環匯 (GPN) 2005 Q1 法說會逐字稿

Thank you all for holding, and welcome to the Global Payments first-quarter conference call. Today's call will be recorded. You'll be able to listen only until the question-and-answer session on the call. And at this time, I would like to turn the call over to Ms. Jane Forbes. Thank you, ma'am. You may begin.

Good morning, and welcome to Global Payments' fiscal 2005 first-quarter conference call. On today's call, we will discuss our quarterly financial results and business highlights. Joining me on the call today are Paul Garcia, Chairman, President and CEO, and Jim Kelly, Senior EVP and CFO.

I'd like to remind you that some of the comments made by management during the conference call contain forward-looking statements that involve a number of risks and uncertainties. For these statements, we claim the protection of the Safe Harbor for forward-looking statements contained in 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 our public releases, included in our most recent 10-K. In addition, some of the comments made on this call may refer to normalized results, which exclude restructuring charges and other items and are not in accordance with GAAP. Management believes that normalized results are more clearly -- more clearly reflect comparative 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 September 22nd, 2004, which can be located under the Investor Relations area on our website, www.GlobalPaymentsInc.com.

Now, I'd like to introduce Paul Garcia. Paul.

Good morning. Thank you, Jane. The agenda for our call is as follows. I will summarize our first-quarter and review recent trends and events, including an update on our recent acquisitions. Then, Jim will discuss the financial results in detail. I will then provide an update to our fiscal 2005 outlook, and lastly, we will have a question-and-answer period.

We reported very strong financial results for the first quarter ended August 31st, 2004. Our revenue grew 41 percent to $192.6 million, primarily due to the impact of recent acquisitions and strong growth in our domestic direct channel, which achieved solid transaction growth, and a substantial positive impact from last year's pricing initiatives. Excluding the impact from our DolEx and MUZO acquisitions, first-quarter revenue would have grown 18 percent.

During the quarter, we achieved a 50 basis point operating margin improvement, to 21.6 percent, as a result of increased economies of scale, and the benefit from our prior year's facility consolidation plan. Our revenue growth and margin improvements resulted in a 44 percent net income increase to $24.2 million, and a 41 percent diluted EPS increase to 62 cents compared to our normalized results last year.

Now, for recent trends -- our domestic direct transactions grew in the high teens for the quarter. In addition, our domestic average ticket remained stable, and we continue to experience an increase on our domestic spread due to the impact of last year's pricing initiatives. Our Canadian credit transactions for the quarter grew in the high-single digits with debits showing a modest decline.

Moving onto recent events. As previously announced, I am pleased to welcome Home Credit and Finance Bank Russia to our MUZO family. We will provide payment card processing and issuing services for the bank's new revolving consumer credit program. Home Credit is the second largest provider of consumer credit in Russia. In addition, during the quarter, we implemented a new EMV integrated solution for a major European retail chain. We have been pleased with MUZO's performance, and we continue to expect high-single digit revenue growth for our fiscal 2005, with an opportunity for accelerated growth throughout the Central and Eastern European regions in the years to come.

Now, for an update on our DolEx operations. We continue to pursue our branch expansion strategy and have added 20 new net branches during the quarter, raising our total branch network to more than 640 branches. We are also particularly pleased with the additional leverage that we are gaining as we build our transaction counts and our operating margins. We are reiterating our fiscal 2005 expectation for DolEx of mid to high-teen level transaction growth and low to mid-teen revenue growth.

Moving onto our North American merchant channel, in Canada, we continue to focus on signing national to midsize merchants, and we are pleased to announce the following additions. The Toys 'R Us chain, the 7-11 group, and Four Seasons Hotels Canada. We also remain diversified in our domestic U.S. merchant channel, and as such, we continue to sign a large number of mid-market merchant accounts reaching into many different vertical markets, such as professional services, education, government, health care, and retail.

One of the more notable signings for the quarter is Suburban Lodges, which has over 80 locations. Additionally, our ISO channel continues to grow aggressively as we build upon and extend our existing ISO relationships in addition to signing new ISOs.

We also continue to expand our check guarantee and gaming channel through the addition of Napa Auto Parts, with 900 locations; two Golden Nugget locations in Nevada; and The Tropicana in Las Vegas.

To summarize, we are pleased with our strong financial results and accomplishments during this quarter. I'll now ask Jim Kelly to review the financial results in detail. Jim.

Thank you, Paul. In our press release, and in posted on our website, we included a GAAP income statement and a schedule which reconciles GAAP to normalized results for the prior-year quarter. Our prior-year GAAP results include a $1.6 million restructuring charge related to our facility consolidation program, which was completed during last year. My comments this morning exclude this charge and reflect our normalized quarterly results. There were no adjustments to normalized GAAP results for the current quarter.

For the quarter, revenue grew 41 percent to 192.6 million, primarily due to 31.1 million in revenue from our recent acquisitions, and strong growth in our domestic direct sales channel, which was driven by high teen transaction growth, and the positive impact from last year's pricing initiatives. As discussed during our fourth quarter fiscal '04 earnings call, a favorable impact on our revenue growth of these pricing initiatives effectively annualized during the quarter current quarter. As such, we expect revenue growth from our domestic direct sales channel to return to low to mid-teen levels for the remainder of our fiscal year. This compares to growth exceeding 20 percent in the current quarter for this channel, which was above our previous expectation.

We also experienced a positive, unanticipated impact during the quarter from a stronger year-over-year Canadian exchange rate. We had previously assumed a neutral to unfavorable impact from foreign currency exchange for the first quarter. In addition, our indirect sales channel declined in the mid-teens during the quarter, which also reflected an unexpected improvement from recent periods. This improvement, however, primarily relates to delay in certain planned merchant portfolio conversions off our platform, and as such, we continue to expect mid to high-teen declines in this channel for fiscal '05.

Our MUZO acquisition added 8.5 million of revenue for the quarter. We continue to assume mid to high teens -- excuse me -- we continue to assume mid to high-single digit revenue growth for fiscal '05, which reflects strong market driven transaction growth offset by a planned loss of a significant customer, who provided notice of its intent to move its business prior to closing the MUZO acquisition. This customer has not yet moved the material portion of its business from our platform, and we are focused on retaining this relationship for as long as possible.

Our money transfer revenue for the quarter was 25.7 million, of which 22.6 million relates to our DolEx acquisition. As previously discussed, our competitive pricing strategy continues to drive strong transaction growth, and we continue to anticipate annual DolEx revenue growth in the mid -- low to mid-teens. As Paul mentioned, we are very pleased with the margin expansion in this channel, especially in seasonally high transaction periods, such as our first and fourth fiscal quarter. As such, we're expecting a higher branch margin contribution than we had previously assumed for our fourth fiscal quarter, which is a very strong transaction period for DolEx.

Operating expenses for the quarter were 151 million, resulting in an operating margin of 21.6 percent, or a 50 basis point improvement as compared to last year. The operating margin increase was due to increased revenue, our DolEx and MUZO acquisitions, a higher than anticipated benefit from last year's facility consolidation plan, and continued cost containment programs. These improvements were partially offset by the ongoing investments made in our direct and ISO sales channel, as well as the investments to grow our money transfer branch network. Interest and other expense of 1.6 million for the quarter reflected the cost of additional outstanding debt, as the result of recent acquisitions, as well as the interest associated with the standard practice of pre-funding our Canadian merchants. For fiscal '05, we are expecting 5 million to 7 million in total for the interest and other income, and the interest and other expense line items netted together.

Minority interest of 1.9 million for the quarter reflected growth from our Comerica alliance, offset by the elimination of minority interest relating to our Cash and Win acquisition. For fiscal '05, we're expecting 7 to 9 million in total minority interest expense.

Net income for the quarter grew 44 percent to 24.2 million, and diluted earnings per share grew 41 percent to 62 cents. As anticipated, our effective tax rate during the quarter declined slightly to 37 percent from the prior year's rate of 37.4 percent, due to continued tax planning initiatives. In addition, our diluted shares increased due to the combination of additional restricted shares issued to employees as part of retention programs, and the additional options exercised during this period.

Now, turning to the cash flow segment and the balance sheet. We realized 29.9 million in free cash flow for the first quarter of fiscal '05 or 28 percent growth over last year's quarter. We define free cash flow as net cash from operating and investing activities, excluding business development, changes in working capital, and the cash impact of restructuring activities. Capital spending for the quarter was 8.8 million, primarily for software and infrastructure. Our new Atlanta-based data center build-out, and DolEx brand's expansion.

Our business development line reflects $7.8 million purchase price for the acquisition of Comerica's 49 percent interest in Cash and Win, which was completed in June of '04. We also paid down 12 million in our line of credit during the quarter, primarily as a result of our strong cash flow. Additionally, we paid down $6 million on a note payable assumed through the MUZO acquisition to take advantage of the lower interest rates from our U.S. credit facility.

On the balance sheet, Accounts Payable, and other accrued liabilities increased ever prior year, primarily due to an accrual for income tax payable, which are not due until the end of September '04.

Paul will now discuss our ongoing strategy and give you an update to our fiscal '05 guidance. Paul.

Thanks, Jim. Now, onto guidance. Based on our strong quarterly results, we are raising full-year fiscal 2005 annual revenue guidance to a range of $737 million to $758 million or 17 percent to 21 percent growth over $629 million in fiscal 2004. In addition, we anticipate a continued improvement in earnings contribution from DolEx and a higher than anticipated benefit from our prior year's facility consolidation program, both of which are expected to have a positive margin growth impact, primarily to our fourth quarter compared to last year. As a result, we are raising our full year fiscal 2005 diluted EPS guidance to a range of $2.10 to $2.19, reflecting 20 percent to 25 percent growth over our $1.75 normalized diluted EPS for fiscal 2004.

We are also raising our fiscal 2005 operating margin to a range of 19.8 percent to 20.1 percent. This guidance does not reflect the impact of any potential new acquisitions.

We are delighted with our results and achievements this past quarter, which continues to reflect the ongoing execution of our strategy. We will continue to focus on integrating and expanding our acquisitions, as well as pursuing other domestic and international opportunities to position Global Payments as a solid, long-term, revenue and earnings grower. Operator, we will now go to questions.

(Operator Instructions). One moment for our first question. Our first question comes from Tony Wible.

Great quarter, Paul. I have a couple of questions. Could you comment on DolEx and what kind of transaction growth you saw this quarter? You mentioned that you're maintaining your expectations for the rest of the year at the mid to high teens for the transactions. Can you talk about what we saw this quarter?

Yes, Tony, this quarter for DolEx is one of our strongest, as is the fourth. And, we saw 20 plus percent transaction growth for DolEx this quarter.

Great. And on the merchant side, can you also comment about quarter-to-date, what kind of activity? Has everything held up pretty much as you saw within the August quarter for into this current quarter?

We haven't seen anything in September that differs from what we saw for the first quarter in terms of our core merchant business. It continues to hold up and produce well. Visa and MasterCard have come out with some statistics that indicate that their growth is still very strong, so everything we see there is great. And, of course, we remain very diversified in that business, so we feel an added layer of protection, even in a troubled economy. So we're feeling very bullish about that.

Okay. And last question has to do with MUZO. Can you comment about where you want to take MUZO next? It looks like you are heading eastward. But is there any plan to move westward with MUZO, or any thoughts on expanding the business offerings?

Okay. Hey Tony, before I get into MUZO, let me clarify something, because your question was about transactional growth for the direct portfolio. I hasten to add that as we pointed out, the pricing benefit annualized in the first quarter, and so consequently, we're not going to get that same pop for the other three. So I just want to make that clear.

Now, in terms of MUZO, we are very excited about Russia; and as we've discussed on another call, the Czech people and the Russian people have this unique relationship, and a huge number of Czechs speak fluent Russian. So the relationship and ability to perform business services in Russia is very available and we took full advantage of that. In terms of moving westward, we are focused on that as well. And although we think that the most attractive opportunities exist in Central and Eastern Europe, we are having discussions with financial institutions in Western Europe as we speak.

Great. Thanks a lot. Great quarter again, guys.

Thanks, Tony.

Our next question comes from Kartik Mehta.

Good morning. Paul, as you look at DolEx and expansion of DolEx, you know, will the focus remain on the Latin American countries, or are you at a point where you'd like to expand to other corridors?

You know, Kartik, I would say it's unlikely, unless something kind of falls in our lap in terms of an opportunity to expand beyond the Latin corridor. You know, it's been pointed out that there's a huge number of Eastern Europeans living in the Czech Republic, and that would make sense to use that as the base. I don't think we're going to be taking advantage of any of those opportunities in the near-term, unless an acquisition presents itself that makes a lot of sense, and also something that was an agent model. So I would say that we're going to be focusing primarily on expanding our footprint in the U.S., serving the Latino community, and expanding our settlement reach beyond Mexico and Central America, and some of South America, where we are today. So, that's where most of the focus is going to be.

As you look at Canada, from a credit and debits perspective, you know, I read some stuff of EMV and what the implications might be. I was wondering if you could talk about -- you know, do you see that as an opportunity or cause for Global Payments as Visa pushes merchants to go to EMV?

Well, EMV is a requirement in Canada. In fact, Kartik, it is a requirement virtually everyplace in the world; it's a requirement all throughout the EU; it's a requirement literally throughout the world. The U.S. is probably the only -- clearly, the only major credit and debit acceptor that has not mandated EMV compliance, which is a whole nother (ph) story, and is going to open up some interesting opportunities and dilemmas, particularly for the card issuers in the future in my opinion.

But, we think that anything that causes movement in the market is generally good. And the fact that if you are fleet of foot and you have the platforms, and you can service your customers, we think that we're in better shape than anyone to do that. So we do not seek EMV compliance, whether it be in Canada or in Europe. As a negative, we see it as positive.

And one final question on the check business -- could you talk about, maybe, what type of same-store growth you are seeing in your check business? I know you've done a good job adding new customers, but if you could talk a little bit about same-store growth in terms of maybe check volume.

This is check?

The check is the U. S. (multiple speakers) -- you're talking about the U.S. business.

Yes, I am, Jim. I'm sorry.

Okay.

Jim, take that one.

Oh, our transaction growth there has been generally running in the low teens -- 11, 12, 13 percent has been the volume level. That would be in the traditional retail business. The casino business is substantially higher as we've added a lot of properties.

Jim, was that same-store growth, or was that just overall transaction growth?

That's overall transaction growth. It's difficult whether you're in the credit or the check side, to try to measure true same stores because you're constantly adding and deleting customers, so we looked at it in the aggregate on the check side, just like we do on the credit (indiscernible).

Thank you, guys.

Thanks, Kartik.

Thank you. Our next question will come from Mr. Greg (ph) Smith. Thank you, sir. You may ask your question.

Greg?

Can you guys hear me?

Greg, go ahead. We can hear you now.

Okay, great. You guys mentioned -- Jim, I guess you mentioned about the Canadian dollar adding an extra benefit in the quarter, and also, you had an indirect customer that stayed on longer. I was wondering if you could just size these, whether from a revenue or earnings perspective, and maybe kind of the extra boost it gave to the quarterly results.

Now, Greg, I'm not sure that I could break it down for you in terms of dollars and the impact -- the reference to the comment was really around, as we set our guidance for this fiscal year. We, as you saw -- at least we anticipated a softening on the exchange rate in Canada, and as a result, had to factor that into our guidance for this fiscal year. In fact, the rate moved up, so it worked in our favor for the quarter. That was one impact.

And then as it relates to Czech Republic, when we first announced the MUZO transaction, there was one customer in particular to had given us notice even during the due diligence that they would likely be leaving some or all of the business from MUZO. They have stayed on longer than we anticipated, and we are attempting to retain as much of the business as we can. But for the time being, they are processing still exclusively with MUZO.

Okay. Was there anything in the indirect merchant processing business that I think you mentioned might have been better than expected in the quarter?

I think that as we reported the last few quarters, we've seen that trending upwards toward the mid to high teens, and it slowed some in this quarter. We've seen that in the past over the last few years; there were some anomalies in different quarters. It just happened to line up this quarter -- tended to be better than what the recent trends had been. But we're expecting that would stay in the high teens as opposed to the low teens.

Okay. And then on the cash-flow statement, you have this line -- net business development activities. Are those the branch acquisitions you're doing on the DolEx side -- the 7.8 million number?

No. We had announced last quarter that we had acquired the Cash and Win business, which we had already owned 51 percent of. This is a credit card advance business, cash advance business, primarily to the properties in the Vegas market. And that was the bulk of the $7.8 million. The CapEx related to opening a branch is not reflected on that line -- only if we were to purchase a business.

Haven't you been doing that -- some actual acquisitions of small, very small, money transmitters?

We have -- we have -- not in the quarter, but we have constantly been in the marketplace looking for opportunities. And we have made those in the past; not in this particular quarter did we close one.

Okay. Where would that flow through on the cash-flow statement?

It would flow through on that lien if we had acquired a business.

Okay, okay. Great, thanks. And then, you mentioned that debit actually declined in Canada. I was just wondering what you sort of attribute that to.

Greg, it declined very slightly in Canada, and that was primarily a customer de-converted debit from us, and we felt the impact of that.

Okay. That was the large -- well, it was a single large customer, correct?

Exactly.

And then just one last question. As far as MUZO, do you guys plan on keeping the full suite of services there -- the acquiring issuing, and ATM-driving?

Yes, it's about -- yes, it's roughly a third, a third, a third in those kind of buckets, and they're all fairly meaningful for MUZO's offering, so yes, we do.

Okay, great. Thanks a lot.

Thanks, Greg.

Thank you. Our next question comes from Greg Gould.

Hi, this is Liz sitting in for Greg. Can you give us a sense in your direct business, the strength of the ISO channel versus the strength of your direct sales force in the quarter?

Well, Liz, we haven't broken that down exactly, but the ISOs are growing more quickly than our direct sales. You know, the ability for our 300 direct sales force to influence that huge base business is limited. That's more of an ongoing impact. But the ISOs, with thousands and thousands and thousands of salespeople bringing new business into us every month and every quarter actually can move that needle more materially. So that business is growing -- our base business is growing nicely. Our direct business is growing nicely, but the ISO business is growing much more aggressively than both of those.

Did you have any new relationships in the quarter in the ISO channel, any merge (ph) relationships that would have moved it down a little bit more?

Nothing large. We announced -- and I don't even have the name in front of me -- we announced one deal during the quarter of not a big ISO.

Okay. And then looking forward into your acquisition pipeline, are you guys seeing a lot of activity there? Or are you kind of shying away from acquisitions at this point? Or you're still actively pursuing deals?

We're still actively pursuing deals. We're interested, obviously, in expanding DolEx, and there's a couple of different ways to do that. We love our MUZO platform, and we think there's opportunities to expand that through acquisition, and we think there's parts of the world that we're very, very bullish on, that we don't have any presence today, and we're focused on those as well. But nothing to announce at this time.

Okay. And then just on the DolEx, I know that as of last quarter, you're still waiting for a license in New York. Has that come through?

It has not. Our New Jersey license did; we're going to be giving a little more color at our October 6 analyst meeting in New York. In fact, Raul Limon, the CEO of DolEx, we're giving him an opportunity to chat a lot about DolEx, and he'll have a little more color on that.

Peter Sedlaeek from our MUZO business, who is the president of that, and Carl Williams, who runs our worldwide business outside of North America -- all three of them will have a meaningful piece of the presentation on October 6, so hopefully you can make it.

Great. See you then.

Thanks.

Thank you. Our next question comes from Dris Upitis.

Hi. Congratulations on a great quarter, guys.

Thanks, Dris, and we got your name right for a change.

Yes, thanks. Just a question first on the cost of services line. That has trended down quite a bit for the last, probably, seven or eight quarters. And last quarter that wasn't the case as much, but we saw a lot of leverage again on that line this quarter. Can you just talk about, is that the timing of some of the consolidation activities, or what has caused a little bit of variance there?

I think it is a combination of factors. One is that it's the summer months, and so the summer months are going to be helpful both to the DolEx business and our core business, because we see strong transaction growth as well as the Canadian business this year had a stronger summer versus the year prior that they experienced SARS. And because we're in the processing business, more transactions generally help the cost of service line.

Secondly, the consolidation programs that we announced last year, which was closing of two facilities -- network didn't complete itself until the end of last fiscal year, so we're just starting this quarter to see the benefits of those programs, and they've done better than we anticipated.

Okay. And then kind of the flip side of that question, on SG&A side, last quarter, there was not much of a pickup year-over-year and then we saw that again. Is that really reflective of the ISO activity?

To the extent that there's increases there, it is predominantly the ISO activity.

Okay. And Paul, you mentioned that you had added some. Can you just give an update on the number of total ISOs and the number that you've added just recently? Can you quantify that at all?

Yes. Dris, we just added one during the quarter.

Only the one that you mentioned, okay.

Correct.

Okay. And the last question was just on the CapEx side, what your expectations are for the year there.

We're going to stay, currently in the range that we talked about, which was 25 to 35 million. We still believe that we're in that range, even though we're off to a fast start. Some of this is just the timing of how we roll out these projects, the data center, and the replacement of our North American platforms just happen to be heavy within the quarter.

Okay, great. Thanks.

Thank you. Our next question comes from Robert Dodd.

Hello. Actually, this is A.J. and Robert is also here. Paul and Jim, congratulations, but a couple of quick questions. One, what was the difference in pricing the first quarter of '05 versus the first quarter of '04? The reason I ask that is, why didn't you get the pop in revenue in the fourth quarter, that it appears you've gotten in the first quarter? And I have a few follow-ups from there.

Well, A.J., we did get a slight increase in actual spread overall, meaning, what we charge our direct merchants, both new and existing, over interchange and assessments, actually went up a little bit. So that was helpful. And, we haven't quantified precisely what that amount is, but we did say it did go up. And it was not mammothly so, but even a basis point is significant when you have a portfolio as big as ours.

Okay. Well, I mean on that point, Paul, I mean, I think we had kind of looked in (indiscernible) with recent increases in credit interchange, maybe 3 or 4 basis point would be possible to increase on spread. Just based on what we looked at here, it seems like it could've been higher than that. So could you care to comment maybe a little bit more on the increases in spreads?

That's slightly aggressive. We did well, but I'm not going to pin it down precisely. But, A.J. it is fair to say -- and we've been open about this part -- that we did enjoy a bit of a benefit from all these pricing changes.

Okay. Fair enough. We'll (indiscernible) later. Just also, I don't know if you sort of did break this out, but when you look at your forward guidance, I know you said you're benefiting partly from the annualization license -- you've benefited this quarter from reduction in debit, and also some of the increases that positively affected your spread. When you look into your guidance, can you -- do you have any comments on attrition? Will attrition be -- (indiscernible) is that expected to pick up in this fiscal year '05?

Attrition has been pretty consistent. We like to think we're kind of best of class with our attrition in the 10 percent range with our base business is pretty darn good. And our ISOs are higher than that, but we think our ISOs are doing extremely good too, based on industry statistics. We haven't seen any pickup at all in attrition. In fact, we do, A.J., we do significant client surveys. We just completed one, and I'm pleased to say we got generally very high marks across the board from our customers in a lot of measures, which is very important.

Paul, maybe just to clarify that too, that 10 percent, which is on your direct side -- is that 10 percent of volume?

10 percent of volume.

Okay. Well, that's it for now. Thanks a lot. Congratulations.

Thank you.

Thank you. Our next question comes from Roger Freeman.

Hi, good morning. Hopefully you can hear me; I'm in an airport. Couple of questions. When you talk about the acquisition revenues, the 31 million contribution in the quarter, does that include any organic growth in those acquisitions since you bought them? Or is that the amount they contributed a year ago?

No, that would be the revenue that was in the period from those acquisitions; and in both cases, they have organic growth (indiscernible).

They do. Okay. So the 18 percent, then, is really all the rest of the base business?

Correct.

Okay. Can you say how many locations you've opened in New Jersey since you got the license there?

We haven't opened any yet, Roger. Hopefully by -- not hopefully. At the October 6 meeting, Raul is going to talk a little bit about our expansion strategy, and he will reference that. But it is our intent to open some locations in New Jersey, and relatively near term.

Okay. And when you kind of think about expansion of the branch network, do you think that you'll expand the growth rate over time as you get more comfortable with this business? When I look at, for example, Money Grams growing their agent locations at 15 to 20 percent a quarter, would you expect that to basically grow faster at some point in the future?

You know, my expectations and my guidance are sometimes two different things. I obviously have high expectations for all of my businesses; we're particularly bullish on DolEx. But we feel comfortable in the guidance we gave this year on DolEx. But, you're right. the fundamentals are there for great growth, and that's our long-term expectation.

Okay. And then, I guess, with respect to MUZO, should we expect to see more alliances with financial institutions as opposed to acquisitions, like you did with Home Bank of Russia?

Yes, we would love to buy some acquisitions and tuck them into MUZO, and leverage that platform. Those are -- may or may not happen. But I think we directly control our abilities to go sign new business. So clearly you'll be seeing more activity on that end.

Okay. Great. And then, lastly, can you just remind me what the two facilities were that closed pretty much at the end of the -- or consolidated at the end of the year?

Yes, we had a deployment facility in Winston-Salem, North Carolina, that deployed a terminal equipment.

And then there was the second facility in Cleveland that provided customer service to -- to what we call back-end customers that was consolidated, as well, into our Owensville (ph) facility.

Okay. So, at this point, all of the facility consolidations are complete that you guys identified.

As it relates to what we announced (technical difficulty) last year.

Correct.

Okay, great. Thank you very much.

Bye, Roger. Thanks.

Thank you. Our next question comes from Peter Swanson.

Hi, good morning. Congratulations on the strong quarter, Paul and Jim. Question for you -- 20 percent plus transaction growth in DolEx, can you tell me how that related to last quarter's transaction growth?

Peter, that business has been generally steady on the transaction growth side during the fourth and first quarters; we did expect second and third quarters to be a bit slower.

In other words, Peter, you have two of your best quarters that just kind of bang into each other. Your fourth quarter and your first quarter are two of the strongest for DolEx.

Sure. But the quant or the trend fighting off the two strong quarters was similar, north of 20 in each of them?

Yes.

Okay. So my second question would be, how much of that high-growth do you think is taking share versus the macro market growth of money transfers down to Latin America?

I think we would be guessing. I will tell you a couple things we do know. Our transactions are kicking up, which brings a lot of leverage. That's why we love this business. It is -- this business is primarily driven by price and service. And our model provides the best opportunity to have the lowest price and the highest service. So, and, we're executing that strategy, and we're seeing that. There are more Latinos moving in -- even since September 11th, 2001, the net immigration into our country from Mexico in particular, Latin America in general, has actually increased. So, those are just wonderful statistics, and we're benefiting. But I think that tide is kind of lifting all those ships.

Okay.

I'm sure our competitors are getting some rise from that as well.

Sure. And can you tell me about how many Latino Amigo cards you have out, and what percentage of your transactions are coming from that. I know it's been pretty effective in the past.

Yes, it's something like 800,000 are actually active, which is something north of 80 percent of the transactions actually originate with an Amigo Latino card.

800,000 are now active?

Yes.

And, can you give us an update on the opportunity to put new products into that customer base? I know you've talked about it. Can you tell us where we stand from those initiatives?

You know, we have talked about, and we look forward to talk a little more about it October 6. And, once again, Raul Limon, the president of DolEx, is going to be at the NYSE, where we're having our analyst meeting, and he's going to talk a little more about products. But we are very focused on taking advantage of the 640 fabulous footprints in the United States exclusively servicing Latino customers. And there are lots of opportunities for additional products, and he'll take you through that.

Okay. Great. One question on the North American direct business -- are you seeing any increase in competition? Are any of the other players getting more aggressive in your market segments?

Pretty much steady state in the U.S. and Canada in that regard. But, Peter, it remains highly competitive.

Right. Okay. But steady state from previous quarters?

Exactly.

And one last question just on the EPS guidance for the year -- approximately what share count are you assuming?

38 million something -- I don't have a clue -- 39 -- what was our share count? Do you guys know? 39 million shares.

39 million. Okay. Great, thanks. Great quarter.

Thank you very much.

Thank you. Our next question comes from Don MacArthur.

Good morning, and congratulations on the quarter.

Thank you.

Last year around this time, you started exiting some riskier businesses in Canada. Can you talk about when you anniversaried that, and how that might impact the growth in Canada?

You know, that's a great question. And we did. We exited a number of travel related, and those are anniversaring throughout this year, and some have already anniversaried; but keep in mind, too, we have Air Canada. And as soon as we can exit that relationship, we will. We, hopefully, they'll be emerging from bankruptcy, and we will be having some conversations with them along those lines. So, it's kind of and on -- I guess the short answer -- it's an ongoing event. But it will have impact on overall growth, and you saw a little bit of that in the quarter with the numbers we presented.

Okay. And then, can you quantify the size of the customer loss that you expect in MUZO when they start moving off to your systems?

You know, it's going to be less than 10 percent if we lost everything. We are hopeful that will not happen.

Okay. And then, sustainability of gross margins from this quarter -- throughout the fiscal year, there's probably some seasonality with DolEx helping you out. But what the sustainability of this type of range?

Well, we gave our guidance on the range; it's 19.8 to 20.1. And of course, we were significantly higher than that for the first quarter. So you've got to expect a little deterioration from those levels for the remaining quarters with probably the fourth quarter being the strongest.

Okay. And then, can you -- you know this price increase in the direct business that you -- or the U.S. business that your anniversarying -- can you quantify the percent of internal growth that that changed? And isn't there another price increase in January and April to anniversary?

Well, the January and April were probably not as significant. The August one was the result of many years of litigation that resolved itself in one significant movement, actually down on interchanges for certain charge types. Typically, the associations have repricing events, or interchange adjustments, I should say. And, as those occur, and as Paul mentioned in his comments, there is always some opportunities to adjust our pricing as well. But those are not nearly as significant as it was in the August time frame of last year. Quantifying it specifically would be difficult to do in terms of the overall rate of growth for the Company.

Is your percent of transactions for signature debit around 20 percent like industry?

I couldn't give you a specific on rate of growth for the signature debit.

Alright. Thank you. Great quarter, guys.

Thanks.

Thank you. Our next question comes from Courtney Clayman (ph).

Hi. A couple of questions. What was the same-store growth at DolEx?

We're not -- we haven't been breaking out the same-store growth in the business. As you look at this business, we haven't owned it for a year. We've only owned it now for a little over six months. So, I couldn't give you a comparative year-over-year. It was under different ownership with different pricing structures last year. Now our interest is to see continued growth in transactions, and as we've commented, we feel like the transaction growth has been very healthy.

Okay. Well, in the last quarter's call I believe you said that it was on low double-digits.

I think we said it was roughly around 10 percent, but it all is a function of how they priced the business the year prior, and what their strategies were. And as we said in the third-quarter call of last year, our strategy and the seller's strategy were different, and then depending upon quarters, you're going to see fluctuations.

Okay. Next question. Can you discuss the benefits of purchasing the minority interest in cash and when?

Sure. We had a relationship with Comerica that dates back into the late '90s, and it's through an alliance, and the alliance primary focus is credit card processing for merchants -- retail restaurant, a whole host of different types of customers, which is our core business in the U.S. on the merchant side.

As part of the Comerica portfolio, however, Comerica acquired a business -- a bank, in California, called Imperial Bank. And within their merchant business was a product called Cash and Win. Over the last three years, I think Comerica made a determination that this was not a core competency of the bank. It was not something that they were focused on. However, on our check business, this is our check business in the U.S., we have a very keen interest in the gaming division for a specific product, which we call VIP Lightspeed, which provides services to casinos, and these are casinos in Vegas, riverboat, reservation-based casinos across the country. We saw a great synergy to put these two businesses together, and Comerica was interested in selling out their 49 percent. We already owned 51 percent, and so we worked out an arrangement that we thought was in the best interest of the Company, and now have combined the two businesses.

Okay. And are you breaking out the financial impact?

This is a relatively small business, so there's not much impact to the bottom-line from the acquisition in the early stages.

Okay. I have another question. How much of the quarter's revenue and volume was derived from the ISO channel?

Again, we don't separate out the different forms of revenue generation that come into the Company from direct versus ISO. But as Paul mentioned, the ISO growth has been and continues to be quite strong.

Okay. And what about the indirect channel? What percentage is that? Do you break that out?

We have historically talked directionally about the U.S. business. It is now less than 10 percent of the Company's revenue is indirect processing in the U.S.

Okay. Great. Thank you so much.

Sure. Thank you.

Thank you. Our next question comes from Tim Currough.

Asked and answered. Thanks.

Thank you. Our next question comes from Michael Grossman.

Hi. How you guys doing?

Good, Michael.

Two questions. One, I just missed what the transaction growth was in the core business. And then the second question is if you can just break out the CapEx and how much was attributable to the database center, DolEx, computer software, and just -- or, if you're not going to break that out, just kind of maintenance versus growth.

The answer to your first question was high teens. And would you repeat the second again? I'm sorry.

Just if you can break out the CapEx, how much was attributable to the database center and DolEx?

We wouldn't separate those out in pieces. DolEx was relatively small. The data center in the U.S. is a combination of building out. We've moved from the old NDC campus, which was required by the IRS in the March timeframe. The building that we are currently in, which is about eight miles from our old offices, did not have a data center in it. And the next part of this move is to move the data center. And so, we've now built out a data center within this structure, and we've also made investments in software and hardware to bring the data center up.

So it's fair to assume that the majority of the bump was from the data center?

I think that is a fair assumption.

Okay, great. Thanks.

Thank you. Our last question comes from Gary Prestopino. Thank you, sir.

Good morning, guys. Hey, Paul, I don't know if you can answer this question until the meeting in October, but what other states do you have licenses pending on the money transfer business, if any?

The only thing that's pending right now -- I'll be happy to answer. The only thing pending right now, Gary, is New York. Quite frankly, we have pretty much everyone else recovered.

Okay, so you are where you want to be.

Well, that's not exactly right. There is, maybe another state or two, but the ones we're really pursuing right now -- we just got New Jersey, we're going to get New York. We're in the other big states -- we're already approved.

Thank you.

Operator, before you go to conclusion, let me clarify two things. To Gary's question, we're in 18 states currently, so it is possible we will expand others. We're just pursuing New York at present. And also, to clarify a question that Pete Swanson asked about how many shares we were using in our estimates, we haven't given guidance in particular on that, but you know, it would range from 39 million to 41 million, depending on stock price, impact on diluted shares, et cetera. So, operator, we're ready to sum.

Okay, well, thank you all for joining us, and I look forward to seeing everyone at our investor conference October 6, on the floor of the NYSE. So thank you again.

Thank you. That concludes today's Global Payments first-quarter conference call. Thank you.