環匯 (GPN) 2006 Q2 法說會逐字稿

Thank you for standing by and welcome to Global Payments second-quarter 2006 earnings conference call. At this time all participants are in a listen-only mode. Later we will open up the lines for questions and answers. (OPERATOR INSTRUCTIONS) As a reminder, today's conference will be recorded. At this time I would like to turn the conference over to your host, Vice President of Investor Relations, Jane Forbes. Please go ahead.

Good morning. And welcome to Global Payments fiscal 2006 second-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; Jim Kelly, Senior EVP and COO, and Joe Hyde see EVP and CFO. Before we begin I would 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. With 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 which are discussed in our public releases, including 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 are not in accordance with GAAP. Management believes that normalized results 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 December 22, 2005, which may be located under our Investor Relations area in our website, www.GlobalPaymentsInc.com.

Lastly our prior period earnings per share results and share amounts give retroactive effect to our two-for-one stock split which was completed through a stock dividend that was distributed on October 28, 2005. Now I would like to introduce Paul Garcia.

Thanks, Jane. And happy holidays, everyone. We appreciate your participation on our call so late in this very busy holiday period. And as we recognize that the timing of our second-quarter call may present a scheduling conflict for some of you, we intend to have our fiscal 2007 second-quarter earnings call during the first week of January. Further, we also intend to hold our other three earnings calls during the fourth week of our respective reporting months, as compared to our prior practice of the third week. This is largely as a result of the additional demands of Sarbanes and the public company accounting oversight board requirements.

The agenda for our call today is as follows. I will summarize our financial results and review recent trends and events. Then Joe Hyde will further discuss our financial results. Next I will provide an update to our fiscal 2006 outlook and lastly Jim, Joe and I will be available for a question-and-answer period. Now for our financial results.

We are very pleased to announce another quarter of solid financial growth. For the second quarter our revenue grew 17% to $219.7 million. Our normalized diluted earnings per share grew 27% to $0.38, and our operating margin improved by 160 basis points to 23.2%. Excluding the year-over-year impact of a favorable Canadian currency exchange rate and our Europhil acquisition, which annualizes this month, revenue growth for the quarter would have been approximately 14%.

This solid revenue growth reflects strong performance in our North American merchant channel, primarily due to repricing initiatives in Canada and ISO growth in the U.S. Additionally, our consumer money transfer channel and our central and eastern European operations continue to provide steady growth, primarily as a result of further market penetration and strong industry expansion.

Before I cover our recent trends and events, I would like to provide an update concerning our pending joint venture with HSBC in the Asia-Pacific region. To quickly summarize our announcement of September 8, 2005 we have agreed to pay HSBC $67.2 million in cash to acquire a 56% ownership interest in the joint venture. HSBC will control the remaining 44% and will contribute its existing merchant acquiring channel in ten Asia-Pacific countries and territories. We are very excited about this transaction as it provides us with access to not only a large and rapidly growing payments market, but also to a world-class financial institution partner with extensive local market knowledge.

As previously discussed this transaction is subject to regulatory approvals and I'm pleased with the progress we have made. As anticipated, however, it is an intensive and lengthy approval process as there are generally a different set of requirements to meet within each of the 10 respective countries and territories. We continue to expect the completion of this transaction within 12 months of our September '05 announcement.

In the meantime, though, we have established a dedicated team to begin developing the operational and technical requirements needed to prepare a conversion plan. Once completed, this plan will likely require a multi-year process to execute, but our intention is to ultimately convert the joint venture's merchants on to a more efficient, leading-edge payment processing platform. We are also formulating a strategic sales plan in each country and territory to help invigorate the sales efforts compared to historic practices.

Now on to our recent trends and events. In the U.S. we achieved strong growth in our domestic direct channel compared to the prior year quarter. Our transactions for this channel grew in the mid teens. Our average ticket grew in the low single digits and our spread remained relatively stable. In total our domestic direct revenue achieved high teen growth for the quarter. Our highly successful ISO channel largely drove this strong year-over-year growth. In fact, I'm pleased to report that we signed seven new ISO relationships during the quarter. As a result of this strong growth, we are raising our fiscal 2006 revenue expectation for the domestic direct channel to a range of low double-digit to mid teen growth. This expected growth includes the potential impact of this summer's hurricane season which we currently estimate will lower our current fiscal year revenue by approximately $2 million to $3 million, and will also lower our current fiscal year diluted earnings per share by approximately $0.01 on a post split basis. This potential impact is modestly lower than we had previously estimated, which we believe is primarily due to the resilient consumer spending in the affected geographic areas. In addition to certain of our check gaming customers who have resumed operations sooner than we anticipated.

Lastly, in the U.S. our domestic indirect revenue declined in the low teens during the quarter, and we continue to expect a fiscal 2006 decline in the mid to high teen range for this channel.

In Canada we achieved low single digit growth in total transactions for the quarter. Our Canadian average ticket during the quarter declined in the mid single digits as expected primarily due to our decision to exit from our low margin, high risk contract with Air Canada. However, our Canadian spread increased more than 20% for the quarter primarily due to merchant repricing initiatives and a benefit from no longer processing under the negatively priced Air Canada contract. For the second quarter our total Canadian revenue growth was in the high teen's, driven primarily by these favorable pricing initiatives and to a lesser extent the continued strength of the year-over-year Canadian exchange rate. As a reminder, from our first-quarter call our last year third quarter had a favorable one-time merchant revenue adjustment for approximately $800,000 from Canada.

In addition, certain other Canadian pricing changes will annualize in the third quarter, including the MasterCard assessment increase. Consistent with this quarter's trend, we also anticipate the year-over-year favorable impact of the exchange rate will lessen for our third fiscal quarter. As a net result we are expecting Canadian revenue growth in the high single to low teen range for the second half of fiscal '06 which would yield mid to high teen revenue growth in Canada for the full fiscal year.

Our central and eastern European merchant operations continue to benefit from organic growth driven by strong industry trends. During the second quarter we achieved revenue growth in this channel of more than 20%. This growth was driven by more than a 20% increase in point-of-sale and ATM authorization transactions, in addition to approximately $500,000 in equipment sale. Towards the end of our second quarter the deconversion process began for the previously discussed large customer, which prior to the closing of the MUZO acquisition, had given notice of its intent to move a portion of its business. We expect this deconversion to negatively impact our revenue results in this channel during the second half of the fiscal year.

In addition to our fiscal 2007 year, as the deconversion is anticipated to occur slowly. Additionally, there are other factors that we expect will unfavorably impact our revenue growth for this channel for the remainder of this fiscal year, including an expected unfavorable check currency exchange rate compared to last year, and the timing of non-recurring revenue in the current and prior fiscal year. As a result of all these factors our revenue for this channel may experience a year-over-year decline during the second half of this year. Nevertheless, our revenue growth expectation in this channel remains unchanged at the high single digit to low teen range for the fiscal 2006. And, as reflected in our original revenue guidance.

To be very clear, we are extremely pleased with our growth prospects in this channel and continue to believe in the long-term attractiveness of the central and eastern European payments market. Our total money transfer revenue for the second quarter was $30.4 million, which includes our DolEx and Europhil revenue in addition to our legacy funds transfer channel. During the quarter our DolEx transactions grew more than 20%, and our DolEx revenue grew in the high teens. Additionally, we continue to expand our U.S. branch footprint and are pleased to announce that we added approximately 45 net new branches during the quarter, raising our total U.S. DolEx branch network to more than 760 locations. Our net new branches this quarter include the acquisition of 30 branches located in Florida and New Jersey.

We also remain pleased with our Europhil acquisition and added new branches in Madrid, Barcelona and Sevilla. Our total Europhil branch count is approximately 33 as compared to the 26 that we acquired in December 2004. Based on our second-quarter results, our fiscal 2006 DolEx revenue growth expectation remains unchanged at the mid to high teen range. In summary, we are delighted with our solid financial results and successes during this past quarter.

I will now ask Joe to further discuss our financial results.

Thank you, Paul. In our press release and as posted on our website we included GAAP income statements and schedules which reconcile GAAP to normalized results for the quarter and six months ending November 30, 2005. The current quarter GAAP results include a $1 million restructuring charge primarily for employee termination benefits and facility related costs associated with the completion of our planned consolidation of our Dallas call center into other existing locations. We do not expect any further restructuring charges directly related to the consolidation of this facility.

These restructuring charges have been excluded from our fiscal 2006 guidance and further my comments this morning exclude these charges and reflect our normalized results. During the quarter revenue grew 17% to $219.7 million, and normalized operating expenses were $168.6 million resulting in an operating margin improvement of 160 basis points compared to last year's quarter. This margin expansion was primarily due to increased revenue and improved leverage from our North American merchant channels.

Aside from the revenue increases that Paul discussed, other factors contributing to this improved leverage include lower telecommunication costs and other vendor rate reduction, savings from the exiting of our shared service agreement with NDC Health and flat year-over-year operating costs from our U.S. customer service centers, including our recently closed Dallas facility. Further, our merchant card operating losses and allowances declined $1.2 million for the quarter compared to the prior year primarily as a result of improved risk management technology tools, collection efforts and other operational improvements, particularly related to our Canadian merchant. These operational improvements in Canada include the migration of a large portion of our Canadian Visa portfolio away from same-day value, which reduces our risk by effectively delaying the settlement process an extra day relative to historic practice. This reduction in merchant card losses and allowances, however, was more than offset in the quarter by a $1.7 million increase in our check guarantee and gaming losses, primarily as a result of growth in this channel and the unfavorable impact of this summer's hurricane season on our collection efforts.

Other factors that have partially offset our operating leverage include our continued investments in our direct and ISO sales channels as well as investments to grow our money transfer branch network. As Paul mentioned, we are aggressively adding branches to our DolEx and Europhil network which typically generate losses in the first year as the majority of our branch related costs are fixed. While the size and age of the DolEx branch network is able to absorb the losses of these new branches and still maintain a strong contribution to overall earnings, our smaller Europhil branch network is still in an investment phase, and accordingly is not currently contributing to earnings. Further, we are expecting Europhil's year-over-year revenue to decline during the second half of fiscal 2006. This expected decline is due to a service offering rationalization, a market-based pricing strategy to attract new customers, and a likely unfavorable year-over-year Euro currency exchange rate. We had expected a modest unfavorable impact to revenue and earnings in the early stages of this acquisition, and we continue to believe that this transaction will provide long-term revenue growth and EPS accretion.

Net interest and other expense of $283,000 for the quarter reflects a reduction from the prior year, primarily due to higher cash balances and higher investment rates driving more interest income. Our interest and other expense remain steady compared to the prior year primarily due to a decline in interest and other expense as a result of the paydown of our U.S. line of credit offset by an increase in interest and other expense related to our relationship with National Bank of Canada. In contrast with our CIBC funding arrangement, National Bank had contractually assumed the obligation of funding the same-day value impact for our MasterCard merchant portfolio and charges us a fee for this service which we record as interest and other expense. Prior to fiscal 2006 we typically used our own cash to minimize National Bank's funding needs. During the first half of this fiscal year, however, we transferred our cash from National Bank which increased the bank's funding obligation and the related service fees charged to us.

Also during the quarter we amended and extended the term of our credit facility agreement with CIBC. For the terms of the agreement we voluntarily reduced the aggregate borrowing capacity from $175 million Canadian to $50 million Canadian and extended the term of the agreement until November 2006. Our Canadian borrowing needs have been reduced primarily due to the migration of a large portion of our Canadian Visa portfolio away from same-day value as previously discussed. During fiscal 2006 we expect 1 million to 2 million in net interest and other expense.

Minority interest net of tax for the quarter of $2.2 million reflects an increase from the prior year due primarily to growth from our joint venture with Comerica Bank. During the quarter we completed the legal process to purchase the remaining 2% of our MUZO acquisition shares outstanding, which were not previously received in our May 2004 public tender offer in the Czech Republic. As a result, we now own 100% of this entity and have discontinued reporting any related minority interest expense. We continue to effect 8 million to $9 million in minority interest net of tax for fiscal 2006. Our tax rate remains at 34.1% during the quarter compared to 35.3% in the prior year quarter. We define our tax rate as our income tax provision as a percentage of our pretax income before minority interest. Please refer to our most recently filed 10-K for further information regarding the tax rate calculation changes we made during the fourth quarter of fiscal 2005. The decline in our year-over-year tax rate is due to tax planning initiatives and the impact of international growth primarily in European markets where statutory rates are lower than U.S. rates.

As previously discussed our current share count reflects the impact of our recent stock split. We expect a range of 81.5 million to 82.5 million in diluted shares outstanding on average for fiscal 2006. We achieved 46.5 million in free cash flow during the quarter for a growth of 23%. We define free cash flow as net cash from operating and investing activities excluding business acquisitions and changes in working capital. In addition to this free cash flow we have also realized 60.7 million in cash relating to our settlement activities during the first half of this fiscal year as reflected on our cash flow statement. This increase is largely due to timing inherent in our settlement process but is also partially a result of the migration away from same-day value for a large portion of our Canadian Visa portfolio, in addition to the National Bank change in practice that I previously discussed.

Capital spending for the quarter was $7.3 million primarily for software and infrastructure, including our new Atlanta-based next generation processing platform in the U.S. We anticipate $25 million to $35 million in total capital spending for the fiscal year. Also on the cash flow statement, total depreciation and amortization of $10 million for the quarter declined from $11.4 million in the prior year. This decline is primarily due to certain computer equipment and software becoming fully depreciated toward the end of fiscal 2005, largely in our central and Eastern European channel. In addition, we have also experienced lower depreciation in our Canadian channel primarily due to timing of merchant terminal purchases which we predominately rent to our Canadian merchants.

For fiscal 2006 we anticipate approximately $40 million in total depreciation and amortization, including amortization of acquired intangibles. Once we complete our next generation U.S. platform, however, our total depreciation and amortization expense may increase from this level as the related capital assets are transferred from work in progress on our balance sheet and placed into active service. Lastly on the cash flow statement our business development activities line reflects $1.6 million for the first half of this fiscal year which primarily relates to the 30 U.S. money transfer branches that we acquired during the quarter. Further terms of the related agreement we expect an additional $1 million to $2 million to be paid for this acquisition during our third fiscal quarter.

Paul will now discuss our fiscal 2006 guidance and our ongoing strategy.

Thanks, Joe. Based on our solid second-quarter results, we are raising our full-year fiscal 2006 revenue guidance to $877 million to $892 million or 12 to 14% growth over $784 million in fiscal 2005. In addition we are raising our full-year fiscal 2006 diluted earnings per share guidance to $1.41 to $1.47, reflecting 18% to 24% growth over our fiscal 2005 normalized diluted earnings per share of $1.19 on a post split basis.

We are also raising our fiscal '06 operating margin guidance to 21.8% to 22.2%. This guidance does not reflect the impact of restructuring charges, our pending joint venture with HSBC or any other significant acquisitions. We are once again very pleased with our results and achievements this past quarter which reflect the ongoing execution of our strategy. We will continue to focus on pursuing 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) David Togut, Morgan Stanley.

Hi, this is Druv Chopra (ph) calling in for David. Quick question. I know you talked a little bit about the spreads both in the U.S. merchant and in Canada, but can you give us an indication of what you're seeing on the margin front both for merchant and money transfer?

Well our margins as a total company have improved, and we are seeing that largely a result of the revenue growth that we've achieved. It is largely a fixed cost business. The money transfer more so than the merchant business but they are both largely fixed costs. So we are keeping our operating expenses in line. We talked about some of the operational synergies and efficiencies that we have been pursuing. And the net result is an improvement in overall margin increase.

I will add one thing. As you know, our ISOs grew very nicely. We talked about that being a topline driver. And the ISOs are diluted to margins. And when you see ISO growth at that kind of level and still see a margin expansion, that should make you feel pretty good that we are fully leveraging our infrastructure.

Great. And just another quick question I had. Kevin Schultz has been onboard now for a good two, three months to try and reinvigorate the growth in the direct merchant. Can you outline sort of what his top priorities are, what he's going to be focused on to try and get that growth back on track?

Happy to. Kevin has been here as you said a short period of time, but he already has made some pretty bold and I think some pretty sweeping changes within the structure of our direct sales force. He has added, in process of adding some new talent to that group. He has appointed a new individual to run the entire effort for our regional sales force. A gentlemen by the name of Ed Myers, and he is a season and terrific executive that we actually moved from our check group. He has reinvigorated that group. He now reports to Kevin running this group as well. And he has in the process of reviewing goals and objectives, product offerings, territory assignments, vertical market focus, he is a very busy guy, and I'm really happy with the progress Kevin is making. And I hope to give a little more color on that in coming quarters.

Paul Bartolai, Credit Suisse First Boston.

On the Canadian business a lot of moving parts there, can you try and give us a sense of what revenue growth would have been in the quarter ex the currency and the repricing initiatives?

I would not try to break that out separately. We've given our expectation for the second half of the year. And the full year. So if you look at what we said for the second half, that largely will exclude the impact of the FX as we expect that to lessen during the quarter. We also had, we had our series on pricing adjustments that occurred around I guess in the third quarter of last year which will annualize. So the second half of the year will be a better indication of what the organic growth is, although we still put in some other repricing initiatives in the first quarter of this year which will not annualize during the second half. So we haven't attempted to try to break all that out and come up with revenue growth outside of those impacts, but we have given you what our views are for the second half and the full year.

On DolEx, on the branches you guys acquired, can you give us a sense of what the contribution to revenues that was during the quarter?

I will ask Jim to take that one.

These are our 30 branches that were brought in during that time period, 30 branches on a base of over 700 is relatively small, but it is in a new important market which is New Jersey and then Florida which is already an existing market that we are focused on building out.

So what part of the quarter did those come on?

They came on -- I don't know the dates specifically but somewhere during the middle of the quarter.

Okay and then just last on Europhil you guys mentioned I think a change in the service model that is going to impact results in the second half. Can you just give a sense of what those changes are and what the FX is going to be?

When we acquired the business in December of last year similar to what we discussed during the DolEx acquisition, the sellers tended to raise the price during the sales process, so we are rationalizing pricing and we have been doing that for the last year. But in addition, as we went through the due diligence process we understood that there would be some banking regulation changes as it relates to international money transfers. And those in particular would make it much more difficult to do non face-to-face transfers of money previously. Europhil had about 10% of their business tied to these types of transfers. We ended that business as of the end of February, which took about 10% of the revenue out of the business; that will annualize in February and as Joe said in his comments, will be bumping up against that this year.

I would also add that if you look at the Eurocurrency exchange rate where it is trading today compared to where it was in the third quarter, it is looking like if everything stays the same, it could be a 10 or 11% decline in just the exchange rate. Which is pretty tough to try to overcome.

Mark Marostica, Piper Jaffray.

My question relates to DolEx, with the acquisition of the 30 branches that you just discussed, is that signal a slowing of the branch additions that you will move forward with next quarter and current quarter, or the quarter after that? Or how do you think about new branch additions for the next couple quarters?

It doesn't signal any type of change. We've talked about adding a rate of branches a quarter of about 15. Sometimes we find opportunities to acquire them; sometimes we open them organically. But the trajectory that we are on will continue as it relates to branch openings for DolEx and we will continue to look at opportunities to open branches in Europhil, as well.

I thought that at your analyst day you talked about a one-stop financial center with respect to the DolEx platform. Can you give us an update on perhaps any of the initiatives you moved forward with in that vein?

(indiscernible) outlines in his presentation as it relates to a store value card a bill payment and a variety of other services. The Company continues to move down the path; some of these products are already in beta and our hope is to get those rolled out as soon as possible.

So from the current quarter standpoint there wasn't an impact of any sort for those new products yet?

Not at this stage, (indiscernible) the quarter was clean as it relates to money transfer and the other services that were already in place at the branches like money orders, things of that nature.

When should we expect some of these new items to start enhancing revenue growth at the other branches?

I think as it relates to DolEx, it remains to be seen what the market impact will be so I don't think we can give you specifics as it relates to our revenue guidance. But as we are working through the betas today our hope is to finish them up this fiscal year and have them in next fiscal year.

Fair enough and one last question regarding the impact of FX, can you give us a sense what the earnings impact was in regards to FX for the quarter? Thanks.

Mark, we have never attempted to break that out. We have started talking about the revenue impact. It was as we said, we reported 17% revenue growth and as for the FX and the Europhil it was about 14%. So the impact would be the relative margin on that business. So it is obviously less of an impact on the financials than the revenue. But we have not attempted to try to break that out in the past.

Fair enough. Thanks. I will turn it over.

Greg Smith, Merrill Lynch.

On the money transfer side given First Data's acquisition of VIGO, are you seeing any change in strategy there, different pricing, anything that could impact DolEx and cause any kind of response out of you guys?

VIGO had been in the market for a number of years, and we competed against them actually before Global acquired DolEx. DolEx served as a settlement channel for VIGO so we know the company fairly well. And have competed against them successfully; and I am not aware of any changes that have been made through their acquisition or the acquisition by First Data or Western Union that has impacted the marketplace.

I would say, Greg, they can still continue, I mean Western Union still continues to be an aggressive competitor and clearly the leader in money transfer, period.

And then just on the international front as you look for additional acquisitions I think there was some chatter about First Data acquiring somebody in Germany. Are there still significant opportunities out there or is it getting a little bit tougher to find the right properties internationally?

Greg we continue to look at a pretty extensive list, so we are fairly enthusiastic about the opportunities. In fact, with SEPA coming, the Single European Payments Area coming, mandated 2010, its causing a lot of European players. MUZOs from all these different countries to really consider what they are going to do with that platform. So I think we're seeing more, not less. However, with that said and done you still have guys like First Data who have enormous appetites and big checkbooks. So we're not going to do something that we think is foolish, but we are encouraged by just the number of things we are seeing.

Okay, and then just lastly, what are you seeing as far as relative growth rates just domestically in debit versus signature? Any shifts or changes occurring?

I think pretty constant. As you know, signature debit is still a faster grower than credit. PIN debit is kind of leveling off but still growing very nicely.

What kind of growth rates would you give for PIN?

I think over 20%.

Great. Thanks a lot, guys.

Tien-Tsin Huang, JPMorgan.

On the ISO side how does the pipeline look for signing up new ISOs? It sounds like you've done a good job of that in the last few quarters.

Yes. It's pretty good. We've beefed up our sales efforts there. The guy that runs that working for Kevin is, has some great resources focused, and we have a number of pretty nice sized ISO's that we are talking to. So I'm very pleased and as we said we announced seven we just mentioned for the quarter, so that was terrific. You know, I still, I cannot overemphasize how pleased we are with that channel. We love that business.

Any material change in the contractual terms required by the new ISO partners?

You know, these guys all continue to drive tougher bargains, and that will continue. Nothing material, no. The same type of -- I mean it is pretty thinly priced now to attract all these guys but we are making nice margins on it still.

And Paul, can you repeat again the operating margin targets for fiscal '06? I missed that.

I have it right here. Hang on. It is --.

It is 21.8% to 22.2%.

Thanks, Joe.

Okay, so 30 basis point increase. I guess it implies I guess no further operating margin gains in the second half. Is that really the growth in the ISOs that is probably going to drive some of that?

Well, the ISO growth does, in fact, take away from our margin growth so that is part of it. That is absolutely true.

Any other factors that we need to consider? I know you have highlighted a few, but I want to better understand the second half implied guidance there in the operating margins.

We're still expecting an increase in margin year-over-year. And a lot of the revenue factors that we talked about, the FX and our MUZO, Europe indirect, Europhil, all of those impact the Canadian repricing annualizations, all those will have an impact on margin but we are certainly not looking at a margin decline in the second half of the year. I'm not sure of the math on your numbers there. But we are still looking for continued margin improvements largely as a result of revenue growth.

No. I didn't mean a decline; I guess a slowdown relative to what we've seen the last couple of quarters.

That's probably fair.

Very good. Happy holidays. Thanks.

Gregory Gould, Goldman Sachs.

It is (indiscernible) in for Greg. Just a question on the DolEx pricing. What are your expectations if any of the money transfer revenue growth and transaction growth converging closer together in that business?

I think the same for the card business as you see with money transfer businesses that more mature become commoditized to have some price erosion. We have seen price erosion in the DolEx business since we acquired it. I think the rate is clearly manageable. I don't think they will converge together, but they will continue to attract consistently. Europhil is going through its annualization -- the transaction growth in the Europhil business for volume in transactions is looking very strong as well as the average ticket has grown there as well. Spread is much more severe in its first year. But we expect after it annualizes that it will follow a similar trajectory to what we saw with DolEx after it annualized its first year.

Would you characterize that price erosion as low single to mid single digit?

That's where we have historically talked about.

And then on December transaction volumes that you've seen so far clearly your guidance calls for very healthy growth continuing. Can you give us any sense of what you are seeing in the holiday sales?

We talking about DolEx or merchandise?

No, sorry in merchant business.

It looks pretty good. We haven't seen anything notable either up or down. It just continues to be, as you said, healthy.

It looks pretty consistent to where we've been.

Roger Freeman, Lehman Brothers.

I was just wondering if you could give us a little more color on these 30 locations you acquired for DolEx. Are these a mature money transmit, or is it pretty much the same business model? Any different geographies that they serve?

As I mentioned, they are in two different markets; New Jersey which is new to us, we opened that a year ago maybe, somewhere in that timeframe; and the rest are in Florida which was an existing market. I don't think anything unique about them. They are housed within an existing chain of travel agents predominately, and it is a common business model that we have seen where a travel agency and money transmission business is growing up together. The owner of the agency chose to exit the money transfer business which we've acquired and will continue to house our locations within their stores. We have that model in many other locations throughout the branch network.

Okay. I guess in terms of geography, I meant in terms of destination too. Is it primarily Mexico?

It is predominately Mexico. Mexico is over 70% of where we send money, but as we move into the Northeast, Mexico becomes much smaller percentage of a destination country. So because it is split between Florida and New Jersey, the mix doesn't change all that much, but as we will see as we move further into the Northeast that I think the mix will move more to some of the other countries that we are settling.

Central and South.

Okay. And anything new on the New York front? I think you talked last quarter you were looking at possibly acquiring someone that had a small presence in New York.

We have a relationship that we've worked out the deal's terms. We are waiting on licensing from the state. I think we've mentioned before that there are two ways to acquire these businesses. You are either acquiring through a stock deal or an asset deal. Our preference tends to be an asset deal; the sellers tend to be stock deals for tax purposes. This is an asset deal, so we need to have our license in the state of New York. Paul mentioned on almost every quarter that we've been on since we mentioned New York that this is a pretty arduous process, fingerprinting of the board, the whole nine yards, and we are through that process now. We had to restart it maybe 6,9 months ago, and we are making good progress and hopefully we will have something to report in the not too distant future.

The good news, Roger, on this deal that we just discussed where we picked up these locations where we have an opportunity to get a handful in New York to once we are ready to go with all the state regulators. So we'll kind of hit the ground running a little bit up there with about eight or ten New York-based locations just from this acquisition that we just discussed with the 30. So that is encouraging. So hopefully next quarter we will have something to talk about.

That is encouraging. And I guess with respect to these 30 you acquired, if you back those out, I know you said they came in mid quarter, and I think you said that transactions grew north of 20%. Would the transactions otherwise have been at 20%, or would they have been below?

It would not add a material impact to the 20%. I think it is part of a grander strategy, we also opened other branches but in the quarter we've closed branches within the quarter; it all kind of mixes together. The business is doing quite well.

Just last question on Canada. Once you get past the first quarter next year when this latest pricing initiative was implemented, is it reasonable to assume we will be back to sort of mid single digit growth there ex any currency impact? Or is there still anything more that you can do there on the pricing front? I mean you've done a lot.

Roger, we only give guidance for the current fiscal year, and we're not going to give expectations for next year. Clearly we have a wonderful market position in Canada, and Jordan Cohen and his team are doing lots of positives. We're working to try to keep pace with the market growth in Canada which admittedly is probably slower than the U.S. But we think we are still positive about our prospects there. But we don't have any expectation or indication yet what our next year growth will look like.

Thanks a lot.

Wayne Johnson, Raymond James.

You guys did a terrific job on the gross profit margin. 60% looked very strong. Can you give me a sense of what the target range is for the next few years?

Good try, Wayne.

Wayne, again we only look at really operating margin in total, and we look at just fiscal '06 so I would just echo my comments I made to Roger, we haven't given any kind of an expectation for margin on the gross profit or operating lines for beyond '06.

Okay. I appreciate that. Somewhat I was hoping we could get a little more clarity on like the long-term operating model and goals. But perhaps we will circle back to that at a different time. I thought I would slip that in there during the holiday season. (multiple speakers) This is kind of a housekeeping item. On the other interest and other income side. Was that increase solely from a rise in cash balance, or where there other sources to that increase year-over-year and sequentially?

The interest and other income is a function of rising cash balance as you can see on our balance sheet and also in addition to rising interest rate. Interest income rate.

Right, and so can you kind of give us a sense of where you think cash balances are going to be and remain throughout the remainder of fiscal '06?

I can't give you the cash balance expectation, but we did give a guidance I guess for interest and -- a net interest and other expense. I believe it was 1 million to 2 million in net interest and other expense for all of fiscal '06.

That's terrific. Thank you very much.

Carla Cooper, Robert W. Baird.

I wondered if you could talked a little bit about SG&A, the growth outpaced sales growth and just wondering if there was any items in the quarter that might have been discretionary or maybe unusual.

It is typically and I think the same for this quarter, it is typically driven heavily by the ISOs because all the sales costs for the increased ISO activity falls under SG&A. Joe, is there any more color you can add?

No. It is largely driven by the ISO residuals that we are paying.

Okay, that's helpful. Thank you. And then just a minor point that you mentioned when you were talking given the results for money transfer that that included the legacy funds transfer business. I thought that was reclassified back up into merchant, so I guess the question just is, is there still a portion of it that is in money transfer?

Yes, there is, only a small portion of the funds transfer revenue was reclassified into merchant services. There still are the bulk of our legacy funds transfer is still included in our money transfer line. Again, it is a very small number.

So small, so essentially we're not going to be that far off if we just assume that the 30.4 million is primarily DolEx in Europe though?

Absolutely primarily DolEx in Europhil, correct.

And finally one last quick one. You've been working very hard and done a great job on cost of goods sold and I wonder how much more you kind of laid out and you talked about kind of the charges that you expect to continue to restructure the operating infrastructure. How much more there, what are the future moves that you've got left there and if you can attach dollar amounts to them.

As Joe mentioned in his comments we completed the Dallas facility closure, and that was last year, it was Winston-Salem and our Cleveland facilities. We constantly look to rationalize the infrastructure of the Company and leverage wherever we can. We have mentioned on a couple of occasions that the effort that is underway to consolidate processing platforms in the U.S. and hopefully ultimately U.S. and Canada, is another big opportunity for us as a company to reduce our operating expenses. And also, as Joe mentioned, as we become a larger company we take the opportunities where available to rationalize our pricing with vendors. And I don't think that is an event that just occurs in a year. I think it continues where the opportunities exist.

Correct me if I'm wrong, but the rationalization that you continue to think you're going to have in the forward, going forward from U.S. and Canada is a multi quarter -- that is a multi quarter or even a year or two type of completion projection, right?

As it relates to the systems?

Yes.

Yes, that project started about a year or so ago.

And it's a multi year.

And it's a multi year effort.

Okay, thanks.

Mark Sproule, Thomas Weisel Partners.

Just a couple quick questions. I guess the follow-up on the questions that were just asked there quickly regarding the SG&A there, then is it safe to think that since a lot of that increase would be related to ISOs that some of that is just in how you've renegotiated some of the ISO relationships. And new signings are a little bit tighter from your perspective even though obviously the margins are very nice for what you are getting, but a little bit tighter for what you're giving out?

No, I think that although that is true, I think that in the SG&A increase its just a function of how much those guys charge the merchant, how much they keep and how much we have to report. And there are just more of that to report because there is more ISOs and there is more transactions and that business is growing.

Okay, and with the new seven ISOs you're signing, obviously the ISOs range from some pretty small organizations to obviously fairly large ones. Is there sort of a range and the number of merchants that some of these guys have been bringing on board your system or something that we can put our hands around a little bit more --?

We stratify the ISO channel to three categories based on their ability to take liability. And we tend to focus on the upper tier, the ones who take full liability. If you are an ISO that is full liability you are generally signing at the low end 100 new deals a month. That is not net 100. Just deals that are coming in. And that can run up to 4 to 500 is probably toward the high side; in some instances if you have a really large ISO they can be bringing in closer to 7 or 800 deals a month.

And then if you are shifting to the DolEx side, with the 30 new acquired stores, how you guys looking at building out organically or buying stores? And is their sort of an increased attractiveness to buying small retail guys or small money transfer agents that are looking to exit the business? Is that becoming increasingly more or increasingly cheaper for you guys to do that? And then I guess as an add-on to that, how easy is it for you to take a situation like an individual that you bought who has part of their travel agency and sort of leveling some of the new products that you are planning on rolling out?

Thos are two good questions. The first one on buying I would be pleased to say that we've been very disciplined in how we approach a build versus a buy. And we know pretty exactly how long it takes for a store to be profitable, what it takes for the initial investments. We price with promotions, money transfers for $1, etc., and then we compare that to do how much per transaction measured on a monthly basis; how many transactions will we get from this property that's being offered, and we know pretty precisely what we will pay. And if it is acceptable to the seller, we buy it. If it is not acceptable to the seller we're going to open a location probably right next door. In terms of having it within a travel agency these will be our operations, our booth, and they will be able to sell all the things that Jim talked about. Jim, you want to add anything to that?

I think the travel agencies or anybody that we are collocated with I think the more traffic that a money transmitter collocated with them offering a broader array of services, driving traffic into their locations, is only a win-win for both of us.

I guess one last question on the potential expansion or acquisition opportunities of MUZO like platforms in Europe, is that -- are you still focused predominately if not exclusively on the Eastern European emerging markets there, or as some of the Western European countries start to move towards implementing the full so to speak mentality, are other acquisitions to be had across continental Europe?

I think there are; the latter is correct. There are other acquisitions across continental Europe. We like Central in Eastern Europe more; we have a sales office now in Moscow in Bratislava, in Warsaw, in Prague. We love those areas. They are growing unbelievably and where there is other opportunities within those geographies that are very exciting and it is growing at double to triple the rate of Western. But Western has some big platforms available. Some big MUZO's that are available. And you do look at those things but they are tempered by whose going to win, what kind of growth? And you are competing with everybody because they are big enough that these things are going to be books, they have engaged bankers. We are all going to hear about these. So with all that said and done I suspect that we are going to continue to focus on Eastern and Central. If we can get something on our terms and we think it makes sense, and we think you can grow it, then we would consider something on Western as well, but I'm not holding out high prospects for that.

Thanks a lot, guys. Have a good holiday.

Robert Dodd, Morgan Keegan.

A couple quick ones and then a more general question if I can. On the settlement asset and the cash side, how much of the 130 million in cash is really excess versus temporary cash tied up through the timing of the settlement asset? There is a big shift from the second quarter obviously because from that timing. If you could give us an idea as sort of what the breakdown is, that would be very helpful.

We try to give the distinction between what we consider our operating cash flow and what we consider the impact from the settlement, which was about $60 million for the first six months of the year. So other than that we have not attempted to try to take our cash balance and a portion out what maybe is there as a result of settlement versus just normal business operations. And it would be maybe difficult actually to do that.

I guess partially what I meant was that 60 million, some of that I guess is the ongoing shift in how settlement is handled in Canada versus some of it is timing. Have you got any ideas of the breakdown of that 60?

We had moved about, in terms of the National Bank impact, we had moved about 30 to $40 million of cash that we had sitting there. So that is largely our, of course our own cash is not a function of the timing necessarily, but outside of that the number is always going to move around based on timing. But the cash that we have on our balance sheet is our cash, and it may move from time to time but, and maybe we can try to give more details on that in the future quarters. But for right now I think that we have given as much as transparency as we can.

I would also add that DolEx requires a certain amount of cash in transit in the booths and in transit to financial institutions since it is a cash and carry business. So in addition to what Joe mentioned on the merchant side, we're going to have cash really from the balance sheet to support DolEx and Europhil.

I know you don't want to give guidance for next year, but can you give us an idea about what's going to be going on with stock option expensing? Do you have a view of how significant that is going to be? Is it going to be more I guess in line or smaller than the pro forma numbers you give in the (indiscernible)?

That is a fiscal '07 event for us, so as a result its been a lower priority for us to evaluate the impact on our financial statements; our second quarter Q will reflect it. We still have not evaluated the net impact. But obviously either in the next quarter or at our year end we will obviously give a better idea for what the impact can be. But there is a schedule in our 10-Q that may end up approximating what the impact is of the new FAS 123 R. But at this time we just have not finalized those numbers. So we will try to give some more color on that in the coming calls.

Thanks and on the cost-saving, if you have done a lot of facility consolidations, and as you say talking to vendors. Where would you rank or classify where you are in terms of your opinion of how much consolidation you've got left to do in terms of low hanging fruit? Obviously there is always room in a growing business.

I think if you have a baseball analogy its probably seventh-inning for facilities. I think it is for systems, we are probably top of the third. We have a lot of opportunity yet on the systems consolidation and that is going to drive a lot of money in the future. The facilities, there are some other opportunities but we've gotten most of that low hanging fruit.

Thank you.

Dan Perlin, Stifel Nicolaus.

I wanted to kind of just go back and revisit the ISO channel again. You guys have been very successful obviously in adding ISOs. I'm wondering where you stand today versus a year ago and the absolute number; that will kind of lead me to my next question.

I don't know and I don't want to guess.

We were probably the high, probably high fifties and we are up to around 70, we added seven in the quarter and probably a similar number in total last year.

So as you think about the growth in the ISO channel, are you suggesting that it is more coming from productivity for ISO or the actual expansion of the number of ISOs? And if it is productivity, what are the things that you are doing to enhance that?

I would say the former. The new ISOs are in fact adding locations. But we are fortunate enough to have some very big successful ISOs, and they just go from strength to strength there. They are niche players, and they are driving value into the niches that they are in. And how we are helping is we are responsive to what they want in terms of products and services and paying their sales forces and keeping them happy, giving them reporting to do some on a timely basis. And a myriad of other things that they ask us for daily. And we run and do it for them.

Are the majority of them exclusive relationships today, or they still have partnership arrangements with others?

Most of them, no one is truly exclusive in that if you don't have something, someone else can do it. And I said this before you got to win these guys every day. They do have requirements to give us the lion's share of their business, most of them, but at the end of the day you earn that. More than demanding they do it.

Many of our contracts if not all the contracts have at least a floor they have to give us a percentage of, and that is generally as Paul said the lion's share of the business. And the rest of it is around product specification if we don't happen to have a product that they want to certify or want to use, they will use another processor. But as Paul said we've earned I think their business quite nicely over the last five years and we get the lion's share of all the business of ISOs that are doing business with us.

I will give you a little more color to this, and this is good and it's bad. It is really been that once a sales force starts getting comfortable in selling your product successfully they are going to continue to do that, so it just kind of feeds on itself. Conversely, it is tougher to get new business because they are more comfortable selling one of our competitors and you have to retrain them and get them comfortable on your services and it takes a while to make that happen.

Okay, and are the ISOs that you currently have today are the majority of those full liability. And just so I understand that, is that to say that they are able to eat the merchant loss?

In the majority in terms of the number of ISOs, no.

Or maybe volume.

(multiple speakers) Yes, we started this program five years ago we had many more that were zero percent, meaning they had no liability. That is not a great program because there is always conflict between sending in a merchant and whether we will accept it or not. So we moved upstream and picked larger, more successful ISOs that were capable of handling those losses. And today what we call full liability ISOs, as you just described if a merchant takes a loss, then the ISO would pay for that loss.

So as that channel increases, that would also impact your merchant losses as a percentage?

It would not because, as I mentioned, they are taking 100% of the loss. So we have never seen -- or not seen for the last four years any losses from 100% ISOs. Or 0% -- excuse me -- 100% liability ISOs. I don't think we have -- actually I don't think we have ever seen a loss from 100% ISO. We have personal guarantees. We require them to put cash deposits on the inception of the relationship. And we have access to all the residual funds that come in from the processing of the merchant. So we collect the funds, and then we pay the ISO to the extent there is a loss with the merchant, if the ISO is not able to pay it out of their pocket, we have the funds from their processing to cover those losses. So you would not see nor have you seen any losses in our financials over the last five years.

I was really more referring to the fact that your merchant losses that you recognized, the 1.2 million that declined versus last year, as a larger percentage of the business or volumes that come from these full liability ISOs, that number should be driven down just naturally.

Yes. The 1.2 that's declined, that is a result of the efforts internally at the Company, investments and systems, attention to detail as Joe mentioned.

And for our own portfolio. But Dan's point is a fair one. (multiple speakers) that's a fair point.

But the number in absolute dollars is not dropping because of ISOs. It is just the management of that portfolio and the risk tools that we have available to staff that we use here to monitor it.

Lastly on the Canadian repricing initiatives, as I understood them, are they still kind of the type where you are adjusting them almost to the point where it is like card type and transaction type, which is to say you increase prices on card not present but not for card present? Is that the type of pricing initiatives that are underway?

All these pricing initiatives are really as a result of the market and competitors in the marketplace. Both First Data and Paymentech are there, and they have used many of the U.S. centric pricing strategies.

But in a word, yes.

In Canada.

Yes, that's exactly what's going on. It is all the myriad if your backstrike doesn't work, you are not present, etc., etc. So the ISOs that -- excuse me, the Canadian merchants who have the cleanest business, they have the lowest costs, and those that have a lot of issues are paying a little bit more. So it kind of just spreads, I think, more appropriately.

And did you comment on the margins that you are seeing? Obviously, not the specific margins but directionally the margins that you're seeing in the money transfer segment?

We didn't comment on specifically. I think Joe mentioned the Europhil business because it's still in the investment phase is a drag on the two of them combined.

SO net-net, margins would be down as a result of Europhil's kind of repricing initiatives, or overall money transfer margins should be up?

I would just say that it has had an impact against the growth, so a net it would have to be down if it wasn't there. But the same was for DolEx in its initial year where there was a drag, and once we get past that year, this is going to be extended a little bit further because of the exiting of that business that I mentioned which represents about 10%. But Europhil is in a clear transaction growth stage.

Thank you. Have a happy holiday.

Moshe Katri, SG Cowen.

Bobby Shai (ph) for Moshe Katri. Can you please repeat one more time the new operating margin guidance?

Sure. It was 21.8% to 22.2% for the year.

Thank you.

Adam Frisch, UBS.

It is (indiscernible) for Adam. Thanks for taking the question. I wondered if we could just go back a little bit to Europe. You had mentioned that the deconversion is going to negatively impact the second half of '06 and first half of '07. Is that negative impact a deceleration of growth or an actual year-over-year decline?

What we said for the third quarter is you may actually see for that, for some one times that we talk last year that you won't see this year, and a currency decline. The check krona which is the basis of currency kind of tracks with the euro. So the euro is doing worse against the dollar, so all those three things may conspire. I am glad you brought this up because I would like to clarify one thing. This business is about 5% of our revenue. And whether it goes to 4.8% of our revenue or 6% of our revenue really isn't the point. The point is can we really grow this think significantly. And I'm still pretty bullish that we absolutely can. It's going to take time but what we're seeing in Russia, what we are seeing in some other former Soviet Republics, what we're seeing from our other sales offices -- I'm pretty encouraged. And Joe, you wanted to add something?

I just to more completely answer your question, we were referring to a year-over-year decline, not just a sequential decline.

Okay, so we are talking about a decline not a deceleration?

Correct.

You talked a little bit about the pricing increases in Canada. We're going to anniversary some of those in the third quarter but there was also some other ones that were implemented in the first quarter of this year. Can you give me little a bit better sense of the magnitude of the differences between these increases?

We really can't. We haven't broken that out. What we did say, though, is that we're expecting our second half Canadian revenue to grow in the high single digit to low teen range and the full year is still in the mid to high teens. So you can get a feel for what the impact was stripping out FX of the repricing that we did in the third quarter last year. But other than that, it is actually fairly difficult for us even to break out the differences in the two sets of pricing changes.

Can you at least just -- are they smaller, bigger, about the same?

Again, it is difficult; I don't have the information in front of me. The first quarter that we did was a fairly large one. It is certainly not smaller. They may be the same size -- if anything there is a potential that the repricing that we did in the first quarter of this year was likely to be a larger one.

And Joe you talked a little bit about -- I know we've talked a lot about the margins and the impact. You mentioned earlier in the call that you were going to be impacted by lower telecom cost savings from the roll off of the NDC Health business. Improved risk management. Can you talk a little about the NDC Health and the telecom cost, of kind of how much of a magnitude those actually play versus some of the other factors driving margins?

In terms of the magnitude its not something that we attempted to break out in terms of the individual line items. I mean, it is all accumulated into a total expectation for the year but Jim can talk to you a little bit more about the details of the NDC Health savings in telecom.

Let me add one thing first, Joe, before we throw the ball to Jim. I think probably the crux of the question is sustainability. And we feel pretty good with the telecom contracts; that is an ongoing effort. That's a good thing, and they are -- we've got some pretty good rates and negotiated some pretty good deals. I mean Ditto was getting out of the NDC facility, moving to our own, we were paying them a premium to perform those services.

As part of the spend we were required to exit NDC in its entirety. One of the last aspects of the business that was shared between us and NDC was what we're telecom contracts, where they controlled the telecom contracts (indiscernible) NDC and we paid a pass-through. Then the second was a shared service arrangement we set up at the time of the spend where a portion of our processing mainly the communication layer, was actually under their control. It was a challenge for us from a service standpoint. They didn't respond as quickly as we would have liked, and paid a fee. As Paul said which we viewed as a premium to what we could do internally to NDC. When it was clear that NDC was not only struggling but likely would be sold which is what ultimately occurred is they were announced for sale. We opted to put that on the front burner to move out of there quicker than we had planned. We were required to be out by February of next year, and we opted to exit in September. So there is a benefit; we are no longer paying them a cost of rent and their services for the balance of this year, and that will annualize a year from September. And then on the telecom contracts we happen to hit a stride in the marketplace where, com (ph) carriers were looking for new large customers; we are a large customer and we try to use that to our advantage.

Okay. Thanks, guys. Have a happy holiday.

Tony Wible, Citigroup.

A couple of questions. I was wondering real quick did I hear correctly there was a 1.7 million expense related to gaming losses?

That is the year-over-year increase in our losses as a result of the hurricane season that came through negatively impacted our collection rates.

Was there anything abnormal that you would say just for this quarter was related to the hurricanes as far as losses within that 1.7 million?

The only thing abnormal is the gaming business is doing better. To set aside that anything on the Mississippi Coast was whacked pretty hard, but other than that we are signing more and more casinos in Vegas and other places and that business is becoming bigger so consequently we are going to have some higher losses.

Our collection rates on the business were lower in the quarter. Not off the chart, but lower than we would have liked. The gaming business has a very high rate of collection compared to our traditional check business primarily because it is a lot of repeat customers, and the nature of the customer. But we expect, as Joe said, that that will rebound. It wasn't as bad as we had expected, and we see that as a momentary event.

So we could see some margin improvements sequentially as a result of just that component?

(indiscernible) anything else, yes.

What is the tax rate you guys are currently using in the guidance that you provided?

It is 34.1% how we define it.

Last question is really dealing with HSBC. Can you give us an update on kind of the current lines of thinking as far as revenue and cost synergies. And what you would make of the China union pay equity stakes being sold to total?

I am going to take a pass on the first two. It is a little early and I intend to give you a lot of guidance on the investment community, a lot of guidance on where we are with HSBC when we get closer to close that. To refresh your memory its around $50 million of revenue from those 10 countries. Now China Union thing is interesting. I thought that was a very smart move for TSYS. I don't have any more details. I know what their percentage is and what it is going to increase to. But I don't see it affecting us necessarily. We do provide switching for China Union Pay today. In fact, we are having dialogues with them about other parts of the world where they believe that their China Union Pay bugged (ph) cards will accompany their Chinese citizens when they travel. So it is -- I don't see really how this would impact us at all, although my hats off to TSYS. I thought it was a good deal. Keep in mind that we do a ton of Star transactions. And we certainly compete with those guys.

Last two just housekeeping questions. Minority interest, will that be reported pre or post tax on a go forward basis?

It will be the same as what we had described in our 10-K, which would be net of tax.

And last thing is just with the mix of business now having changed kind of over the years can you kind of walk us through your seasonality trends? I think one of the questions you had gotten earlier was about the back half of the year. Typically as I recall your third quarter is kind of seasonally one of your weaker quarters. So can you just make us, can you walk-through and make sure that one thing is not offsetting another with all the acquisitions you guys have done now?

Can you repeat that again?

He wants to know if that is a seasonality -- let me give you a document. Just give us one second here Tony; about how our quarters line up and have there been any changes historically. And I think the short answer is no. I think we're expecting the same type of relative growth quarter to quarter that you've seen in the past.

I would only say that our third quarter tends to be our lowest quarter because it includes January and February, which is a seasonally lower time on the merchant business. And it is also a lower time on the money transfer side, both December, January and February. So other than the third quarter being seasonally lower, it is really the difference is between the first, second and fourth quarter relate more to business performance and not as much seasonality.

That's what I would have suspected. Happy holidays. Thanks a lot, guys.

We have no further questions.

Thank you, and thank you to all of you for joining us on today's call. We continue to appreciate your support of Global Payments, and we wish everyone of you a happy and healthy new year. Thanks so much.

Thank you. This conference will be available for replay starting today at 11:30 and ending at midnight on January 6, 2006. If you wish to listen to the replay please dial 866-484-6425. For international participants you can dial 203-369-1599. This concludes our conference for today. Thank you for your participation. You may disconnect at this time.