環匯 (GPN) 2009 Q3 法說會逐字稿

Good day, everyone, and welcome to Global Payments third quarter fiscal 2009 earnings conference call. (Operator Instructions). At this time, I would like to turn the conference over to your host, Vice President of Investor Relations, Ms. Jane Elliott. Ms. Elliott, please go ahead, ma'am.

Good afternoon, and welcome to Global Payments fiscal 2009 third quarter conference call. Our call today is scheduled for one hour. 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 would 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.

Forward-looking statements made during this call speak only as of the date of this call; and in addition, some of the comments made on this call 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 dated today, April 2nd, 2009 which may be located under the under the Investor Relations area on our website, at www.globalpaymentsinc.com. I would like to now introduce Paul Garcia. Paul?

Thank you, Jane, and thank you, everyone, for joining us this afternoon. For our fiscal 2009 third quarter, we achieved revenue of $393 million, which represents 26% growth; and normalized earnings per share of $0.45 cents, representing 2% growth over last year. These results include the impact of unfavorable foreign currency trends, and continuing macroeconomic headwinds, both of which we detailed during our conference call last quarter. David will take you through the FX impact for the quarter; but I'm happy to report that on a constant currency basis, our revenue and eps growth are 38% and 25%, respectively. Our North American segment reported strong growth, primarily driven by pricing initiatives in Canada, partially offset by a weakening Canadian dollar. Transactions in Canada grew 2% for the quarter, while US transactions grew 15%. Our ISO channel continues to be the primary factor behind our transaction growth and expanding market share in the United States.

Parenthetically, we are seeing a high single-digit average ticket decline in the US. We saw solid performance from our International merchant segment this quarter. Growth there was primarily driven by our joint venture with HSBC in the United Kingdom, which added $50 million of revenue in the quarter. We also advanced our integration initiatives in Asia. I'm very pleased to note that we are now processing two Asian markets on G2, which as you may recall, is our front-end authorization system. In addition, we have converted four markets which are now successfully processing on our back-end settlement platform as well.

Finally, our money transfer business continues to face difficult macroeconomic and immigrant labor trends. As a result, and as David will explain in detail, we recorded a non-cash impairment charge of $148 million. However, we have a strong management team in place that continues to execute well and is maximizing our earnings, as evidenced by double-digit operating margins and a significant increase in operating income produced in this very challenging environment. Now, here is David to discuss the financial details. David?

Thanks, Paul. I plan to cover the money transfer impairment charge, constant currency analysis, margins, and some balance sheet and cash flow highlights. First, our discussion of normalized results today has excluded the impact of a $148 million non-cash impairment charge related to our money transfer business. We identified this charge as part of our annual FAS 142 goodwill testing. The charge reflects the declining outlook for our money transfer business related to macroeconomic conditions affecting the construction industry in particular. The significant majority of the charge consisted of goodwill; and there will therefore be no meaningful change to amortization or depreciation expense on a go-forward basis. We have no tax basis from the original money transfer stock purchase acquisitions; and a result, we recorded minimal tax benefit from this charge, and the resulting unfavorable impact is $1.79 per share.

Next, as we did last quarter, we included a constant currency schedule in 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. Foreign currency translation, largely driven by the weakened Canadian dollar, negatively affected our revenue and EPS by $35 million and $0.10, respectively, for the third quarter -- about as we anticipated. Our expectation for the remainder of fiscal 2009 assumes that forecasted exchange rates will stay within a relatively narrow range around today's levels in our material geographies for the rest of the fiscal year. Fluctuations in currency rates, of course, may cause variances to our outlook. Operating margins for the quarter were about what we expected at 16.8%. The ISOs implemented additional new pricing strategies this quarter, as they do from time to time, which increased our revenue growth by a few percentage points with no corresponding increase to earnings.

For fiscal 2009, we continue to expect normalized operating margins to be similar to those reported in fiscal 2008. Turning now to our balance sheet and cash flow, during the quarter, we spent $8 million on capital expenditures, mostly relating to infrastructure technology and merchant terminals. We now anticipate our full year capital expenditures to total approximately 35 to $40 million, down a bit from our previous expectation. At the end the quarter, our available cash totaled about $140 million, and our ability to generate cash remains solid. We have an untapped $350 million line of credit and significant overall debt capacity to support our long-term growth objectives. Now I will turn the call back over to Paul.

Thank you, David. We are maintaining our 2009 annual revenue guidance of $1.55 billion, to $1.58 billion, or 22 to 24% growth over fiscal 2008. In addition, our constant currency expectations for revenue growth of 29% to 31% remains unchanged from last quarter. We are also reaffirming fiscal 2009 normalized diluted earnings per share guidance to $2.14 to $2.21, reflecting 8% to 12% growth over fiscal 2008. On a constant currency basis, our annual diluted earnings per share growth of 21% to 25%, remains similarly unchanged. In closing, we are very well-positioned to execute our long-term growth strategy of further expansion in Europe, Asia Pacific and North America. Operator, we will now be happy to go to questions.

Thank you, sir. (Operator Instructions). And for our first question, we go to Kartik Mehta with FTN Equity Capital Markets.

Paul, I was hoping you might be able to give a little bit more on US and UK transaction growth. I know your US transaction growth was 15% -- and pretty impressive -- but I was trying to get a feel for maybe -- I know you don't do this, but kind of same store-transactions of what the market is really doing right now.

Okay, Kartik. Well, firstly, we are seeing some pretty strong transaction growth in the United States, primarily driven by our ISOs; and although they are off from what they have done in the past -- I mean, this economy is impacting them as well -- you know, "off" for them is still solid double digit-growth, resulting in this 15% figure. In terms of same-store, we are clearly seeing some reductions. We are seeing average ticket reductions. We are seeing just slowing growth overall; and it is -- obviously, when you are enjoying 15% it kind of masks it. But the reality is this economy is impacting us in the United States pretty profoundly. Now, in terms of the UK, that's kind of a mixed message, too. We're doing very well there. I think part of it is that we are taking share. There was some low hanging fruit we took advantage of.

We added some sales resources, and our management team there is just doing a fabulous job. I couldn't be happier with them. And our largest competitor is really having its hands full with a lot of issues; and consequently, we have indeed been taking share. So that business is also growing very nicely. But there, too, the economy is impacting us. I don't have as much same-store stuff from the UK; but what I've seen would support that it's slowing down on that kind of measurement as well.

Paul, in fiscal '09, you've really benefited from the Canadian pricing -- obviously you benefited from the UK acquisition; as you look to the next 12 months, what opportunities are there such as those that could really benefit Global?

Okay. Well, we have this inherent growth in all of our markets, which is obviously helpful. Canada does have a grow over with the impact of what they enjoyed this year. But there is still upside for Canada. We have expense reduction opportunities as we go forward. Less so in G2, but -- for next year. But we are starting to get some of that benefit as well. And I would also say that the opportunity for growth in Asia is incredible. Now, I think it's not going to be a huge driver next year; but truly for the long-term, Kartik, we find ourself in a very unique positioning in China in that we are authorized to acquire MMB. We have some more work to do, but we will have a unique proposition in a very exciting part of the world. So I look at the -- kind of the long-term opportunities for next year and beyond, and I'm very encouraged.

And the last question, Jim, for you on the money transfer business, can you talk about maybe the trends you saw in the quarter? First for US, Mexico, and then maybe Europe. Did they stay the same throughout the quarter, or did they get worse or better? And kind of maybe what you're seeing so far?

I would say that the news for that corridor continues to be as it has been in the last six months or so. I don't think we've seen any increase in the slowdown. I think it's probably a steady state of still a market tied heavily to construction, and construction -- as we all know -- is under severe pressure. So this channel for us will continue to fight its way through. And as Paul commented, I think the management team is doing an outstanding job in a really tough economy.

And what about the pricing environment, Jim? Is that still about the same or has it gotten more or less aggressive?

Yes, I would say that that's not an area that we have seen as much aggressive behavior as we have seen in the past. So we think -- I don't think you could ever say it's stabilized, but we are not seeing the type of decreases we saw in the past. It's been relatively stable for us for several quarters.

Thank you very much.

Thanks, Kartik.

For our next question, we go to Moshe Katri with Cowen & Company.

Hey, thanks. Congratulations for a strong execution in this market.

Thank you.

Can you -- Paul, can you comment on transaction growth by credit and debit cards, just to give us kind of a feel on where that is going? And then can you quantify the pricing benefit that you had during the quarter? And then maybe you can also share your views over MasterCard's interim settlement that was announced yesterday with EC regulators? You know, specifically how it can or will impact Global's business in Europe? Thanks.

Okay, Moshe -- that's a bunch. I'm going to take the last one first, and then I'm going to ask David and Jim to fill in a little bit. In terms of what the -- what MasterCard announced yesterday, we got that on April 1st, and we have been -- is that correct Jim?

Yes.

We have been reviewing that document and having conversations with Mastercard. I'll have to tell you, quite frankly, we still have some questions. We are unsure as to the impact. I mean, it's calling for -- I mean, you read the same thing I did -- it's calling for a lot of transparency. There are interim agreements they're discussing -- continuing to have discussions about this agreement. It's very much an interim agreement. And I think the long answer to it -- the short answer to it is that we don't know enough yet to really comment; other than, I will tell you that transparency isn't necessarily a bad thing, and that we are pretty transparent as well. It is calling for 2010 -- December 2010 -- mandatory requirements. You know, that's a long way off, and I think a lot can happen between now and then. So I would say stay tuned to that. And I think David is going to do the debit and credit card growth.

Sure. Moshe, I'm going to stick at a pretty high level on this one, because I really don't want us to get into parsing the various markets by the splits. As a general rule -- and I'll speak really to pin-based debit -- as a general rule, it's growing a little bit faster than some of our transactions; but overall, I think the way to think about our model or the basic results is we don't see a big mix shift happening right now. And I'd probably leave it at that for now. In terms of parsing your pricing very directly, we are really not going to parse and pull apart the pieces of the pricing.

Thanks.

For our next question we go to Jason Kupferberg with UBS.

Hi, it's Glen [Foder]. Thanks for taking my call. I was wondering, in the past, you've helped quantify how much of your topline growth came from the ISO channel, and I was wondering if you can give us an update on that for this quarter and how it compared to last quarter.

Yes. You know, Glen, I don't think we have quantified exactly how much growth has come from ISOs, either top or bottom, other than it has been a significant driver of the growth. I mean, the ISOs are at a growing pretty much across the board at a double-digit rate even in this difficult market. And we really haven't given a ton more color than that. We have told you in the past that it is a significant driver and a significant part of our US domestic portfolio. Other than that, we haven't really provided a whole bunch more color.

Okay. And we've been hearing from some bank-owned acquires that they may have had some difficulty in signing new business due to troubles at their corporate parent and a merchant's unwillingness to go with somebody who may have some solvency issues. Did this dynamic lift your sales efforts at all? And if it did, can you sort of give a direction of magnitude -- you know, a lot, a little?

Well, I would say -- and I know this sounds ridiculous -- I would hope it didn't have much of an impact, because I just -- I think that if I imagine who you are talking about, that that script hasn't been written and that's not how we kind of compete, and our ISOs have been pretty up front too. We have not tried to capitalize on anyone else's misfortunes. And I think it's -- even though we all compete aggressively, we want all of us to prosper and kind of do well at the end of day because that makes for a healthier organization. I will tell you, though, that there are some merchants that are concerned about some of our competitors, and that may have driven in some business; but it's not something we've harped on. It's not something our ISOs have harped on, and it's not something I really follow. So that's two for two; I'm not being very helpful here, Glen.

Well, maybe on the third you can. Third time's a charm. My last question, too. Turning to the regulatory front -- a little bit higher level than the last question -- there is a lot of regulation being talked about in -- here in the states. I just wanted to get your views, Paul, on how could that impact the industry at end of the day? I know you have some strong views there, so I was just wondering if you could opine for a little bit.

Yes. I mean, I'll try. I think that -- and that's what it is, it's an opinion. I think that interchange does go down over time. It's kind of fluctuating all over the place now. I think some of the -- the question that Moshe asked about the MasterCard settlement in Europe, some of it has something to do with transparency, (inaudible) requirements about that. I think that at the end of the day, interchange comes down, and that's a good thing for all of the processors, because our fee is a very small part of the overall amount. Now, I don't want interchange to come down so much that the card issuers aren't encouraged to issue cards, because this is a three-legged stool here. I mean, we all need to work together. But I think there is some room. I hope that happens, and I think that will be good news for all of us -- including Visa and MasterCard, quite frankly.

Okay. Thank you.

You're welcome.

Our next question we go to Julio Quinteros with Goldman Sachs.

Hey guys, great. Can you just given us little bit of color on the operating margins? I think they were a little bit lower than what we were looking for, so I'm just looking for maybe some of the puts and takes on the margin profile as we think about it. And also, just wanted to get just a clarification. It sounded like the fiscal year '09 target for margins is -- more or less it sounded like it was flat versus fiscal 2008 at this point?

That's right, Julio. This is David. The full year margin for the total Company we are thinking will be about flat with last year. So if you then want to break apart the pieces for Q3 just a little bit, you can see North America's margin was down a bit, and I'd point you first to currency and the impact that we've had from Canada there. I also mentioned in the call a little bit earlier the ISO fees we saw come through the quarter. If you skip then down to International, you see a little bit of margin expansion, which was in line with what we expected. You know, and then you can see the money transfer business stabilizing around 10%; again, pretty much what we would have expected to see for the quarter. So all in from our perspective, not a lot of surprises; but yes, it is down from the previous quarter. You are seeing the full quarter impact of FX across all of our geographies. Remember, you only saw a partial impact of that in Q2, and that sort of takes you into Q4 as we kind of look towards a full year of flat margin again on a truly annual basis.

Got it. Understood. And can you just -- that Canada thing last quarter, just can you just walk us through that one last time just to make sure we have the correct puts and takes in terms of expense base versus the revenue recognition?

Yes, I would be happy too. And if I understand your question correctly, it's about the relative contribution of Canada.

Correct.

So you're familiar with the price that annualizes in April that started almost a year ago. In our Canadian operation, we have made -- what I think I get to say as the new guy -- was the right strategic and operational choice to centralize a fair amount of our cost base here in the United States. So we lack what you might think of as natural hedges in the Canadian geography. We by and large have them in our other geographies. But again, for the right business reasons, we have a fair expense base, or a fair portion of the Canadian expense base, here in the United States. That means that when we take a revenue number from Canada and translate the revenue as well as the earnings or the income contribution from Canada into US dollars, we take a proportionately larger hit on the income line than you'd expect -- more than you see in any other geography. And again, it's -- or again, what I would view as the right operational regions -- but our contribution margin in Canada -- not our real margin -- not our effective margin fully loaded -- is higher than you would expect. It's quite significant.

Understood, great. And then, Paul, maybe just more on the -- kind of a strategic picture -- lots of consolidations going on in the space it looks like here. What's your kind of view in terms of, you know, if you had to choose today US versus international, are you still more focused on the international marketplace, or are you seeing some things domestically here that could be attractive to you?

Yes, I think we are very, very focused on international; but you are exactly right, Julio. There are some opportunities that come along only occasionally in the US. And you know, the US outside of our ISO business is probably where we have our smallest footprint. And we would like to build out a more direct model in the United States; and if there are some opportunities to do so that make sense to us, we are going to pursue them.

All right, great. And just the last thing on that point, any interest at all in doing more financial outsourcing or core processing, or do you want to keep this more focused on the payment stuff?

Yes, I think it's -- payment stuff is what we are focused on, absolutely, positively. You know, this is a great industry. It doesn't scream out for diversification, so we are very focused on payments.

Great, thanks, guys. Congratulations.

Thanks, Julio.

We go next to Tien-tsin Huang with JPMorgan.

Hi. Good evening (inaudible).

(Inaudible), Tien-tsin.

Great. The -- a follow-up, I guess, to Julio's question. Fifth Third processing, I guess the implication for Global, was that an asset, you considered acquiring? And I guess what are the implications of that deal, and do you see any -- you know, is the pipeline still there to do other larger acquisitions in the US?

Yes, I think that there are other opportunities for us to do other deals, clearly. Is Fifth Third a nice asset that we would have liked to have done? I can't -- Tien-tsin, I really can't comment on that. I will tell you that they are a tough competitor and they have a good portfolio, and I wish them best of luck. It's the first time we have really seen recently a PD firm jumping in like this. So -- and you know, you saw they hired Pam (Inaudible), too.

Right.

So we wish them the best of luck, and we will be out there competing with them.

Okay, and then the Heartland payments breech, how is this playing out in the marketplace, and does it change your approach at all to security and, I guess, the G2 platform conversion?

Before we say something about Heartland, let me go back and just give you a tiny bit more color on Fifth Third. You know, I was speaking to their merchant portfolio.

Right.

What those guys purchased were some stuff that we, quite frankly, are not involved in -- EFT networks, ATM networks -- and that would not be something we would be focused on, and that would be something we would not be interested in acquiring. I don't know if that's helpful.

Got it.

Okay, and repeat your second question, I'm sorry?

No, I was just asking about the Heartland payments breech, and has this changed at all your thinking about security and the G2 platform conversion, and what's sort of the ripple effect in the marketplace as well?

Yes, I think it clearly -- you know, I think everybody in the industry -- every Visa and MasterCard executive, every acquirer -- a lot of big merchants and a lot of consumers. I mean, this has had a significant impact on all of us; and if something good comes out this, it will be because we will more closely examine everything we do to make sure that we protect this data. You know, we -- we've spent a huge amount of time and energy. We have people who are dedicated to this. We pay outside resources to professional hackers to try to attack us constantly, and pay them real money to do so. We have thousands of attempts on us every day. And you know, I feel that we have looked at this very closely. We look at it all the time. We're looking at it even more closely now. So I think that in terms of that impact, it may turn out to be a positive for the industry in that we all are doubling our efforts.

Is it impacting your sales efforts at all?

You know, I think that from the ISO perspective, I think Heartland is struggling. They've been a very difficult competitor, and I think that there are -- you know, there is probably some tick up -- that was answered earlier. They're not --

Right.

(inaudible) by anybody we are associated with. But that just has to happen. I mean, you could say the same thing about our largest competitor in the UK. They are struggling with some issues, and we are not doing anything to target them, but yet we are going to -- you know, someone has to sign those merchant, and we do compete.

Okay. Just a couple of quick housekeeping, if you don't mind. Just, your guidance implies a little bit of a -- I guess a sequential stepdown in revenue, when we typically see an increase in the fourth quarter. So is there anything that is unique that is driving that implied fourth quarter guidance?

Nothing unique beyond what I mentioned a little earlier in the call -- and this is David by the way -- but a little earlier in the call, which was the ISO fees we saw come through in the third quarter, which were worth a few points of revenue growth. So you kind of have to set those out a little bit before you go back you and model Q4, and then it just becomes a question of what does FX do or not do, and then how tough are the conditions really North America, and particularly in our international -- in -- excuse me -- in our international operations.

Okay. Just two more then. Tax rate for the year, David; and then, it is possible to get the UK revenues in the quarter?

Sure. Tax rate for the year is the same as we thought it would be last quarter, approaching 33% for the full year. You just saw us post 33.1. This is the effective tax rate, of course. You should see a similar rate probably in Q4; look for, again, approaching 33% for the full year. And the UK generated $50 million of revenue in the third quarter.

50 million. Terrific. Thanks, nice job.

Thanks, Tien-tsin. Thank you.

We go next to Bryan Keane with Credit Suisse.

Hi. Good afternoon, guys. David, can you help me with the ISO fees, exactly what those were? I wasn't aware that that happened this quarter.

Right. Well, from time to time, they will work on their pricing strategies and adjust them; and we saw a little bit bigger adjustment than we might have foreseen come through this third quarter. You won't see it repeat itself in the fourth quarter. And, you know, it happened to be a little more sizable -- it happens all the time. This time it happened to be a little more sizable and worth calling out to you guys, as you think about Tien-tsin's question a moment ago, how do you model Q4 on a sequential basis?

Well, it's not -- it's not a one-time fee, though, is it? Or wouldn't that fee carry through in the fourth quarter, so there is still a stepdown sequentially in revenue between third and fourth?

Actually, in this case, these fees did come through once. They will repeat themselves, by the way, but not -- they don't come through monthly. So you do start with a lower base in Q4.

And then the profit -- the margin in the business, I think you made a comment, would end up being -- the actual operating income ends up being the same, so that's part of the reason why the North American margins were under pressure?

That is correct, Bryan.

Okay, I got it. And then, David, the minority interest dropped a little bit more than I thought in the quarter. It went to 8 million -- I think it up 11.3 million last quarter. I just -- surprised that it fell. Can you help us with that?

Yes. I mean, I think you see a little bit of seasonality there, Bryan, and a little bit lower performance from our domestic joint venture with Comerica and a little bit lower performance in Asia Pacific.

Okay. And then going forward, should that pick back up or is that relatively the right number?

I think you'll see it tick down a little bit in Q4; and again, as Paul mentioned and I've mentioned, but a little bit of -- the macroconditions are a little tougher overall even than they are in North America right now.

Okay. And then finally, Paul, you mentioned there is still upside in Canada. I know the major price increase, I think, anniversary -- starts to anniversary this quarter. Can you just talk about what you meant by that upside that will continue in Canada?

Yes. You know, I did say we have a grow over issue; we do. But it doesn't go away, so we still continue to get the benefit of that. And the guy who is running that business, Stewart [Cohen] has this team very focus on adding new customers, and it's doing -- you know, it's doing pretty well. And there are a couple of other opportunities that present themselves from time to time, too, which are competitive in nature; so I'm still bullish on Canada.

Okay. I'm actually going to sneak in one more. The Russian acquisition, UCS -- I didn't hear about that. Is that still on plan, on schedule to close any day?

Yes. Let me update everyone on where we are with that deal. We are currently in discussions with the seller as we speak about the terms and conditions of that agreement. So I really don't have much to add right now because we are having active dialogue.

Okay, all right. Thanks, guys.

You're welcome. Thank you.

We go next to Bob Napoli with Piper Jaffray.

Thank you, and good afternoon. Couple of questions left. The SG&A for this quarter was a lot higher than I thought. Did it have something to do with the ISO pricing, or is it -- I mean, 180 million up from 164 million last quarter, and I mean, that was a driver to -- certainly a piece of a lower operating margin. Is there anything you can point out there, or -- ?

Bob, you've put your finger on it. It is largely a factor of the ISO pricing strategy. And to your point -- maybe this will bring it home even a little bit more obviously -- that that one probably ticks down a little bit through Q4.

Okay. Can you -- I mean, can you --

For just that reason. Excuse me, Bob, I'm sorry.

Can you put a dollar number on kind of the non-recurring ISO revenue and expense?

I can point you back to the same number from earlier -- it' a few points of revenue growth for the quarter. I'm not going to be much more specific than that.

Okay. On the money transfer business, why take the impairment now? I mean, your discussion, Jim, on the money transfer business, it made it -- you made it sound like, you know, tough business but steady -- generally steady trends. Is it just the realization that you are not going to get the returns you thought you were when you acquired it, or why this quarter?

So Bob, this is David. Maybe I will give you a bit of the financial answer, and let Jim speak to the trends. But we do do our annual goodwill test each January the 1st, so that's a formal reassessment of the outlook for the business; and as we take a hard look at a business that's being very -- managed very well and maximizing profit, the question becomes one of growth out for the future, but the near-term and mid-term especially. And at that point, as we build those projections, it's tough to see it turning the other direction right now, despite some pretty good management. It is the construction industry; it is the macroenvironment. I don't know, Jim if you want to add some color?

I think my comment was more to how it's handling -- how it's handled the more recent economy, David, in terms of this evaluation. It was looking out several years, and so the outlook several years out this year versus last year has changed, because of the events that have occurred in the last six months. And so I don't think it's a choice of ours now versus next quarter. The annual impairment test was done, and this was the outcome from that review.

Okay. On the minority interest -- and this is $0.02 per share items-wise, to bring it up. The tax -- you show the taxes -- there was a provision for taxes at like an 18% rate this quarter. There was no provision last quarter, and with no provision that's $0.02 per share. Can you -- is there some level of tax that we should assume within that minority interest?

Yes, I mean, Bob, it --

Because it jumps around a lot.

Yes, it does jump around a little bit. And I can't track exactly what the numbers you quoted -- I realize you bounced a couple of places geographically on the income statement. Here's the real answer. We had a few true -ups in that minority interest tax rate this quarter that won't recur, so I don't think your model is challenged. My guess is the true-ups caused the disconnect with what you expected to see; and you're right to see that disconnect. And as we head into next quarter, you should see it settle back down to tracking you've seen in the last couple of quarters -- so maybe more the six figures and things like that rather than the big bounce up you saw this quarter.

Okay. Just on the debit/credit mix, you kind of talk about pin debit as opposed to mixing in signature debit. What percentage of your business is true credit, I guess, and then signature debit and pin debit?

Well, like I say, a pin debit -- we've given some color on that in the past, Bob. It's not very big. We are not a huge pin debit guy. But in terms of -- we don't have (inaudible) and all that -- but in terms of signature, we don't rate that out. In other words, we look at it as a credit card transaction, whether it's debited directly from your account or it is something that you pay when you get an invoice. So the pin debit is less than 10%, and then the rest of it is credit. And I can just tell you that we are very close to what Visa and MasterCard is reporting on how many cards they have out there, because we actually did look at it; you can tell by (inaudible) range. We just don't really track it all the time. But we were pretty close the last time we looked at where Visa and MasterCard is on their issuing on signature versus regular just a regular credit.

And are you seeing a decline on the credit side versus -- not including pin debit? Or do you just not look at it that way? Or you're not breaking it out that way?

I think I see where you are driving now.

Yes.

Yes, that's an excellent question. In other words, the revolvers versus the transaction --

Right.

transactions aren't as impacted as much as revolvers who have other issues. I don't have anything quantifiable, but I would tell you intuitively, you have been correct.

Okay. And then, just last question. You talk about a unique position in China. I was hoping you could maybe give me some feel for that; and are you starting to see -- I think China is a pretty minor business for you right now, is that not correct?

It is. China is. And we have a big presence in Hong Kong and (Inaudible), but that is a meaningful amount of revenue in Asia right now, but it speaks to the opportunity. We have very little in mainland. We have a lot of offices, a lot of activity. But what I was referring to is that the local currency -- the Ren Min Bi -- that to be an acquirer of those transactions -- now, there is not a ton of those to acquire at present -- but we have a relationship where we have been offered and approved the opportunity to acquire in local currency and to work with CUP -- with China Union Pay. And we have some work to do to get that implemented, and there are some other governmental approvals necessary. But we are very focused on that, and I believe we will have a unique proposition and be one of the only -- if not the only-- western Company that can offer these services throughout China. And I think over time as this country offers more and more of these vehicles to its consumers, we will be in a perfect position to help enjoy that growth. So I'm very excited about that.

Thank you.

You're welcome.

We go next to Tom McCrohan with Janney Montgomery Scott.

Hi, thanks for taking the call. I had one question specific to the domestic ISO business. Just curious, who absorbs the cost increases -- the per-transaction fee increases -- when Visa and MasterCard come out with pricing changes for acquirer like they've recently imposed? Is that per-transaction fee absorbed by Global Payments, or is it absorbed by your ISO partner?

In any repricing from the card networks associations, those will be passed on to the merchants unless the ISO is interested in absorbing them. And I don't know one associate with us that would be, that could pass on to the the merchant as we would in our domestic base -- or really in any market that we do business.

So the contract between the merchant and the acquirer -- say the ISO -- and Global (inaudible) is really technically the acquirer -- allows you to pass off non-interchange related pricing increases?

I think you were talking about interchange?

No, I'm talking about -- that one-half -- per-transaction, one-half of one cent, and with the $0.02?

Yes, the NABU in particular. Yes, absolutely, Tom. We are -- there's no limit on our ability to pass through expenses.

Yes, exactly. I mean, we charge the ISOs a per-transaction fee, and then we pass through all others.

And their contract with the merchant is they can do that without having to renegotiate? They can just -- the merchant just --

The contract is between Global -- the member -- and the merchant. And then the ISO has an agreement with Global; but ultimately, these are contracts with Global, so those contracts provide, as Paul just described, the ability to pass those fees directly through.

It typically (inaudible) interchange fees and assessments; so yes, it's all covered.

Great. Thanks, guys.

You're welcome.

Next to Rob Dodd with Morgan Keegan.

Hi guys. Almost a follow-up to that and then two others. In the US, I mean, you had 15% transaction growth this quarter; you said high single-digit average ticket compression. I mean, should we be looking for next quarter revenue growth in the mid-single digit range, or are you going to be able the pass through enough of the NABU price increase to drive back maybe into the high single-digit range or maybe even low double-digit, assuming transaction growth stays where it is?

This is David. So we don't really parse the revenue expectations by marketing growth. I guess I'd tell you this -- it's easy to think about sequentially for purposes of the call tonight -- if you reset the base a little bit for the ISO pricing strategy -- we've now talked about it a couple of times -- and then allow for some modest sequential growth across the board in sort of North America, you will get a sense of where the pieces are going. But I would rather not speak to parsing out the geographies with next quarter's growth expectation.

Got it. Second one, just Asia, you know, obviously a slowdown from the prior quarter. Could you try and give us some color on how much of that was currency versus economic activity? I mean, hotel stays in Hong Kong are actively down, and that's a pretty bit piece of your business over there?

Yes, Robert. I think most of it is economic activity that, you know, Ren Min Bi is pretty flat. We have lots of other currencies however, but they don't fluctuate the way the pound or the Euro or the Canadian dollar has typically. They do bounce, but not to the extent. So -- we -- you know, I think this economic activity is the majority of it. You know, we clearly are not immune at the end of the day. And -- but I think the story about Asia is not so much some of our hotel traffic is down little bit -- because we hope that bounces back, and I think it will -- it's really the bigger story of what are we going to do at the end of the day in China and in India. That's the huge opportunities.

Got it. Yes, in the long-term. Last one, can you talk little bit about Eastern Europe? Obviously, there's various questions about whether Hungary is going to still be around or if it's going to do an Iceland -- you know, I haven't heard the same kind of scared storied about the Czech republic -- but how -- (inaudible) -- whatever we are calling it this year -- doing, and how are their customers doing at this point?

Well, we are calling it GPE -- Global Payments Europe. The Czech's got a little bit of press recently when the Czech prime minister said that our stimulus plan was the "Road to Hell" quote, unquote.

Yes, I remember.

But they are struggling. And some of those economies are much more fragile than -- and have less ability to rebound. We hope we don't see any Icelands. So -- but, you know, I don't -- I'm not going to make predictions there. I will tell you that Global Payments Europe, as of right now, is doing okay. It has its challenges, though, too. It's an indirect business. And because of that, it's very difficult to grow that significantly because you have to sign these mammoth banks and get them to convert, so it's a big -- it's almost like a card issuing type of deal. I mean, it's a big deal to get or to lose customers, and there also are a handle of guys that have more control, and when pricing renegotiations happen that has a bigger impact on you, too.

But you know, just like China a little bit, that's a -- it's not about that we have a 50% market share in the Czech Republic, which is nice; our aspirations are to expand dramatically beyond those regions to morph this to a direct acquiring model, and that's why we were pointing at Russia at one point. 150 million people, the largest economy in that whole region; and one that we are -- it's not without its risks, clearly, and challenges -- but one that we are also focused on. So I'd say stay tuned.

Okay, got it. Thank you.

You're welcome.

We go next to Roger Smith with Fox-Pitt Kelton.

Thanks very much. I just want to go back to that Visa and MasterCard pricing increases to the acquirers; and is that a real transparent increase to the merchants, or can you end up getting some pricing benefit yourself there?

Good question.

You know, I think that's up to either Global in the case of our pricing strategy, our competitors or our ISOs. It generally is a -- well, I think it will be discreet line on most merchant statements. Historically, would not have seen the half of a penny that was charged on, I would say, most of the people in the industry. Some competitors did show it as a discreet line; most did not. I think in this case, given its magnitude, you're going to see it as a separate; and then in some cases, some people then mark it up. Some people may just pass it through directly.

And I think Jim would agree, it's basically big merchants clearly completely transparent. It's a straight pass through. Smaller merchants, it's going to be bundled, and most of the ISOs will take that opportunity to mark it up a little bit. Not dramatically, but in a small amount, so.

Okay, great. And then, you know, like you said, it is a much more dramatic increase than maybe we've seen in the past. Is this something that will fuel the anger on the merchants about the whole discount fee and the interchange, or do you think there's not going to be much of a reaction from the merchants from this pricing initiative?

You know, once again, you have to look at the size of the merchant. In terms of small merchants, it's -- you know, in the Mastercard case it's going from a half a cent to 1.95 cents -- and for a small guy, that's kind of lost in the wash. I don't think it's a mammoth amount. But for a big merchant, that could exceed what they are paying for processing. Now also, you know, big merchants have some volume breaks, too, because of their size; and the associations, I think correctly so, have addressed it through some different guidelines that apply to those that produce huge amounts of volume and have significant market position. Will it point -- will it cause kind of disruption? I think it's been a fairly well accepted. I don't think anyone likes to see pricing increases. But clearly, Visa and a MasterCard need to fund their operations. Not an interchange -- it goes directly to both associations, both in Visa and Mastercard's case; and I, for one, understand why they did it. And I don't think we will see a lot of disruption at the end of the day because of it.

And I would also add that for both the card associations, these fees go back anywhere between five and ten years that the rate has not changed. So this is another way to look at it, is there has not been increase in a long period of time for this for this type of charge.

Great, thanks very much.

We go next to David Koning with Baird.

Yes. Hey, guys. If we look at the North American merchant margins, they were about 21% this quarter; and it looks like if we exclude that ISO kind of passthrough revenue this quarter, maybe closer to 22% margins; and I know it was down a quite a bit just due mostly to the Canadian currency. But I'm wondering, if we do have currency just hold here now, and we don't get big price benefits out of Canada going forward, is that 22% or so -- is that kind of a good go-forward margin, or might there be a little downward pressure on that, you know, just because ISOs continue to grow a little faster than the rest of the business?

David, speaking only to Q4, I think that's an appropriate way to think about the fourth quarter; and so that the next go-forward quarter -- we're obviously not going beyond that in tonight's call, as you know -- but I do think you put your finger on it, yes, as you think about Q4 and how the pieces come together in Q4.

Okay. And then I guess the one other question on the North American merchant, I guess on the EBIT line, it was down a little bit year-over-year; and again, I know that's currency related. Was that all in Canada, or was any of that decline in the US?

Oh, I'm sorry. Yes. So the vast majority of that is Canadian and Canadian FX. I would tell you -- as we probably discussed it last quarter -- the other product line in the United States is some of our check and gaming-type businesses face the same challenging macroenvironment; so you'll probably see the income generated by those being down a little bit as well.

But the core US merchant business was still up year over year in terms of EBIT?

So if you pull the pieces apart, again, the biggest thing to think about is Canada and the FX, and then sort of the -- what I call the other product lines.

All right. Great, thank you.

And we will take the last question from Franco Turrinelli from William Blair and Company, after which Mr. Garcia will give his closing statement.

Hey, Franco.

I actually have a Visa minor; but both depreciation and amortization expenses seemed to decline significantly sequentially, but obviously not related to the writeoff. Is there anything to look at there?

Probably just the translation of some of the balance sheet accounts from international, and then the resulting of a bit of a drop in depreciation level (inaudible) any big items there. No business items, Franco.

Okay. Great, thanks.

At this time, we will turn the call over to Mr. Garcia for his closing statement.

Thank you, operator, and thank you, all of you, for joining us on our call today; and thank you for your continuing interest in Global Payments.

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