環匯 (GPN) 2010 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to Global Payments first quarter fiscal 2010 earnings conference call. At this time, all participants are in a listen-only mode. Later we'll open the lines for questions and answers. (Operator Instructions). As a reminder today's conference will be recorded. At this time, I'd like to turn the conference over to your host, Vice President of Investor Relations, Ms. Jane Elliott. Please go ahead.

Good afternoon, and welcome to Global Payments fiscal 2010 first 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 Magnum, EVP and CFO.

Before we begin, I'd like to remind you 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 made during this call and they're made only as of the date of this call. In addition some of the comments made on this call may refer to certain measures and normalized results for full-year fiscal 2009 which are not in accordance with GAAP. Management believes these 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 today as an exhibit to our Form 8-K dated October 1, 2009, which may be located under the investor relations area on our website at www.globalpaymentsinc.com.

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

Thank you, Jane, and thanks, everyone, for joining us this afternoon. For our fiscal 2010 first quarter we delivered solid financial performance, with revenue growth of 9% to $441 million and diluted earnings per share of $0.71, which was flat compared to last-year's quarter; however, on a constant currency basis, our first quarter revenue and EPS growth would be 14% and 10% respectively. Our North American merchant services revenue grew 6% for the quarter, driven by strong performance from our ISO channel as evidenced by US transaction growth of 20% and some modest US pricing initiatives, partially offset by an unfavorable Canadian currency exchange rate.

Despite unfavorable currency exchange rates we delivered revenue growth from our international merchant services segment this quarter of 29%, driven by the impact of our June 30, 2008 acquisition of the HSBC UK business, as well as solid sales execution. I'm very pleased with the initial performance of United Card Services, UCS, in Russia, which performed better than anticipated. Our Central European indirect processing businesses continues to be challenged but I'm very pleased to announce that we have now renewed our three largest customers for multi-year periods. Our Asia Pacific business grew 23% due to the September 2008 addition of the Philippines, as well as continued sales success.

Not surprisingly, macroeconomic conditions have caused our average ticket amounts to decline across all of our geographies compared to prior year, with the US experiencing the greatest decline in average ticket. The US trend continues to be driven by a combination of weakened consumer spending, the industry shift of increasing debit transactions, and the continued addition of merchants with smaller average tickets through our ISO channel. However, I am pleased to report that we continue to expand market share in each of our direct merchant acquiring markets around the world.

Finally, the money transfer business continues to face challenges and macroeconomic headwinds, as well as immigrant labor trends. We are not aware of anything that would suggest that these trends will change for the remainder of fiscal 2010. However, despite these difficulties, we maintained double-digit operating margins for the quarter and will work to maintain this for the remainder of the year. As part of our acquisition strategy, I'm pleased to announce that on September 28th we acquired Auctionpay, a small technology business in the US that provides software solutions, technology, and processing for periodic payments and fund raising to not-for-profit organizations. While small enough to be literally inconsequential to current-year revenue and earnings, this is an example of our strategy of acquiring technological providers operating in attractive vertical markets with proprietary technology, global opportunity, and sustainable competitive advantages.

Now, here's David to discuss the financial results in detail. David?

Thanks, Paul. I plan to discuss currency trends, operating margins, financial statement presentation, and balance sheet and cash flow. Our first quarter financial performance met our expectations and provides us with a solid start toward achieving our full-year revenue and earnings goals. Exchange rates in our key currencies did not vary materially from our outlook in Q1, nor has our outlook for a slightly weakened US dollar over the course of fiscal 2010. Thus our full-year EPS outlook for growth of 9% to 14% still includes a favorable impact to earnings growth of about 1 percentage point due to potential weakening of the US dollar. Any fluctuations in currency rates, of course, may cause variances to our outlook.

Total Company operating margins for the first quarter were about what we expected at 21% and we continue to anticipate the opportunity for modestly expanding margins for the full-fiscal year of 2010. On a year-over-year basis, North America margins were primarily affected by unfavorable Canadian currency exchange rates, while international merchant services margins benefited from solid performance in the United Kingdom. We adopted FAS 160, "Non-Controlling Interests in Consolidated Financial Statements," and EITF Topic D-98, "Classification and Measurement of Redeemable Securities" at the beginning of the year, resulting in four retroactive changes to our statement presentation that I'd like to highlight.

First, we have renamed minority interest to non-controlling interest on the balance sheet, statement of cash flows, and income statements. Second, we now reflect our redeemable non-controlling interest at their estimated redemption values in the mezzanine section of the balance sheet between total liabilities and shareholders equity. Third, we now show non-redeemable, non-controlling interest in the equity section. And finally, we now start the cash flow statement with net income including non-controlling interests, which adds the $4.6 million of non-cash, non-controlling interest expense to net income, thus eliminating what used to be an add back to operating cash flow for what we previously called minority interest expense.

We reported an effective tax rate for the quarter of 31.4%, which is a little lower than our expectations, primarily due to the timing of certain international tax initiatives. We continue to expect our full-year fiscal 2010 effective tax rate to approach 33%, though we may now come in a bit below that. We reported total cash and cash equivalents of about $1 billion, but that amount is somewhat illusory. You may have noticed that our quarter ended on a Monday and as a result, our cash included weekend merchant dollar volume, which is also reflected in our corresponding settlement obligations balance sheet line item. This volume was settled to our merchants on Tuesday, September 1st, bringing our cash level to a level more comparable to our May 31st reported cash. This timing effect will happen again in November and May. In fact, our total available cash at the end of the quarter was about $165 million.

Now, for those of you interested in calculating cash earnings, amortization expense after non-controlling interest for the first quarter totaled $7 million and we continue to expect about $29 million in total for the full year. Please note that amortization will fluctuate over the course of the year due to currency translation. Finally, from a constant currency perspective, the strengthened US dollar reduced first quarter revenue growth by 5 percentage points, or $21 million, and earnings growth by 10 percentage points, or $0.07 per share.

And now I'll turn the call back over to Paul.

Thank you, David. Based on our current outlook we continue to expect 2010 annual revenue of $1.690 billion to $1.740 billion, or 6% to 9% growth over fiscal 2009, and normalized diluted earnings per share of $2.43 to $2.54, reflecting 9% to 14% growth over fiscal 2009. We continue to be pleased at the prospect of expanding margins and we are actively pursuing acquisitions in all of our markets, with a focus on merchant portfolios and other technology companies as we expand our global presence and product offerings.

Operator, we will now go to questions.

Thank you. (Operator instructions). Our first question comes from Kartik Mehta with Northcoast.

Good afternoon. David, a question on the debt. Obviously, you have that debt from the HSBC transaction and I'm wondering what the goal is as far as reducing that debt. Will it be like you've done previously where you try to pay it off as quickly as you can, or do you have intentions to continue with that debt for a while?

Kartik, I think what you'll see is the debt will continue for a while but as we accumulate cash you should not be surprised to see us work to pay down to the most expensive portions of that debt so it shouldn't surprise you in the least to see us start paying down a little bit of debt as we've accumulated cash, now, in the couple, three quarters.

Paul, you had a fantastic first quarter, obviously much better than anybody expected, yet you're keeping your full-year guidance where it is. I'm just wondering, is it that we just all underestimated what you could earn in the first quarter, or did something happen in the first quarter that gives you pause about the remainder of the year and you're not -- as a result you're not raising guidance?

Kartik, it's primarily the first part. We give you guys annual guidance and I think you guys generally -- the Street consensus built in a little more of a hockey stick into the plans and, quite frankly, our expectation, and we're pretty spot on with our plans so that's the primary reason.

So would you expect -- in the past you've added second quarter, that's seasonally a lot lower than the first quarter, would you expect similar seasonal trends this year as in the past, or because of FX you'll see something different?

Yes, Kartik, I think what you'll see, if we focus on -- this is David, by the way, if we focus on just the current year, not comparisons to last year, as Paul mentioned, Q1 was right about in our plan and [then] if you look annually you'll see FX drives swings in the growth so let's set all that aside for a moment. What we really expect to see now is a year that shapes like our traditional years have shaped, so go back to 2008 or even before, where you'll see that traditionally our first quarter contributes something on the order of 27% of our full-year earnings and then Q3 contributes substantially the least of our earnings for that year, with each of Q2 and Q4 somewhere in between. That's generally how we see the year shaping, meaning that we exit Q1 on track for our full-year expectations. But it is, as Paul said, really we're dead on our own plan for the full year as we exit Q1. I realize we're ahead of published estimates because you guys are jumping really off of Q4, but we do see the year shaping like you've traditionally watched Global Payments every year shape.

And then last question, Paul, just on your most recent acquisition of Auctionpay. Obviously a small acquisition, but what is it that you acquired that you didn't have, or what will this acquisition let you do that you couldn't do before?

Kartik, there are several great verticals and philanthropic giving is one of them and this is this company, although it's not a big company, it's a very good Company with some great product sets and it's actually a leader in this space, particularly in the auction space. So you have an auction at your kids' school and that's a sweet spot for these guys and they probably have more of that business than anyone. So we believe we can take this company beyond its initial geographies. We can add some product suites to it. We like what they do. We think we can actually improve upon it and immediately take these to Canada and to the UK, for starters. So we like this deal, it's a great vertical. We also like the Management team. The CEO and the people that help build this are all coming with the deal. They're excited about doing this with us. I think I would say small but powerful, we feel very good about this deal.

Thank you very much.

Thanks, Kartik.

We'll go next to Tom McCrohan with Janney Montgomery Scott.

Hi, everyone. I had a -- just a quick question on the operating leverage and just conceptually, (inaudible) with just the currency your revenue grew faster than earnings per share, so can you just give us a sense for what's going on in the model that's causing that phenomenon and can we expect that trend to change some time in the future where your bottom-line growth will grow at the same rate as your top line?

Tom, this is David. So I think what drives most of that phenomenon -- I think you're particularly looking sequentially -- is going to be ISO progress that brings us the revenue growth that doesn't bring a resulting earnings growth with it and I think you'll see that phenomenon continue to carry as we go through the year. Now, as we build more mass globally with countries like the UK, as Russia grows, as we build more mass in Asia, you will see that begin to turn and if you were to look out a few quarters you'll begin to see a different relationship, what you might term, I suppose, a more logical relationship between revenue and earnings growth. But for the moment, as we do Q1 and probably Q2, as well, you'll see that effect continue.

And yes, certainly international is the growth -- a big growth opportunity here and the margins were really much better than I would have thought this quarter, so you mentioned in your prepared remarks international benefited from improved performance. Can you drill down on that a little bit?

Yes, be happy to. So if you think about international in total we continue to make very steady progress in Asia with sequential growth, annual revenue growth and margin expansion. Now, that's happening literally sequentially so we're not jumping five points at a clip but we are growing substantially. In addition, as we've rationalized our UK investment levels -- remember, we invested in, for example, 50 some odd new sales folks over the course of the last year or so. Those kinds of investments are now fully in the run rate. The sales folks are beginning to become productive, which is sort of double the leverage at that point. You get the run-rate leverage then plus performance eventually on the top line. And then you'll see us begin to introduce price increases to a market like that. You'll see very nice progress at the operating line in the UK over the course of this year. Now going the other way we've got our challenges with the indirect business model in the Central Europe, but frankly, Asia and the UK are trumping that and carrying the water.

Okay. And maybe just to close, my last question on international opportunities. It seems like there's a lot of activity in Europe. We just saw your competitor Elavon, I guess, form a partnership with Santander, so can you just talk about what you're seeing in the market and is there an expectation more banks will look to exit or partner on the merchant processing side?

Yes, Tom, this is Paul. It's clearly -- that's clearly our hope and that is a -- that's a primary focus for us. I think those are -- when you can get those deals those are most usually very good ones, so we are focused on those and we do think we'll see some more of those in all of the geographies we're currently in; so Europe, Central Europe and Asia, so we're hopeful. Jim, do you want to add any color there?

I think, as you saw in the announcement with Elavon, that banks are combining and looking for ways, now that the initial crisis [that they had is beyond and] past all of them, that they'll look to liquidate pieces of their business to raise capital and we're looking forward to those opportunities in Western Europe, Eastern Europe and potentially in Asia.

Tom, I think what's maybe missed is the Elavon deal is Banco Santander actually acquiring a bank in the UK that had an existing relationship with Elavon.

Okay.

(inaudible) Bank and Elavon, Nova at the time, had a deal with them years ago.

Fair enough. Thanks, guys.

You're welcome.

We'll go next to Dan Perlin with RBC Capital Markets.

Thanks guys. Sounds like increasingly you're reporting from remote locations but the question I had, Paul, last quarter I didn't get a chance to follow up with you on this but you had mentioned that you were interested or would be willing to pursue acquisitions in ISOs and then I think there was some sort of clarification about what that really meant. Can you just remind us where your head is and what you mean by that?

Sure I will but, Dan, let me comment on the first part about the sound check. Because we're all sitting here in this one room and somebody just came in from one of our staff and said they couldn't hear on their PC, so operator, I don't know what that means, but if we're having problems with the audio I just want you to do what you can.

All right, Dan, so thanks for the ISO question. So what I meant was that we lump everything in as ISOs. You could say we're an ISO, quite frankly. If you're not a financial institution you're -- by definition to Visa or MasterCard you're considered an ISO. And there are ISOs that have very traditional models with commission-only salespeople and they go after successful verticals and add some value add and build very nice businesses and what I said was that's not a business that I think you're going to see us acquiring. But there are other companies that are primarily in interesting niches with a technology play and that don't employ tens or hundreds or thousands of commission salespeople and I think Auctionpay is a great example.

So what do you think about you'd be open to the idea of acquiring companies that have technology, like a small enterprise solution?

Dan, I don't want to -- we're swapping out phones as we're speaking here. This is a little bit like changing the tires on your car as you're driving down the road, but -- so I'm literally following the speakerphone around the conference table. It took up the difficulty level a couple notches. It won't take but a second.

I hope G2 goes better than this.

Well, that is our hope. We do have some [good] things to say about that. [What was the question?]

Did you hear the question I had?

Why don't you repeat that, that would be helpful.

Okay. So it sounds like removing the ISO -- traditional ISO vertical you'd be open to acquiring businesses that have maybe even enterprise technologies in verticals where you may be in but aren't traditional payment companies?

That's correct, and as I think was Paul was alluding to, Auctionpay is an example of a couple things. One it's technology focused so it's not selling simply the acquiring services but they're offering a solution for people running auctions and it's a software solution. I think we would also be interested businesses that focus on more of the traditional bank model, referral model, those that have a direct salesforce and I don't think that is in the US; that's Canada, that's Europe, that's Asia. That tends to be the model that we're best at and the model that describes more of the traditional ISO model, where there is not a referral source; it's brute force and relationships. We leave that to those who are best at it, which are the people that we rely on in the US and some in Canada to deliver those smaller merchant sets.

That's a great clarifier. Let me just say one other thing on top of Jim's point. So to be very crisp, it's not a business -- we attempted to do this eight or nine years ago with a commission-only salesforce. We did not do a good job of it. Along the same time our ISOs were building up very successfully this large market presence. We fortunately aligned ourselves with wonderful ISOs who were doing very well. Number one, I don't want to compete with them. I wouldn't flatter myself to think I could even if I wanted to and we're not that stupid, so that's not what we're all about.

Got it. And then I just want to clarify a point to David. I just want to make sure you're talking about fiscal year 2010 margin improvement year on year, not just throughout the year?

Yes, Dan, that's exactly right. So the opportunity for expanding margins on a full year over full year basis.

Okay. And then, Paul, since the Russian acquisition is performing a little bit better can you remind us what your near-term action plan is for that asset. Is it the traditional, you making an acquisition, you invest heavily in it, it pulls the margins in and you let it run, so is that where we are in this story, or are there some things that you've learned and you're doing differently this time around?

I don't know if it's -- I'm answering at least a piece of this, Paul.

Please.

I think that this is unlike a lot of the ones you've seen where this had a self-contained business that was separate from the bank, there's no conversion involved, we may ultimately convert pieces to our G2 system but it's not necessary out of the box, so I think this is an investment similar to what David was describing for Europe where it's a direct salesforce. Remember Russia's somewhat new to this business and their number of sales resources are limited so that's an area of expansion. I think we have opportunities for additional acquisitions from financial institutions that are in the market that we're associated with today and just others we compete with, so I think the future for those type of growth levers are very bright.

So just to add on to Jim again, so to clarify, we are going to invest. That is going to have a little bit of an impact on the margin in that we are adding a lot of salespeople because we think these guys are incredibly well positioned, we love the management, so we are encouraging them to add sales resources because I think that market is becoming more and more attractive every day.

Dan, this is David. Each of Jim's and Paul's comments are incorporated into our existing expectations, so remember we told you it's earnings neutral or thereabouts for this year, so those investment levels were incorporated into that expectation.

Great point.

I expect nothing less. One other -- I guess two other real quick questions. Can you just give us an example of what you're considering in terms of pricing opportunities in the UK that maybe didn't exist previously? And then the last question and I'll jump off, doesn't HSBC have a put option on it and when does that come due?

Okay, let me just ask one question first and then Jim's going to take the UK one. Is the sound any better? We just tried to fix this. Can you hear us? Is it crys --

Yes, it's very good.

All right, good.

It's very good, thank you.

In reverse order, they had a put option. There was a put and call provision. That's gone. We purchased the business outright, so at this stage it's ours for the UK, if that was your question.

For Asia.

Oh, for Asia, yes.

Sorry.

Asia still has opportunities for them to put the business. It's in pieces beginning, I think, in the fifth year. We're in year four, so they could sell down I think it's 15% a year and then at, I think, below 20% or 15% we'd just buy the rest out.

So that's 2012 that kicks in?

I believe it was five years, but you're testing my memory.

I think that it's more likely that they decide they want to do it or they -- and they would do something probably not in pieces, they would just do it or they would decide. But as of now the bank seems interested in keeping the JV going. We're completely agnostic. We have a great relationship and either scenario we have a long-term marketing alliance. They seem to feel comfortable with the JV in Asia right now, the UK guys had a different feeling. Either scenario is great with us.

And then pricing in the UK, and I'm hanging up?

Right. So in terms of the UK, the pricing is really coming back to interchange increases that have occurred over the last year while it was still on the bank's systems. Some of these we've delayed implementing given the financial crisis last year, some of it is coming back to what we've -- to neutral. Some of it would represent opportunities to price for services that were not previously charged by the bank. I think you'll see more of that after we convert the back end, which is not slated for a specific date. But that's when we have an opportunity to take advantage of the tools that are on our back-end system.

Thank you.

Okay, Dan, thank you.

We'll go next to Dave Koning with R. W. Baird.

Yes, hi, guys, nice job.

Thank you.

First of all, just to compute organic growth in Q1 I'm wondering if you can give us the combined Russia acquired revenues, the Philippines, and then one month of UK before it anniversaried?

Yes, this is David. I probably won't call it out specifically but I think you have the tools. You know that Russia came in at about a $2.5 million a month run rate and it's just marginally exceeded that for Q1. If you tack a look back at disclosure previous, you know that the UK's been running about $50 million or so of revenue a quarter and we're not breaking out its revenue any more specifically. You'll see we report Europe now in total so I think take a glance back at last year's Q1 -- or Q4 exit rate you get a pretty good feel for that. And really, frankly the Philippines is de minimis except within Asia itself where you cut the growth in half, or a little north of in half, frankly, without the Philippines growth.

Okay, that's great color. And then secondly, you did a nice job reaccelerating US revenue growth and I'm wondering if you can talk a little bit about if that just came from existing ISOs, or maybe if there were some new ISOs that helped out, or maybe your direct business got a little better. Maybe you can talk about each of those business lines?

I think you answered the question, it is a piece of all of them. The ISOs, while we all felt the effects of last year, we had, surprisingly for us, a strong rebound of growth from our major large ISOs. I think they've plowed their way through a difficult market, which is a testament to how strong an organization they are. I think on our direct business we continue to be pleased with its performance, as our gaming business continues to do well. Our alliance with Comerica, as well, is performing. We've had some opportunities for repricing in the summer and spring, all that has been factored into the performance that you've seen.

And were there some new ISOs that came out in the quarter, too, that helped out a little bit?

Nope. This has really been the group that's been with us for seven, eight years continue to execute well on their plans.

Great. Thank you.

We'll go next to Greg Smith with Duncan Williams.

Yes, hi guys.

Hi, Greg.

Can you give us the transaction growth rate in Canada? I don't think I heard that.

No, Greg. We haven't been breaking out the transaction growth rate in Canada, but as I think you know, it tends to run about the level of the local currency revenue growth, [so I think you're looking at about] low single digits, pretty traditional growth there.

Okay. Okay, that makes sense. And then just, Paul, the whole interchange debate, I feel like we go over this every quarter but still want to get your reaction if interchange were regulated in the US and it were to come down quite a bit, how do you think it would impact Global Payments?

I think, Greg, you know the answer. It's going to impact us favorably. Even Australia, if you look at what happened there -- and there is a lesson for our regulators, not to go down that pike because that didn't have the result I think the Australian officials thought it would -- but even the processors there end up keeping some of that, those that process for smaller merchants. I think that the bigger issue here is we have credit card legislation, like the CFPA, and that is really geared at consumers and financial institutions and the Obama administration's in the middle of that and there's been a lot of rhetoric.

And then on the other side you have a B2B fight between retailers and the associations on interchange and people are trying to couple them and they're very, very different. The consumer on the street doesn't care what the interchange level is and I think that you're seeing an awful lot of interest now from regulators. Dodd, most recently, got a big splash a couple days ago. That hit the tape and the associations both took a big hit in stock price. I don't know where this is going to go. I will maintain, though, that over time it goes down. I can guarantee you that over time it'll go down and when that happens that's good for us and basically everybody in the space, Greg.

Yes, I agree. And then just lastly the gaming business. I know it's a small piece but can you talk about how that business is progressing, market share in the quarter, and then just overall activity levels? It seems like things are pretty down, are you seeing any signs of hope there?

I think the characterization of down, I think they're challenged because of the economy but we continue to see wins in the major market, being Vegas, but also smaller markets around the US, also in Canada. I think we are doing well. I don't think we break out the specifics in terms of transactions or revenue but it continues to be a growing piece of our business.

And its sales success is quite solid, Greg. It hasn't all translated to revenue yet for any number of reasons you touched on, when you think about the conditions outside, but it's operating nicely.

Okay, great. Thanks guys.

You're welcome.

We'll go next to Bob Napoli with Piper Jaffray.

Good afternoon, thank you. A couple questions. First of all, the prepaid industry has been growing pretty rapidly. You never -- you haven't talked about it much with regards to Global Payments so I just wondered what you guys are doing in prepaid and where do you think -- and what is your strategy there?

In each of our markets we've tended to partner with either the leader or an independent or group of independents and leave it up to the merchant to decide who they wanted to be affiliated with. They may have a pre-existing relationship coming from another processor. We have an in-house solution, as well, both open and closed loop and I think from that perspective, we can offer a myriad of options but ultimately, it's going to be left up to the customer to decide. Now that's predominantly US. It'll soon be US, Canada with the conversion of G2 at some point in the future, as well as the other markets. So as we pull the markets onto common front end and back end all these tools will be made available to each of those geographies.

What size -- I mean, how large is that business for you today and how fast is it growing?

We really don't treat it -- when prepaid got started ten years ago, five years ago and it was hot, a lot of businesses growing up with a lot of funding, their processors, us included, generally sold it as an add-on service. It was a way to -- or is a way to retain customers more than a separate defined business. Now, some look at it differently. There are still businesses that run this exclusively, but for us, it's an add-on product. I wouldn't characterize it as a standalone business.

And, Bob, just to clarify you're talking about prepaid, non-Visa and MasterCard products. These are standalone prepaid products.

Gift cards.

Gift cards primarily.

Or prepaid -- reloadable prepaid cash cards?

Sure. Yes, the same, yes.

We wouldn't treat that as a separate standalone business that we look at it as a separate P&L. We would just look at it as a product that's offered as credit is, debit is, check services, whichever the need of the merchant at the time.

I think parenthetically you're going to see a lot of activity on Visa and MasterCard prepaid just because of the economics is changing pretty dramatically and if some of the things happen that some of the issuers fear, they're going to be driven into that. It's the only way they're going to be able to justify a big section of the market that has a higher risk profile. If they can't price it accordingly, they're going to be forced to just offer that product. Now, when that happens it's just a transaction for us, as you know. We just process it.

Okay, a question on Canadian debit. What -- is there an opportunity there for you and is it material?

You are going to be -- the answer is yes and yes. It is -- there is an opportunity for us clearly. We're a big processor in Canada and I do think that over time -- there's nothing we're looking at this year, it's a next year event, and I think that in time is going to take time, as well. MasterCard has announced they're going to do this, they're going to price it a similar way as Interact and that means we're going to earn similar fees. Over time -- I think because this is truly a better offering for the Canadian consumer, I think this is going to be embraced. And the merchants aren't anxious because what they have now is the lowest cost alternative but it doesn't have the functionality of a more robust Visa and MasterCard product. So I think over time this thing builds up some momentum. I think it's going to be next year and the year beyond and the year beyond that, but clearly this is good for us, and we are very much looking forward to it and we'll keep you informed.

Great. Last question, did you give -- I guess what I was trying to get is organic revenue growth, constant currency for Asia and transaction growth?

No, Bob, we did not, so really when you look at Asia, there's almost no currency impact to Asia.

Okay.

The currency impact we see is Canada, as you well know, and the UK and a little bit of the Euro affecting Central Europe here and there, but there's literally almost no -- it's rounding barely currency impact in Asia.

But is the transaction growth running above revenue growth --?

No. No, and I think you're aware it really hasn't been running above that level in that market for a while, and nor should you expect it to I don't think. That's also, as you remember, one of our more challenged markets in terms of having a few health and beauty merchants, things like that, a different sort of profile. But as a general rule it's healthy and performing as we expect given margin expansion and very solid revenue growth.

Thank you.

We'll go next to Darrin Peller with Barclays Capital.

Dave, can we touch a bit on the UK -- the acquisition of the JV again? I know your guidance initially had estimated $0.09 to $0.12 on EPS from that and buying out the remaining JV, now has that changed given the currency exchange? I know you guys said you expected some change but it may have been more than initially expected when you gave that guidance, so is that $0.09 to $0.12 still actually what you expect from that acquisition?

Yes, it's still what we're tracking, Darrin. I would tell you as we exit the quarter we're certainly more comfortable about the higher side of that than the lower side is where we gave ourselves the room as we started the year. I think as you think about currency and how it affected Q1 it's important to realize that we keyed our Q1 ex -- or our full-year expectations on that Q4 call off of where the currency was as we had the call. And so while we've all watched the US dollar weaken fairly materially over the course of May, June and even July against currencies like the pound and Canadian dollar, by the time we got to that call and since then a currency like the pound has only weak -- or the dollar against the pound has only weakened 0.3% so it really did not change the story over the course of Q1 from what we expected for that quarter, or really for the full year. In other words, most of that weakness was already baked in, there was just marginal weakness beyond what we expected, so really not a lot of change to the story, to tell you the truth.

All right. And if there is further weakness in the dollar going forward then is that beyond your initial expectations?

No. So there is still further weakening of the dollar, we expect, at the high end of our range, which has always accommodated kind of a 1% -- or actually -- excuse me, always accommodated weakening of the dollar that would drive 1% growth in earnings, so our range of $0.09 to $0.14 could be $0.08 to $0.13 without the weakening we've assumed in the dollar over the rest of the year. Now weakening beyond that? Yes, that would be upside.

Okay. What about -- Paul, maybe for you on Brazil. You touched on this in the past but there's certainly more -- some more excitement coming around that area given the changes between Ready Guard and VisaNet and I know in the past you'd mentioned it being a long-term opportunity, but is there anything maybe that's changed that view over the past couple of months being more near term?

No, it is very interesting and you're right, the market is certainly fascinating to watch, and as we've talked before, it's Brazil, Russia, India, and China so we're kind of rick, we're not in brick yet, and Brazil is clearly in our radar, but we're looking more at a five-year horizon for having any real presence in South America, absent some wonderful opportunity. And what's down there right now is very expensive and very evolving and quite complicated, but also very interesting. So I'd say stay tuned and we are getting more involved in that market.

What about -- I know you touched on JV alliance relationships in maybe Asia or Europe, what about in Mexico or the US? Are there any -- is there anybody left that is on your radar right now?

Yes. The answer is yes. Mexico is -- we've talked about North America and Mexico, of course, is the southern portion of that and it clearly is an area we're focused on and it's -- I do think there are some opportunities and we're hopeful to actually get something to happen.

Okay. And then lastly on money transfer, can you just talk a little bit about the trends the more recent couple of months?

Yes, I'll -- I'm going to let Jim fill in a little more color on that but I'll tell you that the business has kind of stabilized. It's not doing wonderfully. We're concerned that we don't see anything that gives us any indication that business is going to improve and we've been able to maintain some reasonable margins, but we can't manufacture people to send money. So we are concerned about that business and I think -- and that's part of our disclosure when we were chatting with you even in our prepared speech. Go ahead.

As Paul was alluding to, the declines, which have run as high as the mid to upper teens, have settled down in probably the lower teen range, which seems to be pretty consistent with where the marketplace is. I think the challenge we're seeing beyond that has been around average ticket. As Paul was saying, the money that was available to send years prior is less because the work is less, the pay is less and therefore there's less to transfer. So it remains a challenge but the team is doing an outstanding job managing through a difficult situation and conserving cash where we can, closing facilities that we don't see a prospect for turning around and these branches are easy to open or equally easy to close. They have a very short tail on their leases and the severance costs are nominal. So we are doing what we believe to be the best in a difficult season right now.

All right, thanks. And then actually real quickly, you commented on 20%, I think, transaction growth in the US, right? Can you give us any color on that trend in September?

We have -- we're kind of seeing steady state. We're not seeing any improvement, but not unlike the money transfer business, although we have happier scenarios, we're actually talking about growth, we're seeing the decline in growth kind of bottom out and we're hopeful that it'll turn around. So it's not getting worse. We're not seeing any jump up in average ticket but we're not seeing a further decline so it's pretty -- we're seeing pretty much steady state.

All right. Thanks, guys.

You're welcome, Darrin.

We'll go next to Julio Quinteros with Goldman Sachs.

Hey, guys, good evening. I might have missed this on the front end here, but on that transaction growth number was there a split between credit and debit perhaps?

No, there's really -- we don't break that out. I'll just tell you this. The trends continue to be consistent with what we've talked about the last couple quarters, Julio. You do find debit growing a little bit faster than credit. A little more than half of our transactions combined are signature debit and pin and still pin debit is substantially below 10% of our total transaction. So still no sea change in the mix of transactions overall but we're really not breaking out the overall growth.

Okay, thank you. And then --

Julio, this is Paul. Let me just say one thing. It is assumed that that's largely driven by the ISOs, of course, that --

Understood. And then just on the margin part -- again I apologize if you guys already went through this, but the upside in margins, I think, if the notes I'm looking at are correct it looks like it came from the UK, not necessarily from currency changes, especially on the North America side with some of the currency impact you can have with Canadian/US dollar cost basis, can you just walk me through that one more time, if you don't mind?

Right. So just to make sure I'm answering exactly what you're asking you're talking about the sequential expansion right?

Ri -- well, I guess -- both the Street estimate and even our estimate we were in that mid-60s range or so for the quarter and the revenues came in more or less in line but obviously there was a lot of upside on the EPS side, so just so triangulate on that obviously it looks like it came from margins. I'm just trying to understand when you guys talked about your margin commentary, it sounded like it was more UK than it would have been currency or anything along those lines?

Right. So the sequential improvement in margin is really not currency driven, yet there's a little bit of weakening at the end of the day but what really is driving that is business performance, it's progress in the US. It is substantial progress in the United Kingdom, it is continued progress in Asia at the margin line on a sequential basis. But I think since you referenced the mid 60s, Julio, I'm going to take another crack at that question. We really are on our plan as we exit Q1. I realize we are ahead of estimates by a $0.05 or so on Q1 and I think that's because you would have built a model logically off of Q4 as a jumping off point. But we're really looking at, when we think about 2009, is the same kind of traditional seasonality in the business you've seen previously, years like '08 and before. '09 seasonality was skewed with the massive strengthening of the dollar over the course of October/November.

So we're back now, we think, to watching a year where our first quarter's going to contribute on the order of 27% of the total earnings, where Q3's going to contribute the least, and then Q2 and Q4 are going to be somewhere in between. So I think your models, or the estimates out there were very logical given the jumping off point, but we think we're back to traditional seasonality and we're dead on plan in aggregate as we exit Q1.

Understood. And then just lastly, any comments on potential price increases on the MasterCard/Visa side that you guys might have already been alerted on?

I don't think there's anything beyond what David's already put in the -- and Paul put in the guidance for the year.

Got it. Thank you guys.

You're welcome, Julio.

We'll go next to Larry Berlin with First Analysis. Mr. Berlin, your line's now open.

Sorry about that. Evening, guys. How you doing today?

Hi, Larry.

I hope everything's dry down there for a change.

Things are quite nice and we thought you were sending us a subliminal question there, Larry, when we didn't hear you.

Yes, it's called the mute button. Forgot to pull off. A couple quick questions. First, on the G2 conversions, just curious how they're going and are they meeting timetable and have there been any major ones lately?

Well, I think in a word they're doing excellent.

-ly.

Excellently.

Either way.

Paul has to answer that question.

No, I just wanted to make it grammatically accurate.

You're doing well. We've converted seven of the 11 Asia markets on the front end and we are heading toward a US conversion starting next year and everything is tracking to the plan and we're looking forward to the beta next year for the US to get the conversion done some time between the spring and summer and move on to Canada, UK, and other markets thereafter.

Okay. And then on the DolEx side, has there been any difference in performance as you break down non-North America versus North America this quarter, as I saw in the press release. How was Europe versus US and so fourth in there?

Actually, the Europe business performed on a comparative basis and against plan and it did better than we would have expected. They were helped largely by two factors. One, we exited a few branches, Belgium and the UK. The quarter before they were a distraction to management and they were either neutral to loss [linking], but more importantly we've been benefited by the weakening dollar, FX has been a big improvement in the businesses off of a commission and currency and currency has worked in our favor. The more volatile it is the more difficult somebody has to know where the stock should be and that's our sweet spot.

Great. And last one for the moment. In the three new contracts you -- or the three renewals of your major clients in Central Europe, congratulations. That -- were there serious price breaks you had to give or does pricing manage to hold its own?

We generally wouldn't discuss that on a call but you can imagine negotiations are very challenging.

Okay, great. Thank you, guys.

Okay, Larry.

We'll go next to Wayne Johnson with Raymond James.

Hi, yes, good afternoon. I was hoping you could shed a little bit of light on the ISO contract renewal front. As far as the most significant, you take the top 15 or 20 ISOs that contribute the bulk of business domestically to Global Payments can you give us a sense of when those are coming due and what kind of pricing pressure there might be and what kind of strategy Global Payments has to offset that?

Well, Wayne, since they're all on the phone listening it probably wouldn't be a good conversation for us to have, but I think David wants to take that.

Well, I think, Wayne I'd point you back to what we've said previously, which really is at the end of the day we've renewed the major ISOs, as the general rule, over the last year or so with multiyear extensions and I think they've been fair renewals for both sides and we'll keep processing. But the key to that is we've renewed the bulk of the major ISOs over the last year or so.

Okay and so -- and this is going back in time before you were there, David, so this may not be a fair question to you, but there was -- when the initial big step down in operating margins started to take hold, despite managements best efforts to warn the Street that it was coming it was a surprise to some, and it seemed to me like at that time there was a step down in pricing because of big volume increases from ISOs in between the time the contract began and when it ran out and was time for renewal. Would you say that going forward in these previous rounds that the pricing renewals -- the pricing decreases in the contracts was less severe than its been in the past?

Wayne, I think I'd address that in two ways; one, talking about the past and then where we are today. I think a couple things happened if you're going back four or five years, three years where there was a run from the time we spun through 2005 where margins increased sequentially year after year, 50, 100, 150, 200 basis points, and during that time period the ISOs were a relatively small part of our business. They were tiny. There were effectively no ISOs here when we spun of any size. By the time we got to '05, '06, and clearly today, their impact on the US business was much more dramatic in terms of size. So I don't think it was much as pricing, I think they were just a bigger mix and therefore had a bigger impact on the margin.

Now clearly, when we go through any renegotiation, as we talk in all these calls, these ISOs have done incredibly well in their -- for Global Payments and in their own rights. Their businesses have grown, they've gotten bigger, and in any renewal there is a give and take and pricing's clearly one of the levers that gets pulled. But I don't think there is a rush to the bottom and there's a point at which it wouldn't be as an attractive business for us if we were to just continue to lower prices indefinitely, so I don't anticipate anything that's going to be draconian terms of price reductions. I think we'll have a good discussion when that time comes but as David said, there's nothing on the near-term horizon.

And can you talk about what the expected benefits of G2 may be over time. As you have seven of 11 from Asia on the front ends now on the system, can you talk a little bit about how we should see that impacting the P&L going forward?

Wayne, this is David. I actually don't think so right now. There's more to come on that as we enter fiscal '11. The geographies that have moved they've moved very successfully. There are some benefits in the income statement now, but as you know, the material benefits begin to accrue when we bring the truly material geographies live, which is not an event happening in this fiscal year, so more to come on that.

Great thank you. Great quarter guys, I appreciate it.

Thanks, Wayne.

We'll go next to Robert Dodd with Morgan Keegan.

Hey, guys. Three questions if I can. First, you mentioned on your prepared remarks you've been gaining share in all of your major [markets. There's] two that I'd like to ask particularly about. The UK, obviously you've added headcount on the sales front. You've also obviously got one of your major competitors in that market now essentially controlled by the government. Are you having any discussions with major retailers beyond the 15 (inaudible) that you already have and what's the feedback from them about how they feel about processing with a government-owned entity, and how does that affect your market share in that market?

I think, as you would anticipate, there is a lot of anxiety from a large merchant who has a relationship with somebody whose future is uncertain and so I think our salesforce, our management team in the UK feels very good about approaching or being contacted by large retail opportunities, and I think if they were on the call they'd tell you that the prospects are bright here and that they feel good about their position now part of Global Payments 100%.

I would just add, though, Robert, we certainly aren't counting out our competitors. We're number three. We have two guys that are bigger and have bigger market share and they like this business and they're not giving up on it and although they have their challenges, this isn't a lay down. So we're all about the hard work, of better products, adding salespeople, as you said, giving them more tools and we're adding this. I wouldn't want to create an expectation that -- I don't think Jim was implying -- that we're going to just sign anybody we want. There's still a lot of hard work. We are, in fact -- we do believe, though, we are gaining market share.

Okay, got it. And then in China, obviously a very, very small piece of your business right now but big opportunity. You've talked about your relationship with China UnionPay for local currency transactions there, what's the feedback, if any, so far from the salesforce in that market in terms of actually signing customers for that local currency processing?

Well, you have to be talking about PRC, mainland, Peoples Republic. We are doing China UnionPay right now for Macau and Hong Kong and have been and have a direct relationship and are authorizing transactions and being part of that process. But for PRC, we are in the process of going through the requirements to be fully licensed to operate. We are actually making significant progress. We have not processed the transaction in PRC yet to date. We still have a couple more hurdles to go over, but we are enthusiastic and hope to share some news with you in the not too distant future about tangible progress in that part of the world.

Got it. Thank you. And last one, if I can, it goes back to the North American margins and just actually the (inaudible) dollar number, obviously down -- if I can do my math right -- EUR7 million a year, the bulk of that obviously from translation on Canada. Were there any other incremental investments? Are you having to staff up and is it affecting the North American margins for G2 to run the Asia Pacific businesses, or investing in any other platform or systems that's having a drag over and above the ISO effect and the FX effect?

It's a great question Robert. The answer to your question is no. Any of those other effects you're talking about, whether they be investments or just general staff, are at the margin at best. G2 operations is not turning into an incremental expense when we bring a small country on, so you really do have largely FX, some investments at the margin and that's really about it. Obviously the ISOs don't contribute to the operating income progress the way the rest of the revenue streams do. And then keep in mind, too, Q1 of last year is a fairly different macroeconomic environment from Q1 of this year, so whether you're talking about our check and gaming business or any of the other ancillary, or less prominent is probably a better word, businesses that we operate, they see more challenges now at the operating line than they did 12-months ago. So in aggregate you lay that on top of FX, and that's where you end up.

Got it. Thanks a lot.

We will take our last question from Tien-tsin Huang from JPMorgan, after which Mr. Garcia will give his closing statement.

Hi. Hello, can you hear me?

Yes, Tien-tsin.

Hi, sorry about that. I had a few quick questions, if you don't mind, just on the merchant contribution margin sequentially, it was quite high relative to our expectations. I heard a lot of different answers to different questions but just in the UK and US just want to make sure we're modeling this right. It sounds like it's primarily new pricing and, if so, is it sustainable? I just want to make sure we carry that forward properly.

No, actually, Tien-tsin, it's not new pricing. There is some modest repricing effect in the US, not a lot of repricing in the UK for this quarter. It is nice progress from a volume perspective. It is tight cost controls and nice leverage overall, but it's really not driven by pricing. As you know, particularly in the US, we can only get so much operating income benefit even from decent size repricing much less marginal repricing.

Got it. So if we assume -- if we just look at the cost side of things ignoring the revenue, that's a good clean level to consider all else equal?

It is because you now have a full quarter of Russia, for example, in, as a jumping off point and you have, obviously, full quarters of all of the other pieces, so yes, this is a reasonable jumping off point. In particular, the two categories expenses on the face of the P&L that's a reasonable jumping -- those are reasonable jumping off points, as well.

Perfect. Okay, we'll go with that, that's helpful. Then the -- just two more. Just curious to hear Global Payments view on this whole security and encryption at the point-of-sale, First Data's working with RSA, Heartland with Voltage. I think Verifone is positioning as a new revenue source. Is there something here that could be new?

I think it's early to say. I think there's a lot of different theories out there. The RSA is tokenization, which is not new technology but clearly RSA is a leader in that space. It does represent an exclusive relationship and I think those sometimes have challenges for merchants because the implementation of this is not without effort on behalf of a merchant. Heartland's got end-to-end encryption as a strategy. We've put in a program here called Global Secure over the last year, which is really based on a combination of encryption. If we have to make the data available refracting it is our preference, or not making it available to merchants at all for the merchants benefit because this data, clearly when it gets out into the open becomes a problem. So we'll continue to look at what's available from a technology standpoint to improve the offering to our merchants but ultimately let them decide.

And I think -- I would just add to Jim's comments that we look at it more as a value add than a revenue source, quite frankly, Tien-tsin.

Okay, makes sense. Last one and I'll let you go get dinner. Pipeline for M&A in North America, has that changed at all?

I'd say no, it hasn't. There are some opportunities we're still very interested and we think that our sweet spot is probably more the smaller size, but there's some elephant-hunting opportunity, as well, so it's still fairly robust. Tien-tsin, I think this is our second deal in eight years in the US and maybe we're starting a trend.

We shall see. Thanks a lot, guys. Appreciate it.

All right, Tien-tsin.

At this time we will turn the call over to Mr. Garcia for his closing (inaudible).

Thank you, and ladies and gentlemen, thank you for your continued interest in Global Payments.

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 October 15, 2009. If you wish to listen to the replay, please dial 1-888-203-1112, or international participants may dial 179-457-0820 and enter the passcode 4074687. This concludes our conference for today. Thank you for your participation. You may now disconnect.