環匯 (GPN) 2009 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Global Payments second quarter fiscal 2009 earnings conference call. (Operator Instructions). As a reminder, this conference is being recorded. At this time, I would like to turn the conference over to your host today Vice President of Investor Relations, Jane Elliott.

Good afternoon, and welcome to Global Payments fiscal 2009 second quarter conference call. Our call today is scheduled for one hour and joining me on the call are Paul Garcia, Chairman and CEO; Jim Kelly, President and COO; and David Mangum, EVP and CFO.

Before we begin, I'd like to remind you that some of the comments made by Management during the conference call contain forward looking statements that 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. We caution you not to put undue reliance on forward-looking statements and hence such, any forward-looking statements made during this call speak only of the date of this call. In addition, some of the comments made today may refer to normalized results which 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 filed today, January 6, 2009, which may be located under the Investor Relations area on our website at www.globalpaymentsinc.com. Now, I would like to introduce Paul Garcia. Paul?

Thank you, Jane. Thanks everyone for joining us this afternoon. Even with macroeconomic headwinds, we achieved strong financial results for our fiscal 2009 second quarter. With revenue of $401 million, which represents 30% growth and normalized earnings per share of $0.60 representing 25% growth over last year. Our North American segment reported strong growth primarily driven by successful pricing initiatives in Canada offset by an unfavorable foreign currency exchange impact.

We are pleased with our international merchant segment. Growth there was primarily driven by our joint venture with HSBC in the United Kingdom which added $55 million of revenue in the quarter. In addition, we continue to achieve solid revenue growth from sales initiatives in our Asia Pacific region. These results include the initial impact of unfavorable foreign currency trends which will affect our full year. David will take you through the details of the FX impact a little later. But I'm happy to report that on a constant currency basis our revenues and EPS growth would have been 37% and 39% respectively. For the quarter, I'm also pleased to report transaction growth of 16% in the United States.

While the underlying fundamentals of our business remain strong, we are not immune to broader economic trends. However, we are quite fortunate to have a number of favorable factors helping to offset these trends as our industry continues to see a secular shift from paper to card based payments in the US and in other parts of the world and we will continue to benefit from that shift.

Our international segment continues to track with our expectations. We have a formula for going into each market and applying our know how across all functions of the business to produce optimal results in each respective market. You have seen the success of this formula applied to our Asia Pacific business where revenues grew 30% for the quarter. And we are seeing improved performance in our UK business as well.

Next, consistent with our long-term strategy of expanding internationally in both existing and new regions we continue to actively pursue acquisitions in market with growth opportunities. We focus on potential transactions with meaningful market share which will position us to benefit from card based secular trends including increased acceptance and penetration as well, importantly as the evolution of network fees. We believe we are in an excellent position to benefit from payment trends around the world particularly in markets such as China, India and Russia. While these are small markets to us today, we are laying the foundation for solid businesses which will drive long-term growth.

As a case in point, we are increasing our investment in Russia with the UCF acquisition which we expect to close during the first half of calendar 2009. While we all know that there is geopolitical uncertainty in Russia today, I feel confident that the investment we are making in UCF and the market share we are gaining will provide a first mover advantage in an exciting and dynamic region of the world.

Now, before I turn it over to David to discuss segment and financial details, let me tell you just how delighted I am to have David as part of the Global Payments team. I'm sure many of you know him from his past life at Check Free. In summary, we have a strong balance sheet and the right Management team in place to help us expand our Global Merchant business. David?

Thanks, Paul. Let me say I'm happy to be here and look forward to working with all of you on the call today. I plan to cover constant currency, selected business performance, margins and balance sheet and tax level highlights. First, given the unprecedented change in the FX markets we added a constant currency schedule to the press release labeled Schedule 9 to help you understand the full impact favorable and unfavorable of currency on the growth of the business.

To calculate this, we converted our fiscal 2009 actuals and outlook at fiscal 2008 exchange rates. Using this approach, our reported revenue and earnings growth of 30% and 25% for Q2 would have been 37% and 39% respectively. The weakened Canadian dollar drove the majority of the unfavorable impact in the current quarter as we anticipate it will for the full year. As we look ahead to the rest of fiscal 2009 we have reviewed forecasted exchange rates from a number of sources. Most of which suggest roughly flat rates from today's levels and our material geographies of Canada, the UK and Central Europe for the rest of the fiscal year. As a result and as you have seen in our press release, we have revised our full year revenue guidance to reflect a significant impact of negative FX trends and to a lesser extent the difficult economic environment.

Our reported EPS guidance will likewise be affected by the negative FX trends. The reduced revenue outlook is partially offset by reduced expenses in some geographies and generally reduced costs overall. On a constant currency basis we expect our earnings gross outlook to be 21 to 25% for 2009 essentially unchanged from our previous outlook. Also, please note that currency rate may continue to fluctuate and any major variance to that outlook may cause our reported earnings to vary as well.

Next, on a quarterly basis I plan to highlight the performance of certain business lines we think are important for you to understand. North American merchant services segment revenue grew 12% for the second quarter with our ISO channel continuing to drive most of the growth. Domestic direct credit and debit card transactions grew 16% during the quarter and we had total revenue growth of 9% in the United States. In Canada credit and debit transactions grew 6% and revenue grew 20% for the quarter. Money transferred segment revenue grew 2% with total transactions declining 13% and locations declining about 9%.

Turning now to margins, our normalized operating margin increased 160 basis points to 20.6% in the second quarter due primarily to the negative impact of currency exchange rates. We expect our operating margin to be lower in the second half of the year when compared to the second quarter and we expect full year reported margin to be about flat when compared to prior year. During the quarter we spent $9.7 million on capital expenditures mostly relating to infrastructure technology and merchant terminals. Our full year expectation remains unchanged at about $45 million as we expect increased merchant terminal spending in the second half of the year.

At the end of the quarter our available cash totaled about $120 million. Our ability to generate cash flow remains solid and when combined with our untapped $350 million line of credit and our overall debt capacity, we have a solid platform to support our long-term growth objectives. Now I will turn the call back over to Paul.

Thanks, David. Based on the current trends we are updating our GAAP based 2009 annual revenue guidance to $1.550 billion to $1.580 billion or 22 to 24% growth over fiscal 2008. We are also modifying fiscal 2009 annual globalized diluted earnings per share guidance to $2.14 to $2.21 reflecting 8% to 12% growth over our fiscal 2008. On a constant currency basis our annual diluted earnings per share growth of 21 to 25% remains within our previous quarter's expectation of constant currency growth range of 22 to 26%. Finally, while the current business environment is challenging, our market position remains strong and we are taking share in each of the markets we serve. Operator, we will now go to questions.

Thank you. Ladies and gentlemen, we will now conduct a question-and-answer session. (Operator Instructions). Our first question will come from Tom McCrohan with Janney Montgomery Scott.

Good afternoon. Just had a quick question -- a follow-up, Paul and David, on the currency. Could you help us allocate kind of the $23 million adverse impact this quarter on revenue from currency between Canada and some of the other regions in your business?

Be happy to, Tom. I don't think we will get into real specifics on a country by country basis. As you likely know the majority of that number is Canada and the other geography, the UK, the other parts of Europe really comprise in equal parts almost the minority of the amounts. The significant majority is Canada. That's probably as detailed as we are going to get on that for the moment.

Then plus in your guidance, I just want to make sure I do it correctly is that you are assuming based on, I -- you guys are not currency experts just pulling data from other sources that your guidance is assuming the US dollar stays at the same level relative to Canada for the rest of the year. Is that implicit in how we should read your guidance?

Yes, I would suggest you think about it in this way. Our outlook is indeed based on the recent FX trends but it does accommodate some further strengthening of the US dollar by maybe as much as 5 to 8% against all of our key currencies. I would have to know which one is moving which direction obviously, but that's how we sort of thought about the forecast. We are not assuming much weakening but our outlook also accommodates modest weakening in the margin as well and you have seen what happened in Canada over the last couple of days.

Last question on the US business, can you give us a little color on what you are seeing on average ticket prices?

I will take that, David. Tom, we saw and I will be happy to share a little bit during the December which of course is our third quarter. Although we haven't closed the books in December, we have some volumes and transaction counts, we did see a lowering of the average ticket amount in December. Now, it is important to remember that particularly for our ISOs 100% of our fees are derived on a per transaction basis. We are fairly agnostic. It does impact us on the direct side where we charge a percentage of the transaction but we have that -- we have that debt pretty well hedged.

Thanks, very much.

You are welcome.

Next we will hear from Dave Koning with R W. Baird.

First of all in the US, I think I remember a few quarters ago is when you anniversaried a large ISO. Growth has been decelerating a little bit since then, largely macroeconomic, I would imagine. I'm wondering should we expect further deceleration in that US merchant line, how should we think about that and the economic situation right now?

I think there is a couple pieces to that question. Firstly, you're correct, your memory serves you correctly, we did have a significant ISO and the ISO is anniversarying. That is an issue. Number two, the ISOs did experience some of these macroeconomic headwinds that all of us are experiencing and their growth, per se, has slowed. So you have both of those factors. Now, on the other side, slow growth for the ISO is still strong double digit organic growth. Please keep that in mind.

If you remember as well the ISO target market are smaller merchant. To the extent the economy is challenged and we have some of our ISO is focused very heavily on restaurants. Those markets would see greater attrition or just slower year-over-year sales.

Secondly in Canada, it looks like on a constant currency basis revenue growth actually looks like it accelerated pretty nicely in Q2. And I'm wondering, was there an incremental pricing benefit this quarter, was there anything else going on just to cause that acceleration?

No, I think this is common in the first year after we have had a pricing change from the networks or associations, the rate at which the card spend occurs on the various type of cards, high rewards cards versus low rewards cards are going to have an impact. As you go into the holiday season as people were spending more on premium cards, there is a greater cost associated with making sure we process that transaction at the right interchange and therefore, the cost can go up and before you can see an acceleration because of the season even though it might have been a weaker Christmas season, -- holiday season than in the past, we still would have seen the benefit of the pricing strategy.

Next from Piper Jaffray we will hear from Bob Napoli.

Good afternoon. The transaction growth and revenue growth in the United States 16% and 9%. Can you remind me what that was last quarter for the transaction growth?

For the first quarter, you mean the last six months for quarter, Bob?

Sequentially, yes.

20% transaction growth and 12% revenue growth.

And by any chance can you give me what that was in the month of December?

The month of December?

Yes.

Maybe Paul, you might want to give more color. But no, we are not going to quote the transaction amounts for the month, Bob.

We haven't even closed the books yet. We do have some transaction in volume data. As I said, we did see some softening, vis-a-vis previous December but we still had double digit growth--.

In the high teens.

In our market. Still looking pretty good.

I was a little bit confused when you gave your guidance. The currency that you are using in your guidance -- I'm sorry, I was a little bit confused it sounds like you were expecting some strengthening in the dollar in some markets and some weakening in other markets?

I apologize if I confused you. Our basic forecast calls for the rates to be about flat with where they are today with kind of the exit rates but our range accommodates further strengthening of the dollar at the margin. Does that help?

Yes, that's helpful. You said last quarter that you were going to give us revenue for the UK, for the next year, the HSBC UK acquisition?

I don't know what we said last quarter. I can tell you revenue was $55 million for this quarter which I think is the number you are after right now.

Yes and the tax rate was this quarter looked a little bit lower. Is that tax rate a good run rate?

No, that tax rate is a little light for the rest of the year. In fact, I think your full year rate ought to approach 33%. You will see the rate above 33 probably Q3 or Q4 based on our current outlook netting to something just below 33 for the full year.

Last question just on Russia, I guess on that acquisition. I know it is not a huge acquisition, about $120 million and -- could you give any feel for what is going on in that market? Obviously the world has changed quite a bit since you announced that deal in early September with oil prices and politically in some regards. Understand you are still excited about it, Paul, for the long-term and you said initially that was going to be immediately accretive. Do you still look at that as being an accretive deal? Has there been any significant material change in the trends within that acquisition?

There were some changes. They are experiencing some of the same challenges we all are. There is a MAC clause in anything we do. We have the right, which we are not -- they have not tripped that. There hasn't been anything material per se. We still believe this thing is near term accretive. We are very excited about our Management team there and it is not without risks. Russia is a challenging part of the world. I do think it is well worth that risk. I think you're quick to point out it is $120 million debt. It is a big debt for us. Not about the Company debt but it's a big debt for us. I will go on record as telling you I'm very pleased with this deal and I'm confident that the advantages we will get from being a first mover in Russia far outweigh the risks.

That is closed, you said, by June of this year?

We think outside. We gave ourselves a comfortable range here.

Thank you.

Moving onto Franco Turrinelli from William Blair and Company.

Welcome. A couple of quick questions, if I may. Going back quickly to the tax rate, this was lower than certainly we had modeled. Is there something to do here with the currency impacts or is this just some better tax planning that you guys have been able to do?

I think my team would like to take credit for being better tax planning. In general there is no big abnormal item happening to drive that lower than you might have expected it. It is reasonable tax planning and the business mix.

Again, Dave, this is not a question for you since you weren't here at the time but I don't think a 33% tax rate was embedded in the prior forecast or guidance, was it? Maybe that is one for Paul.

I think that is a fair point. We have done a little better job managing the tax issue. That's a fair point, Franco.

I don't mean that as a negative. Less tax is good, right?

It is indeed. We'll take anything we can get.

The whole weakening and strengthening, that is confusing but less tax is good, even I understand that. One other question if I may, again, sort of coming back to the US performance, is it possible to get a sense from you guys, that was a sequential slow down in revenue, is that do you think entirely macro factors or is it also just some anniversarying of some new contracts or ramp up of prior additions?

I would say at this stage it is largely macro. The ISO that was referred to in one of the previous questions, that actually was here in '06 I think anniversary in '07. It has been here for a few years now. I think what we are looking at is really just larger ISO business to some extent that that is going to slow over time, just the law of large numbers and this as we all know is a much more challenging economy than we saw at the start of the fiscal year and the numbers are reflecting it.

It sounds like your December -- like your December commentary was things haven't gotten any worse certainly?

I don't think we have seen a greater decline. I don't think we want to say the word "stable" but I think we have had a good December and we're feeling, January is just getting started. We are still feeling good about core businesses in each of the regions.

Lastly for Paul. Paul, I will actually ask you to do the impossible here. Because when you gave the guidance back in October, there was some forecasted impact of currencies because we had already started to see some changes particularly with Canadian dollar at the time. What I'm really trying to get to is if you to the best of your ability kind of back out the impact of changes in foreign exchange rates, operationally and fundamentally what has happened to your guidance? Has it essentially stayed unchanged, have you sort of actually improved it or are there some pockets of weakness that we should be aware of?

That is an excellent question, Franco. I don't think it's impossible. I think it gets to the heart of it. If, in fact, we did have a constant currency, we would be talking to you about a guidance that was clearly within the range but it would not be at the top of the range. It would be comfortably within what we guided you to but we would be feeling these macroeconomic headwinds and that does have some impact on the results. So that is -- said another way, we would be talking about a guidance that -- we wouldn't be changing the guidance but we would probably be guiding you towards more the midpoint of that as opposed to comfortably feeling we were going to hit or exceed that.

That's very helpful. Thank you.

Moving onto Tim Willi with Avondale Partners.

Thanks and good afternoon. I apologize if I ask something that's been asked, I had to jump off for a second. On money transfer has anybody asked you to talk a bit about Mexico versus Europe pricing volumes, et cetera?

That has already been asked.

Okay.

I'm kidding. Jim, why don't you take that one?

Anything more specific?

If you can -- obviously Mexico continues to be an erratic market. If you look at the macro stats that come from Bank of Mexico. Just any kind of feel you can give about not only what you saw at the macro level, but I know you have also been working with your footprint in shutting down unprofitable stores and driving the profitability of the business up, so just any thoughts on those two topics.

I think you summarized it. We are trying to weather a bumpy market for home building in particular which construction was the principal service provided by the people that support or use the DolEx service. I would say the US market has continued to see weakening. I haven't seen sequentially in the last 45 days or so. Pricing for us has remained relatively stable. We have not seen -- we haven't been reducing price. We have tried to introduce pricing programs to deal with a smaller average ticket. Historically the average ticket has stayed really constant. The last several years, many years and recently we have seen some softness in that area. So I don't think there is much more color than will run for earnings for now and see how the business improves on a macro basis coming this next calendar year. Europe was late, (technical difficulty) we're seeing a weakening in the market that they clearly have as well. I think the positive on Europe though, is we have seen a greater stabilization [faster] in pricing and even some modest improvement on transactions recently but Europe is feeling the same pressure for the same reasons that DolEx did. They are just feeling it later than DolEx did.

Over the last year or so, you guys have been a pretty assertive or aggressive, whatever word you want to use about pruning the branch network to really focus on profitability of the locations. Given that the sequential drop here appears to be a handful of locations should we for the purposes of modeling and thinking about profit margins assume that you have pretty much run through that review of the franchise and feel like you've basically shut down what you needed to shut down in terms of locations that weren't meeting hurdle rates?

I think it would be hard for me to say that there is an opportunity for further closures if they are warranted. I think we have taken care of what is in front of us. This is a transient population. They move out of markets based on opportunities. You remember with oil reaching very high prices over the summer, it is not that long ago we were seeing $5, Texas was booming in construction and oil and therefore that was a very hot market. We still have some locations in Arizona which is one of our toughest markets because of immigration reforms focus there and some of those branches have continued to do very well. Some of this we are still working through. I would say that right now we are comfortable with where the base is but we are going to continue to look to reduce costs whether it is barrel or non barrel all the way through this process.

If I can just ask a question on FX. If there is a simple way to answer it, great. If it's something that I need to be given a tutorial on offline I completely understand but when you gave guidance last quarter, I think you articulated about $0.07 a share through the balance of the three quarters, since that time frame the Canadian dollar looks to come in maybe around call it 10 to 15%. The magnitude of the revision and you talk a lot about currency being a reason for that and in simplistic terms Canada a significant majority of it. I have a hard time wrapping my head around a 10% revision in earnings given that the Canadian dollar seemed to only come in about $0.10 to $0.15 and as a percentage of all the revenue, it is not like it is half of the revenue of the Company. Am I missing something in accounting or is this a hugely profitable operation that is probably just more profitable than any of us realized where that 10% move could cause such a major change in your outlook because of the Canadian dollar?

Tim, I don't know that you're missing any -- this is David. I don't know if you are missing anything necessarily. I would point out a couple of things to you. That movement in the Canadian dollar is closer to 20% than 10. Which is a very important first fact to think about when you are trying to play with your model and look at the impacts. The second is from my way of thinking in the initial pass of the Company we have made the right strategic decision to consolidate expenses on a platform. That means we have a bunch of Canadian dollar expenses they are actually occurring in the US in US dollars. That means from a translation perspective it looks like Canada is more profitable than it is and it has a bigger impact than you looking at it from the outside would ever think. It is for the right operational reasons. At the end of the day it is bigger. That would be the one thing you can't see from the outside looking in.

We got a revenue contribution from Canada that we can all see but the bookkeeping profit contribution from Canada is obviously, appears to be notably larger than the revenue contribution?

This is Paul to support that, just look at the adjustment in the top line guidance versus the bottom line guidance and you can see the difference.

That's a good point. I appreciate the help there.

From JPMorgan Tien-tsin Huang.

Thanks for taking my question. The transaction growth I will start there on the US at 16% was actually a bit higher than we expected. I was hoping to maybe get a little more color on a few drivers behind it. I was thinking about new merchant ads, ISO wins, merchant attrition, and of course, same store growth, getting a lot of questions about that. Can you give more color behind those drivers and whether or not you have any see any change in trend there?

Tien-tsin, this is Jim. I would say that in the US it is largely organic growth and organic for us is not just same-store sales. Which many merchants are flat or down and some are down pretty substantially. It is by segment. This is our direct sales efforts, our efforts in the gaming business. We have had a lot of success heading a new business in gaming even though it is a small segment and then the ISO. The ISOs are not growing as a group at the rate that they have historically. They still have a very strong impact on the business and I think that helps propel pretty impressive numbers for this situation.

Right. So what you have seen, you really haven't seen any slow down in new merchant ads. Obviously it has come in a little bit but it sounds like the pace of new merchant ads and merchant attrition perhaps is not coming in as much as--?

I think it has less to do with the impact of ads and attrition. Clearly they have been impacted but I think it has to do with ISOs continuing to do well and our merchants on a comp basis whether it is average ticket coming down as Paul said earlier or they are not doing as well year-over-year, we are still gaining market share and we are getting market share through signing up locations.

Got it. Then on the Asia Pac looks like a nice sequential revenue uptick there. Anything unusual? And also, can you give us an update on the margins with Asia Pac? How's that tracking?

Let me take the beginning of that and I'll have David pick up a piece of it because we want to clarify something too. We had a couple things that we did in Asia that will continue to carry through. We have done some pricing adjustments. We are adding new business, dynamic currency conversion has driven in some new business for us at very nice margins as well. We did see a little slowing in December in Asia that quite frankly, surprised us, more so than we actually saw in other markets like Canada, even more than we saw in the US. Hong Kong in particular which is a pretty big piece of that Asian business now was hit pretty hard. We are digging into exactly why that is. Overall margins are improving significantly in Asia. We promised you that last year and we are following through on it. Volume growth has been pretty good. We also got a little plus from the Philippines as well. We suspect that and we have more digging to do. We suspect that part of the issue of Hong Kong is generally wrapped up in travel and entertainment. Because that's a big piece of that business for us, we have most of the hotels and a lot of the tourist destinations. Those are just off. David, do you have any additional color?

No, maybe I'd supplement one thing you said just to make sure that folks don't miss it. Which is we did indeed have the Philippines acquisition close. While that's not a particularly big number it is a brand new number so it helps a little bit at the margin.

As we recast our expectations for Asia-Pac, should we still assume sequential growth from here or is there something different we should consider given the jump off in the end of the quarter?

It is a little too early to tell. Truly, Tien-tsin, it is pretty small. (inaudible) isn't going to have an impact. We baked in a little caution into our guidance with what is going on with Asia. We will have some more color on that shortly. As you well know, it is all about the Chinese new year too, which is approaching. The holiday period per se is a little funky there anyway. It is still too early to answer that question appropriately.

I'm glad to hear the margins are working. Last one for me, just at the analyst day, Paul, you suggested a stronger appetite to do acquisitions including large deals in the US. Is this still the case and how does the acquisition pipeline look now?

That's a great question. Let me speak to our appetite first then we'll talk for a second about pipeline. We do have an appetite. I think we have an envious balance sheet, we have a -- is there such a word, David, as an envious balance sheet. I guess we are envied by those who don't have our balance sheet. We have a good balance sheet. We have access to some pretty cheap money. We have some great relationships with our bankers and I think there are some deals out there. I think these deals will get a little better even over time. To that, we have a pretty full list of candidates and we are actively looking in the United States in Europe and in Asia.

In terms of size, we are interested in potentially some things that are bigger than what we have done. There are, of course, some tuck-in opportunities but there are some larger opportunities and those take more time and they are more complicated but we are working them hard. I think in every environment, there is an opportunity. In challenging times, I think there are opportunities to expand through acquisition and we are very anxious to make some of those happen.

Good, good. I appreciate the currency outlook and that Schedule 9. That's helpful. Should we expect to get that going forward, David?

I think you ought to expect help from us on currency to the extent you really need it to deal with the business and that's certainly the trend right now.

Next from Raymond James, Wayne Johnson.

Good afternoon. I was hoping to get a update on the G2 and data center consolidation. Can you give us -- can you remind us where we are right now in that process and again, what is the time line for completion and potential margin benefit once the project is finalized?

That was a mouthful. In terms of the project, I think as we mentioned at the NYSC, we brought our first region live in October which is Metallis, small market, 1000 merchants. We begin the migration of Hong Kong which is our biggest Asia Pacific market this month. That is a beta cycle for the initial group of merchants and provided we don't have any difficulties, we will continue to move to that conversion pretty expeditious manner. We have, as I said in conference, we have it lined out for the rest of Asia, for the UK whose requirements are under development now as well as Canada. I think you will continue to hear updates. I don't think at this stage we are prepared to give you the net impact on a country by country conversion. It is not something that we have done historically. The system is working quite well. We have had no disruptions in service as a result of the October conversion which we are pleased with. This project took longer than we expected but thus far it is looking to meet operational expectations and we are very pleased with the progress we have made.

This is Paul. As you have asked before, you want to pin down when are we going to see the benefit in the bottom line and what is the magnitude. We haven't been specific. We promised you some more information on that. We will tell you that we are on schedule to get a big chunk of that next year and we are very hopeful to give you some more information on that as these plans unfold.

Let me clarify, one of the challenges is for example, HSBC Asia Pac does not give us a bill specific to the bill for processing front end transactions. It is just a lump of expenses that constitute the services they can charge us in the transitional agreement. Once the service is ended, it is very clear to us how much is now off the bill versus what was on there previously. As Paul said, once we start the conversions, we know what our costs our. We will very clearly know what their costs are. I think Dave will be able to give you some color in the coming quarters, once we have greater visibility. In each instance we do a conversion going back to the CIBC and National Bank conversions, these are always very accretive and they will be very productive because we will have less systems to support going forward.

That is helpful. Also on the direct side, on the domestic business, what percent of transactions are credit card versus debit?

It is still the vast majority. (inaudible) is the opposite, but the vast majority is still credit card in the US. Credit card being signature debit or just regular credit card we would view debit as in debit.

And this is David, that percentage hasn't moved much in the last few quarters, if you are thinking about trends or something.

Terrific. Thank you for that. Welcome, David and thank you for the update on Asia. I thought that was helpful as well.

From Goldman Sachs, we will move onto Julio Quinteros.

Can you go back through the margin sort of build. I think I understand the part on Canada and how that translates in terms of the profit impact. Can you walk us through that same sort of logic as far as it relates to Europe and Asia Pacific in terms of where else there might be hits to the margin side of the story given the currency move is the first part of my question? And then secondly touched a little bit on the kind of the drivers to margins given the platform consolidation efforts, et cetera where else do we have room from a margin perspective to continue to sort of offset some of this currency headwind on the margin side?

Well, if you're thinking about FX we did talk about Canada before and that is obviously the largest piece and the piece with the most margin impact and requiring the most margin explanation. If you look at the other geographies, whether you think of it as Central Europe or the UK or the emerging impact at the margin from the Asian geographies I think what I encourage you to do is look at the margins for the segment and not think of those entities as wildly varying from those margins and then apply that logic to drive it to an earnings number. Again, you will find that that revenue logic -- the logic of Canada being the vast majority of earnings impact looking outside as relative to the revenue will hold true as you go through the other geographies. Don't overcomplicate this. The rule of thumb really does kind of work with the other geographies if that makes sense, Julio?

Definitely.

The reason being we have not integrated the UK. We just started and we have only done a small piece of Asia. We have done the back end for Hong Kong, Macao, we're just about to do the front end. We've done that for Macao. We're about to do it for HK. As we move through these markets, we will have a greater concentration of expenses, much smaller expenses but expenses being born out of the US because that's where the primary processing centers are located.

Right. Then the last part to that question as it relates to margin levers, how are you guys thinking about pricing as we go into fiscal 2009, any updates from the networks as it relates to pricing and any opportunities that you guys see there?

If we were to rank them, it is clearly the largest, of course the one we have very little control over. If the associations do something dramatic and I'll only point you to Canada as a case in point. If they do something dramatic, we will appropriately administer that in a way that is fair for our customers and competitive in the market but does produce some benefit for us. I am firmly of the belief that the associations will continue to address interchange. I think over time it comes down. It has to. It absolutely has to. I can't point to time frame. Right now it is all over the place. MasterCard pretty dramatically increased prices with a transaction that they put in, non interchange base called NABU and it is taking all different forms. It is going to continue to get complicated. That, in and of itself is not bad for us either. I think at the end of the day it comes down. I can't promise you it happens in fiscal next year or fiscal '10 but I will promise you it does happen. When that does, that is good news for everybody in our business.

Got it. Finally, I don't know if this is possible, I was hoping that maybe you guys would be able to provide a little bit of a view or some way to reconcile back to some commentary around October when Visa and MasterCard at the time suggested that growth in the US credit cycle I think was at that point already approaching negative growth and yet through November your growth was running at plus 16% if I got that right. How do we sort of tie those two pieces together?

The big part is that Visa has a 100% of the Visa and MasterCard has 100% of the MasterCard. We don't. We are able to take market share. Both Jim and David have weaved that into their comments. It's something we are very proud of. We have taken market share in every single one of the territories we're in, every area, United States, Canada, Asia and Europe and we will do so in Russia. That's a big part of our growth. It is quite frankly at the expense of our competitors.

Understood. Thank you.

From Morgan Stanley we will move onto Charlie Murphy.

The 29 to 31% constant currency revenue growth forecast for FY '09 with the caveat that it is hard to predict the next six months, what do you see particularly in the international business that gives you confidence in that forecast? If it is possible to include commentary on December in the answer that would be helpful.

Well, the international business has to include Canada. We have a tremendous amount of visibility. Canada actually had a very strong holiday period. We are delighted with that. We are encouraged by what we saw in Canada. And of course, we have the dynamic of what we have in place in Canada driving a lot of, not only revenue growth but profit growth. The GPE, the Global Payments Europe business is doing fine. Its growth was fairly steady. Asia with the exception of Hong Kong looked pretty good. We are trying to figure out what is going on in Hong Kong. Now Charlie, that is not a huge amount of impact on EPS for sure. We are just getting that business to where it has margin and it is profitable. In terms of revenue growth it is not a big driver either. There is so much opportunity in those markets, I continue to be bullish there too. The answer to the question is everything I'm seeing even with some of the macroeconomic headwinds, everything I'm seeing from our markets, encourages us that we are seeing nice organic growth.

As a very quick follow-up, just to clarify, the transactions in the gaming business, those are included in the US transaction growth number you provide?

You mean the actual transaction growth for the quarter, Charlie, no--.

The 16% -- does the 16% growth include the gaming business?

No--. Go ahead.

Gaming is broken into two components. One component is a check guarantee business. We issue a card called the VIP card. That would not be included in those numbers. A big piece of the business is credit card cash advance at the cages and that business would be in total transaction growth and we have seen some earnings there that we have announced. It is a piece of it but I think we win and lose merchants all the time. I wouldn't view that as anything out of the ordinary relative to the overall health of the US business.

Just trying to get a sense for how big transactions in the credit card cash advance business are relative to the merchant acquiring type transaction?

I don't know if you've trailed out to Vegas recently out--.

Charlie, they are not big. They are very tiny.

Thanks.

Moving onto Bryan Keane with Credit Suisse.

Most of my questions have been answered. I just have a couple of clarifications. The 29 to 31% in revenue, is there an organic growth number if you X out acquisitions that we can think about?

We haven't called that out, Bryan. The piece that is important to you is the UK. We have been calling that out consistently quarter by quarter so you can get to pretty much an organic number out of just reducing the UK. For this quarter it was $55 million.

Anything seasonally in that number going forward third and fourth quarter?

Which number?

In the 55 million in the HSBC business?

No, if you are sticking with constant currency the answer really is no. Not a whole lot of variability or seasonality coming through that number.

The FX drag for fiscal 2009 now is $0.26. Obviously it was positive in fiscal year '08 so just looking for the EPS benefit it was last fiscal year?

So the benefit itself for last fiscal year?

Yes, due to FX.

We are going to stay, if we can, focused on ' 09 and the impact of the really material changes. Certainly you can assume that you have seen a difference in growth overall and at the end of the day you know last year was a reasonable revenue growth number but also an investment year for us at the operating line. The new geographies and some of the new processing so you find income obviously reduced a little bit but at the end of the day I think we are trying to stick to ' 09 and give you a frame of reference where the business stands today from a trend and a fundamentals perspective.

A clarification on the US business, it is a little hard to understand. Are there ISO contracts that are anniversarying or nothing meaningful going forward in the US business?

We [went through] a lot of clarity when that question was first asked. The question was, there's two things, number one, do we have any ISO contracts up? Our ISOs are pretty well locked up. They are happy. We are happy and I will let Jim speak a little more to that. In terms of that big ISO that anniversaried, they did anniversary a while ago. They've added incremental business since and that is anniversarying as we speak too. It didn't come on just day one, it took them a while to convert all that business. Jim, do you want to speak to the relationship with the major ISOs at all?

We do get a number of questions in this area. I think we have a good solid relationship evidenced by strong agreements and I don't know of any that come to mind that are risks that would have a -- would warrant the conversation on the call. I think we are in good shape.

Good. Obviously it is a tougher economic environment. Is there any change in pricing in the merchant acquiring business?

Meaning the pricing that we actually offer the merchants? No. We haven't seen -- the ISOs their pricing is fairly constant. Our pricing is fairly constant. The rates we are offering our ISOs are fairly constant. The pressures we are seeing really are a more challenging environment in terms of volumes being produced by the merchant base.

And then just finally, on the money transfer, ending transaction volume was down 13%. I didn't hear David if you broke that out between Europe and domestic?

I actually did not and I'm kind of hoping we do not do a whole lot of that going forward. I don't have that in front of me, Bryan, sorry.

What was the 13, what is that comparable to last quarter?

Give me one second.

I don't have it for last quarter. I can tell you that most of that 13 or a lot of that 13 has to do with the store closures that we have gone through. We closed about 20 this quarter, 19, 20 and we would have had closures last quarter. So I think you have more of an impact of store closures and modest growth because of the macro trends that are now in Europe as well as they have been in United States for a couple years.

Thanks for those few seconds. Negative 7% drop last quarter, Bryan.

Thanks, very much.

Moving onto Andrew Jeffrey with SunTrust.

Thanks. Just a point of clarification on a couple of things. David, did you say that the full year tax rate would be around 33%?

Approaching it, Andrew. I don't think it will get all the way to 33, 32.5, 6, 7, 8.

Pretty big increase in the second half then.

Yes.

But I assume that probably trends down over time, right, especially as you add businesses like Russia and continue to grow in foreign markets should we think about the trend directionally being down in the tax rate?

I think at the margin we should think about that trend, sorry, Andrew, think about the trend in that way given the geographies we are chasing for growth, yes.

With regards to the operating margin, I think you cited that currency obviously adversely affects it. Ex currency would you be looking for the operating margin to be rising year-on-year? Certainly the EPS would imply that that would be the case and you talked a little bit about Asia. Generally on a consolidated basis should we think about the trend being up and then potentially even more in 10 as you start to really see the benefits of your G2 project?

I think that ex currency of the trend should be generally upward and it should be at the margin on a sequential basis. Whether or not we ever see an enormous impact, is -- this or that geography comes online for G2 we take up at a later date but the trend in general should be expansion but at the margin.

Let me jump in on that, we clearly understand that our job as Management is we have a high fixed cost low variable cost business that lends itself to terrific leverage. Our business is to bring in more revenue, leverage that, produce higher margins, that is what we are here for and that is clearly our objective.

Finally, you have mentioned, certainly mentioned market share and the domestic merchant business. Can you talk about a couple of considerations, one, to your model, the ISO centric model versus either the bank referral channel or the direct sales force model and what do you think the way you go to market is relatively beneficial from a share standpoint today? And then two, whether or not when you look at what is happening at First Data, that has had any impact on your business yet and whether you would anticipate that it would?

Let me take those. Firstly, in terms of the three models, you mentioned, Andrew, the ISO, the bank referral and the direct. They are all different. The ISO is priced on a per transaction basis. In an environment where transaction counts actually benefit from decreased tickets, we actually benefit. Two $10 transactions is worth more to us than a $1 million transaction if we process our ISOs as an extreme example. On a bank referral it is more like a direct. Typically the bank gets a piece of the revenue or referral fee and we own that contract with the financial institutions typically sponsoring. It is a discount rate. It is a very nice business. It is a little different. It is -- you can't leverage it as quickly but it is good business and our direct model is the most expensive of all of them first year. In the long-term, direct business actually has the highest margins over a longer period of time assuming you keep that business. They are all great. They are all different and they all pay you somewhat differently.

In terms of First Data, they are still a formidable competitor. They are less active in terms of acquisition activity and I think they have their set of challenges with a pretty significant debt load and we certainly aren't counting them out but I'm pleased to say we are not seeing them a lot in terms of bidding up deals. That's a good thing.

Thank you.

Is that helpful?

Yes, thanks.

Ladies and gentlemen, that was our last question, Mr. Garcia, I will turn the conference back over to you for any closing statements.

Thank you, operator and thank you all for joining us on today's call. We appreciate, as always, your support of Global Payments and wish all of you a healthy and prosperous 2009.

Ladies and gentlemen this conference will be available for replay starting today at 8:00 p.m. Eastern time and ending at 8:00 p.m. Eastern time on January 20, 2009. If you wish to listen to the replay please dial 1-888-203-1112 or international participants may dial 1-719-457-0820 and enter pass code 6754093. This concludes our conference for today. Thank you for your participation. You may now disconnect.