looking for opportunities to further leverage our expense base, and those are the big ones. Oh, and I'm sorry, lastly, looking for businesses that are growing. We want to Continue to augment our organic growth with good solid acquisitions that are also growing.

Ok. Excellent. Can you give us some kind of feedback on just what kind of revenue growth you're looking for in Canada this year? Is that the lower end of the 5 to 9 or the upper end of the 5 to 9 versus domestic?

I'd say Canada is more of a high single digit grower than and the United States is growing at a higher rate, so that's where we are.

Thanks.

You're welcome.

Thank you. And again, Ladies and Gentlemen, if you do wish to ask a question, please press "*1" at this time.

And our next question comes from the line of Art Carpentier with Merit Research. Please go ahead.

Good morning. Most of my questions have been answered, but one additional one, follow-up on an earlier question. When you talk about acquisitions, you always say domestic or international. I'm not sure how to ask exactly, but what are the odds that you would, in fact, go international other than Canada?

I think, Art, that you'd be very careful in answering that. I know you had difficulty even asking, but I would say that we absolutely are interested on international opportunities. If I handicap, I could get in trouble.

Ok. I'm trying to reconcile that with the list you just gave in terms of leveraging expenses, leveraging distribution, et cetera, and when you go overseas, it would seem to me to just very superficially be tough to meet some of these criteria you outlined.

That's a great question. And let me tell you how that fits into what we just said. We talked about growth, you can certainly do that overseas. We talked about accretion, you can certainly do that overseas, but how do you leverage the space? The way technology works and has this, is a fairly recent phenomenon, but you could do business with someone overseas in our industry while you would do the authorization in-country, you could actually do the authorization out of country, but it makes more sense to do the authorization in-country, the settlement can clearly happen in the United States, you throw a switch. And there are companies today that are doing business in Europe, for example, that are settling in the Midwest right now, today, so it absolutely works, and can you get a leverage -- you can get a leverage model.

Ok. Thank you very much.

Thank you, Art.

Thank you, sir. And we do have a follow-up question from the line of Dan Perlin with Legg Mason. Please go ahead.

Thanks. Last question I have is, are there any current either back office functions, technology functions, accounting functions that you are still sharing with NDC Health, and if you are, are there any plans to separate that? Thank you.

We are. Dan, there's an arm's length relationship where NDC is providing some data processing elements, and we are sharing some boxes. There is a discussion - discussions underway that address that, but we're very happy with the services we've been getting from those guys. It's at market rates, and they seem happy to have us as a customer.

Thank you.

Gentlemen, there are no further questions in queue at this time. Please continue.

Well, thank you very much for joining us on the call today, and we all thank you for your investment and your ongoing interest in Global Payments.

And Ladies and Gentlemen, that does conclude our conference for today. We thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.