環匯 (GPN) 2011 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Global Payments second-quarter fiscal 2011 earnings conference call. At this time, all participants are in a listen-only mode. Later we will open the lines for questions and answers. (Operator Instructions). As a reminder, today's conference will be recorded.

At this time, I would like to turn the conference over to your host, Vice President of Investor Relations, Jane Elliott. Please go ahead.

Good afternoon, and welcome to Global Payments fiscal 2011 second-quarter conference call. Our call today is scheduled for one hour. Joining me on the call are Paul Garcia, Chairman and CEO, Jeff Sloan, President, 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. In addition, some of the comments made on this call may refer to certain measures such as normalized and cash earnings for second-quarter fiscal 2011, which are not in accordance with GAAP. Management believes these results more clearly reflect comparative operating performance.

For a full reconciliation of normalized and cash earnings to GAAP results in accordance with Regulation G, please see our press release furnished as an exhibit to our Form 8-K dated January 6, 2011, which may be located under the Investor Relations area on our website at www.globalpaymentsinc.com.

I would like to introduce Paul Garcia. Paul?

Thank you, Jane, and Happy New Year, everyone, and thank you so much for joining us this afternoon. I am happy to report solid second-quarter revenue and normalized earnings per share performance, and as a result, we are modestly increasing our full year revenue and earnings estimates.

In addition, we are pleased to announce the closing of our joint venture with la Caixa ahead of schedule. David will discuss our financial expectations with and without la Caixa, and cash earnings in more detail in just a moment.

Now for the highlights of the quarter, and some recent events. I am delighted with our recent expansion into Spain with la Caixa, the largest retail bank in Spain, and the largest merchant acquirer with over 20% market share, and over 150,000 merchant outlets.

While the Spanish economy has indeed been challenged of late, la Caixa's financial stability has allowed the bank to successfully pursue its growth strategy during these turbulent times. On that note, both of our organizations are focused on expanding our market share, and growing the merchant acquiring business through our new joint venture.

This joint venture will be led by our own Darren Wilson, who leads our western European region, which of course includes our UK business. As with our initial UK joint venture, we intend to leverage our sales strategies, and add approximately 50 sales people over the next few quarters. When combined with la Caixa's brand, and 5,000 plus branch footprint, we expect to drive significant market expansion and long-term growth.

Turning now to North America, where we delivered solid revenue growth in the quarter, with US and Canadian transaction growth rates of 18% and 3%, respectively. During September, we made a difficult decision to eliminate over 70 positions in Canada to match our investment levels to the near-term economic opportunity in that market. We continue to anticipate that our Canadian performance improves over the remainder of the year, and that we exit the fiscal year in a stable position.

Our international segment produced another quarter of strong results, with the UK and Russia both performing well in the quarter. Regarding the UK, we continue to be on track to complete our back end migration by the end of February 2011.

Our Asia Pacific business delivered extraordinary results in the quarter, with significant increases in revenue and operating income. These results were driven by good growth areas across the region, and a very successful rollout of a new product by one of our major retailers.

As we prepare for a successful transition from the HSBC customer service facility in India that serves our UK business, we have begun to staff for customer service and operations in our Philippines global service center, or GSC. We are also transitioning other customer support services to the center from other regions over the remainder of the year.

I will now turn the call over to David.

Thank you, Paul. I will review currency, operating performance and outlook, cash flow, and cash earnings. During the second quarter, on a year-over-year basis, currency changes benefited revenue and normalized earnings by about $1 million and nearly $0.01 per share, respectively. Our outlook for fiscal 2011 continues to assume that the US dollar remains constant or slightly weakens against the Canadian dollar, and remains constant or slightly strengthens against the British pound, Czech koruna and the Russian ruble. But we now believe the aggregate effect will likely be about neutral for us in 2011. Fluctuations in exchange rates, of course, may cause variances to our outlook.

North America merchant services revenue grew 9% for the quarter, driven by US merchant services revenue growth of 11%. US results reflect continued strong growth from our ISO channel. Our expectation for low, double-digit revenue growth from the US in 2011 remains unchanged.

Transactions in Canada grew 3% for the quarter. In local currency, Canadian revenue was flat with the prior year. We continue to expect Canada's local currency annual revenue to be about flat, or to perhaps grow modestly when compared to prior year.

North America merchant services normalized operating margin was 20.5% for the quarter as compared to 24.6% in last year's quarter. North America operating income for the second quarter also reflects some incremental investments in our information technology infrastructure.

International merchant services revenue increased by 6% as compared to last year, and operating margins there improved to 30.4% for the quarter compared to 28% last year.

Asia Pacific's revenue growth substantially exceeded our expectations. Growth there reflects a successful rollout of new products by a major retailer, with both physical and e-commerce transactions in several markets in the region. We do not expect growth to continue at this pace, now that the launch is completed.

We also experienced strong DCC revenue growth, and DCC is now available in all of our Asian markets. Due to the extraordinary performance this quarter, we now expect revenue growth of about 20% from Asia for the full year. Our annual expectation for overall international revenue growth in US dollars remains unchanged at low single digits.

Total normalized Company operating margins from continuing operations for the second quarter were 19.6%, down from 21.7% last year, but slightly up from Q1 margins of 19.4%. We expect fiscal 2011 normalized operating margins in North America to be down compared to last year, with material offsetting margin expansion in our international segment driving our overall Company operating margins to be slightly down compared to our 2010 margin.

During the second quarter, we generated free cash flow of $64 million. We define free cash flow as net operating cash flows, excluding the impact of settlement, assets and obligations, less capital expenditures, and distributions to non-controlling interests. During the quarter, we spent $27 million on capital expenditures, and our full year total expected outlay of about $85 million remains unchanged.

In early December, we expanded our financing capability with a new five-year $600 million revolving line of credit, which replaced our previous $350 million line. At closing, we used the facility to pay off the remaining $150 million outstanding on our 2009 US term loan. The net impact of these transactions to our full year 2011 estimates is a relatively small increase in expense, which we have accommodated in our earnings outlook, and which will be driven by a write-off related to unamortized fees from the 2009 term loan in December, which will be partially offset by lower interest expense.

With the acquisition of la Caixa, we now intend to supplement our financial reporting by reporting results on a cash earnings basis, as we pursue our global expansion strategy. We believe this will facilitate investors' ability to review and analyze underlying Company performance. Cash earnings exclude the impact of acquisition related amortization, special or non-recurring charges, and their related tax effects. Our GAAP and cash earnings are reconciled on Schedule 7 of our earnings release.

In order to ensure consistency, and ease any transition, we have reported earnings for this quarter and our full year expectations on a GAAP, normalized and cash basis, all of which are reconciled at the segment level in our earnings release. In addition, in an effort to assist you with your financial models, we have included fiscal 2010 and year-to-date 2011 quarterly income statements reconciling GAAP and normalized earnings to cash earnings, which can be found in our press release Schedules 10 through 13.

For the second quarter, the Company reported $0.76 of earnings per share on a cash basis compared to $0.70 on a normalized and $0.67 on a GAAP basis, and compared to last year's performance of $0.76, $0.71, and $0.71, respectively.

We are pleased with our performance to date, and expect similar execution in the second half of the year. In addition, currency added nearly $0.01 of earnings per share to the quarter, and we expect it to add another $0.01 to earnings per share in the second half of the year. The combination of the two will allow us to absorb some modest dilution from our start up investments in Brazil, and still increase our full year organic revenue and normalized earnings expectations.

For the full year of fiscal 2011, prior to the addition of la Caixa, we expect revenue of $1.755 billion to $1.790 billion. We expect GAAP earnings per share of $2.58 to $2.67, normalized earnings per share of $2.70 to $2.79, and cash earnings per share of $2.93 to $3.02. We expect la Caixa to add about $25 million to $30 million of revenue for the remainder of the year, and be dilutive to GAAP and normalized earnings per share by $0.02 to $0.04 per share, roughly offsetting the increase we expect in organic earnings per share, and accretive to cash earnings by $0.02 to $0.04 per share. We anticipate the joint venture operating at a higher operating margin than our total Company margin, but not having a material effect on total Company normalized or cash margins for fiscal 2011.

Our normalized effective tax rate for the quarter was 30.6%, and we continue to expect our full year 2011 normalized effective tax rate to be about 29.5%. Our cash tax rate was 31.1%, and we expect our cash tax rate for the year to be about 30%. From a timing perspective, we continue to expect a seasonally weak third quarter, followed by a strong fourth quarter to achieve these expectations.

Now, I would like to turn the call back over to Paul.

Thank you, David. Based on our current outlook for normalized, continuing operations, and prior to our la Caixa joint venture, we are raising our revenue expectations by $20 million, and our normalized earnings per share expectations by $0.02. For normalized continuing operations including our la Caixa joint venture, we expect fiscal 2011 annual revenue of $1.780 billion to $1.820 billion, or 8% to 11% growth over fiscal 2010. We expect fiscal 2011 normalized diluted EPS of $2.66 to $2.77, reflecting 5% to 9% growth over fiscal 2010. Based on our current outlook, and including our la Caixa joint venture, we expect fiscal 2011 cash earnings per share of $2.95 to $3.06, reflecting 5% to 9% growth over fiscal 2010 cash earnings of $2.80.

As I reflect upon our 10-year anniversary next month as a public company, I am both proud of our past accomplishments, and excited about our long-term opportunities. Over the past 10 years, we've grown our revenues six-fold from $300 million to $1.8 billion. We have also increased our employee base three-fold from 1,200 associates to over 3,600 associates. 10 years ago we were in two countries, and today we are a Fortune 1000 Company operating in more than 20 countries, and [settling] in more than 40 different currencies. I am confident in our ability to continue executing on our growth strategies, and I also believe that the opportunities continue to be abundant.

Operator, we will now go to questions.

(Operator Instructions) Our first question today comes from the line of Tien-Tsin Huang with JPMorgan.

Sorry, can you hear me now?

Tien-Tsin, we hear you loud and clear.

Sorry about that, had you on mute. Set of couple quick questions, if you don't mind. I will ask on the la Caixa deal first. It looks like my math shows about a 40%, actually closer to 50% EBITDA margin business. I am curious if that sounds about right and secondly, if that is sustainable or if it is improvable and what kind of growth we might see coming from that joint venture? It sounds like obviously you're pretty excited about it, but if you can give us a little more color, that would be helpful.

Tien-Tsin, maybe in reverse order I will talk a little bit about the margin structure, and Paul, I'll let you talk a little bit about the marketing and we'll relate the two together as well.

Your numbers are high, but it is a very nicely profitable business. And obviously not going too far in disclosing margins. You can tell probably from the five months of it we have, it is certainly not going to make a difference to our Company margins, so not quite as high as you think, but it is north of the Company margins.

We will probably, sort of like the trajectory you saw us take with the UK, actually take that margin south a little while as we add the -- we referenced in the prepared comments the 50 sales folks over some number of months or quarters. But it will remain accretive to Company margins. But again, just -- I won't go too directly, but it's not quite as high as you think, but it's a very nice -- it's north of the Company margins. And I will let Paul then turn this into the growth and strategy comment.

Okay, thanks, David. So Tien-Tsin, the opportunities there really can't be overstated. It's -- quite frankly, to give you a plug. You pointed it out nicely in your note, it is a market that is under penetrated from a credit perspective, but yet does enjoy a relatively high GDP, and on a per capita basis in particular, a high GDP.

So the opportunities, the capacity are significant. It is a country of roughly 50 million people. And this is a business, la Caixa, that has gained a leadership role without a significant investment in sales infrastructure. They do enjoy over 5,000 branches, that's been the primary delivery mechanism. But without a lot of new products, innovation or sales resources, they've really built just a terrific franchise and a terrific business.

We think there's some fairly low hanging fruit. We're very excited about Darren Wilson and his team working with the la Caixa team on this JV. And I believe this thing expands over time. I think David's right. Initially we take it back a little bit, but this thing will grow significantly, and we have high expectations for the future.

From a revenue standpoint, Paul, is it more analogous to the Canada opportunity when you first broke there, of is it more similar to the UK opportunity?

I think that's such a great analogy. So, it's about not quite twice the size of Canada, but with a much smaller per capita penetration on credit. Smaller GDP, but I would tell you, I think it is fairly comparable to Canada. So Canada is the size it is, la Caixa is the size it is. Why shouldn't this be as big as Canada in a reasonable period of time? That's our internal expectation.

I think maybe a little more color on that because you can twist it back to the margin question you asked earlier. I would think the trajectory looks more like what you are used to with the UK. Nice, solid business coming in, perhaps we take the margin a little bit south, though still again accretive to Company margins as we invest in the infrastructure and sales strategies Paul is describing and then you build this nice path upward for margin expansion from there.

Alright. I'll end by asking the regulation question, much as I'm sick of it. Is China's size the benefit to Global? I know it's going to be difficult for you to disclose, but maybe just to think about analogies or case studies again, can you remind us how much financial benefit you received in the Walmart settlement when debit --- the change was settled lower then and how it might compare this time around with Durbin?

Well, it's similar, but yet, it's different. The Walmart -- I'll tell you where it's similar. It's a specific interchange adjustment which over time rationalizes. So if nothing changed with this, and I'm about to tell you, I think a lot of things are going to change with this. But if nothing changed with this, I think it would be completely analogous.

Now, it is -- we have more business, but if anything, we probably have less of a percentage that is subject to this type of pricing. So that's a mitigating aspect, so that's a little different.

You are right. I am not going to give you an exact number. Tien-Tsin, this could be significant if you wanted be greedy and maybe short-term in focus. I think, but I don't -- we can't even put the opportunity together yet because not only is this just a suggestion. We're going to see where this comes out, but I think we haven't heard from the banks here. They clearly are going to change the game here a little bit, that the -- I think probably the signature -- excuse me, the pin debit is going to be the pin debit, and we get that. But the signature debit, I can't imagine that that isn't going to be more morphed over to a credit vehicle. And someone suggests it is going to go to a pin debit vehicle, which I don't buy. So, I think there's a lot of moving pieces here.

I think it's fair to compare, there was a pickup there. I think there will be a pickup here. We're going to be very cautious because it is not only a very competitive market. You don't want to invite any regulation of something, number one, so we'll be very cautious with that.

Number two, it really is --- it is a very competitive market. One of our public competitors has made a huge point about giving every penny of that back, and God bless them. That's their strategy.

So, I think -- we will share some more data when it comes up. It clearly -- I will say this. I have said from day one interchange will go down, interchange is going to go down. That is good for all of the acquirers. Even if you give every penny back, it takes a little margin pressure off you.

It also, quite frankly, takes away the specter of some emerging payments that you may or may not participate in in the same manner. I think ultimately this is good news for, believe it or not, Visa and MasterCard long-term, because I think it speaks for their vitality in the future. So a lot of moving parts, keep you guys very busy for the next six months writing notes on this.

Yes, no doubt. I appreciate your view, fellows. I will let others have questions. Thanks.

Alright, Tien-Tsin.

Our next question comes from Adam Frisch with Morgan Stanley. Please go ahead.

Thanks, guys, and Happy New Year. On Durbin, I know Tien-Tsin just asked the question and you gave a pretty comprehensive answer, but just in terms of working through the math, it seems like it will help your margins for your owned accounts but hurt margins on the ISO accounts because of the accounting. But the numbers of accounts are greatly towards ISOs, the volume gap is not as extreme. So, could we actually see a scenario where Durbin is a wash to your margins or even slightly dilutive?

I think -- Adam, this is David. It is likely to be dilutive to our margins. Now, I think -- if I will link this to Paul's comments. We don't know what we don't know right now, the size and complexity and all the other pieces.

But having said that, are you correct, and it is worth making sure we say this publicly on this call that the significant majority of our US business is indeed through the ISOs. And, yes, it is a different structure in terms of tickets and everything else, but it is still the significant majority of our volume, our transactions, et cetera, which is likely to come through the income statement, assuming an ISO were to keep a portion of the interchange reduction as both revenue and expense.

We have a nice direct business wherein, in the worth case, we can see, as Paul mentioned, less pricing pressure. But it is so much smaller than the ISO. So, it is more likely, depending which scenario you believe, but I will go with your question, the way you phrased it. That this has a bit of a deleterious effect on our margins rather than the ability to keep it neutral.

So, as we get out toward a better line of sight as to what Durbin is or isn't from a quantification perspective, we'll have work to do from a disclosure standpoint to make sure folks can understand what the core business is doing versus a Durbin gross up effect.

Yes, okay.

I will add quickly, though, that there isn't a scenario that this isn't good news for us ultimately. So, even if you make a dollar, it is a dollar more than you would have made. Now Adam, we can argue the whole margin accounting issue. That is a reality. It is what it is. And we don't really know what that reality is going to be. But the scenario you laid out and the way David answered it, you can't argue with.

Okay.

The bottom line is that there will be money made. It flows directly to the bottom line. There's no costs associated with it, and it will have some drive on EPS, end of story.

Okay. I just wanted to frame it a little bit. Just two other quick questions and I will hang up. We heard there was another pricing increase in Canada recently and a greater emphasis placed on the ISOs for distribution up there. I am sure some of the sales people up there were involved in the headcount reductions. Are those accurate assumptions, and can you explain how that strategy plays out over the longer term?

Sure. It is Jeff, Adam. I will take a turn answering that, and David and Paul can join in. I guess Paul mentioned in his comments, we have done a number of things in Canada since we last spoke. The first thing was on the expense side. I think we have addressed that in the commentary.

But we continually look at our business from a revenue point of view as well, so our revenue in Canada is affected by a number of things. One is pricing. The second is introducing and gaining market share by way of customers, and that can include customers in the US going into Canada, and that can include our ISO partners as well.

A core part of our strategy is to grow our share of the pie up in Canada. So, while we took hard needed steps on the expense side, we also looked very closely at what we can do on the revenue side to enhance our business there, and we have done both of those things. Price is a part of that as it necessarily is as competitive as that marketplace is, but gaining share with existing customers, adding new customers including additional ISOs is part of our strategy in that business.

Yes, I think, Adam, to dovetail with your comment about the expense actions, part of it certainly conceptually was the idea of where should we or should we not be applying direct sales resources and where are other parties better positioned to chase this small merchant to smaller merchants -- small to medium merchants. And that would lead you to thinking about selectively introducing ISOs --- successful ISOs into the market over some period of time.

Okay. Thanks for that. And then last question, just on LatAm. You had an announcement this week or last week on Brazil, how much do you think you need to spend there? When do you start seeing returns? And are these build out costs going to be excluded from GAAP earnings, or are they going to be included in the normalized?

Yes, it's a great question. So, I think what you will see in the back half of this year is an incremental $0.01 or a little north of $0.01 of dilution. I also think as you head into next year, that means probably more dilution before we can turn into a profit maker.

I do think that the beauty of that market, you think of the economic characteristics of some of the incumbent processes in the market there is you can turn that very quickly into a profit-making venture. But I think it is fair to say through 2012, I don't expect that.

So, when you look back then at how we'll report that, as you may have heard in the prepared comments, we've absorbed that $0.01 of Brazil dilution in our expectations. It is a part of what takes us up a little bit given performance in Asia as well as FX, and then down a little bit given a little bit of dilution from Brazil. At the end of day, you end up with this organic $0.02 raise. And when we add in la Caixa, it brings us right back to where we started on a normalized basis, $2.77 at the high end. So, we go $2.77 up to $2.79, back to $2.77 with the la Caixa add, but it is all in the numbers.

Okay, thanks a lot, guys. I appreciate it.

Thanks, Adam.

Our next question today comes from Kartik Mehta with Northcoast Research. Please go ahead.

Thank you. Hi, Paul and Dave. Yes, with conversion and processing initiatives under way throughout the world, it may be inevitable that you encounter minor delays at certain points in the process. I know you mentioned that the UK remains on schedule. As you assess the UK back end processing now, what remaining risk could result for delays in the UK that would push timing for full migration beyond the stated goal of end of February?

Sure, Kartik. When you get to this stage of a project, you are down to half a dozen to a dozen key deliverables, but you still have them. That means you're still testing them on live data and you're still running them through parallel processing. You don't have them in production, so you're running in parallel. To the extent you found something in that processing that was sort of a fundamental challenge in terms of how you process a transaction, either from how you run it through interchange tables or how you balance it off of any of your other pricing or whether you are fully ready to communicate as clearly and transparently to the customers you want. Those would be the things that would pop up in what's really the final seven weeks of a process like this.

The good news is, as we have described before about this project, we have done seven of these in Asia for the same back end. Still very happy with teams running this. As you know, the requirements gathering and some of the other issues we have seen on other projects happen from the very same -- were some of the very same UK teams who really have been running this platform and operating it for years in an HSBC environment. So, we're feeling good about that. It really is a matter of getting the final pieces in place and fixing what are the inevitable final bugs you find as you do the big system test and the unit testing.

So, Dave, what is the biggest risk to getting that migration completed?

The biggest risk is really the summary I gave, which is that something you have coded, as you do final testing, doesn't quite operate perfectly. We expect this to operate perfectly. We're talking about the money flows, the settlement and what goes to and from our customers. So, that would really be the biggest risk.

By the way I should correct myself. We have actually done eight of these migrations in Asia, having done Malaysia just a few months ago on top of the other seven.

Right. And if we could go back to Canada, I just to want make sure I understand, Jeff, the answer a little bit. So, to what extent did price increase play a role in Canada's growth this quarter?

Well, we don't disaggregate the pieces. What I would say though, Kartik, as I mentioned to Adam, is on the revenue side of the equation as we described in the script, on the revenue side of the equation, we of course look at price. It is a very competitive marketplace. But we do look at price, but we also look at product and we look at the way we distribute. So, we examine all of those things in the aggregate, and we make sure when we introduce new technologies and come in with new partners, that we grow our share of the pie as well. So, price is an element of it, but it is one of the few.

And one question, Paul, for you on Asia. Obviously, very strong results there. Execution there seems to be excellent. And one of the factors you mentioned was dynamic currency conversion helping you. I am wondering if you can talk about how much that played a part in the growth in Asia?

Yes. DCC is, in fact, Kartik, a driver. It was something we introduced very successfully. It is rolled out aggressively, and it is generating some meaningful revenue. Asia is still fairly small in the scheme of things. In the scheme of the potentials, Asia is fairly small. So, DCC in and of itself can be a mover. So, it has been.

I don't literally have that -- exactly what that percentage is, but it was a meaningful driver. And I think David actually made a point in his prepared comments that because it is pretty well fully rolled out, it won't be as much of a mover in the future. And that is why we backed off a little about some of the aggressive growth we've enjoyed in Asia. That, and we got a nice lift from a major merchant rolling out some interesting products.

But make no mistake. Asia is a great grower, great, great accretive grower, and CUP is successfully being rolled out. Once again, that's not massive at this point. We're only in Beijing, but it is encouraging, and it is working, and we're getting great reviews, and all the seeds have been sown for this to grow up and be a big tree.

It sounds good. Paul, it sounds like so that the growth you got from DCC probably gives you some comparison issues as we move forward?

Yes. I think that's right, Kartik. This is David. The growth was very nice again this quarter. The growth we didn't expect really came from the retailer. But your point is a good one in that now that we're fully rolled out with our ongoing solution with our partner in each market and every market in Asia, you will take a little edge off the growth. That doesn't mean it is still not a great grower as Paul described, but you will take a little edge off as you begin to annualize rollouts in places like Hong Kong over the next couple of quarters.

Thank you very much, gentlemen.

Thanks, Kartik.

Our next question today comes from Darrin Peller from Barclays Capital. Please go ahead.

Hello, Paul and David. How are you doing? The first question on EPS guidance, can you first just verify, the last time you give guidance of $2.68 to $2.77, that also included the $0.12 impact of the termination in, I guess, Manila?

Say your numbers again, Darrin? I want to make sure (multiple speakers).

Last year's -- last quarter you gave guidance for the year, I think of $2.68 to $2.77, and I am making sure that was also normalized for $0.12.

That was normalized. So, just to put it a little more bluntly, it excluded the $0.12.

Right, okay. So that did exclude it then as well. And to break down the $0.12 a little more, now, is all of that related to Manila, or is some of that also Canadian termination fees or anything?

It is a great question. I am glad you asked. Originally as we started the year, the whole $0.12 was Manila. As we've rolled through it, we have been fairly efficient in Manila. So, I actually now think for the full year we're sort of done with these things. And of the Canadian severance and the little bit of relo and stuff you'll remember from Q1 will all fit inside that original $0.12.

Okay, so it's apples-to-apples. The $2.68 to $2.77 versus the new guidance normalized of $2.70 or so is apples-to-apples.

It is absolutely apples-to-apples, yes.

(inaudible) Okay, and then the other side of it is I think you had said last time that you'd expected a $0.02 to $0.03 headwind from currency impact for the year. Now you're saying neutral. But you're only changing your numbers by a couple of cents. Is that because of the Brazil buildout, that it wouldn't be more than that given the revenue?

Let me walk you through it a little bit, Darrin. I don't think we quantified the $0.02 to $0.03. It depends on where you are in the earnings range and your model as we think about what FX would or wouldn't do. We certainly said modest, and I like my adjectives, so we stuck with that kind of language.

Where that leaves you is as we perform in Q2, we get almost $0.01 of help from FX, and then we get almost $0.02 or so of help from Asia. That is it is unexpected piece of Q2. And we go look at the rest of year and figure out what we're going to annualize or not. To your point, we think some of that FX sticks, right? So, the US dollar has been a little weaker in a couple of places. The real answer is it's been less strong against the UK pound than we thought.

So, you pick up relative to last quarter's guidance, you round the $0.02 from FX up to pickup. We keep our $0.02 from Asia, so we expect -- as we said earlier in response I think to Kartik's questions, we expect Asia to go back to more normal growth. So it's just the $0.02 from Q2 flowing through. And then you bring in Brazil and a couple cats and dogs on tech and some other spending, and you go back down again to really $0.02 overall of increase for the year.

Okay. That's helpful. And then just a quick comment on transactions. I didn't quite catch if you had said anything on transaction growth in Canada and the US this quarter. If you didn't, would you mind quantifying that?

It is 18% growth in the US year-over-year, so pretty much in line with the last couple of quarters, last quarter was 19%. It was 3% transaction growth in Canada. It was flat last quarter year-over-year, so those are the two key metrics.

In Canada, are you still seeing -- putting aside the price increase, because obviously there is an improvement here on the constant currency basis. I guess pricing may have been a part of that, but it seems to be with transaction growth picking up, price increase, obviously, it's getting a little better there, is any of that also a mix shift into the higher, sort of away from the larger retailers that I think had an impact previously?

No. So, that volume shift has hung around and as you might imagine, volume mix is very plus or minus a couple of points and a few bips here or there. But that change really hasn't reversed itself, for lack of a better word. You see a continuing growth of ISOs in that channel, and you see us, to your point, stabilizing, so, solid transaction growth. We are, as you might imagine, cautiously optimistic that we're on the verge of doing exactly what we said. Solid transaction growth is stable, business and stable performance. I can tell you, spread is looking a little more stable. As you know, we have been through four or five some-odd quarters of really challenging spread situations. And it is becoming more predictable as well, which is, as you might imagine for us at least here at this table, half the battle.

Great. Alright, thanks, guys.

You're welcome.

Our next question today comes from Bob Napoli from Piper Jaffray. Please go ahead.

Good afternoon. To follow up on Asia, I just want to make sure, the major retailer that rolled out new products, is that a -- was there any one-time benefits in there, or is this a -- is that a sustainable revenue number? And what kind of products were rolled out?

Unfortunately, Bob, we really can't tell you the products or we would end up telling you the retailer, and we can't do that. But what's different about this is it is the rollout itself, the launch, that creates the outsized growth. The products are still there, and they're going to continue to be there and grow for this retailer next month and the month after that and the month after that. But this is a retailer, and I am probably helping you out too much here, who when it launches a product, lots of volume moves really, really quickly.

Okay. So, you're suggesting that volume level may be there. The initial rollout, there is a -- maybe we would expect to see a little bit of a step back as the initial rollout has been passed. And so you're still going to get a lot of volume from it, but probably less than you did this quarter.

That is absolutely right. Well said.

Alright. On la Caixa, in this year's guidance, how much -- are there any one-time costs with regards to the acquisition that you expensed that's in your guidance numbers?

I think the real important thing is -- here is what has la Caixa had in 2012 versus what it does to 2011?

Yes, it is interesting, Bob. I foresee very few one-time type charges and in fact, the cost of the deal for the most part are already in our actuals for Q2 or they will be in Q3 as we head into December and they're baked into our forecast. As you know these days, you're expensing your deal costs as you go given accounting changes.

This is not the kind of business or the kind of deal where you have things like IPR&D and those kinds of traditional technology write-offs. So, most of what you are seeing when we set the guidance -- first off, it's everything we expect all in, and you're really talking about the amortization we'll create when you deal with the valuing of assets like customer lists and other intangibles. So, it is all in, it is what we expect to see.

(multiple speakers) Even on a GAAP basis, as you know, we have talked about $0.02 to $0.04 dilution right out of the box. That's pretty sweet. That's pretty sweet. So it is -- and obviously, we're looking for GAAP accretion, too, in the near term. So, this is -- from a cash basis, makes money right out of the box. So, it is a very nice deal. And to the questions I got earlier too, it is a nice deal and we intend to grow.

What is the amortization expense -- the level of the amortization expense that you are going to expect on a quarterly basis?

Well, you can back into that off the delta between expecting it to produce on a cash basis $0.02 to $0.04. And so you have got a $0.06 delta at a pretax number of [1-2 or 1-3], and that's really the math. Of course, we'll have to do the actual valuation, as you know, Bob, and finish off a purchase accounting and have that vetted by our advisors, and that's really the next step for us.

Last question. Deal flow. I know these deals are hard to get consummated. What are you seeing globally? Are you still evaluating a lot of different opportunities? And was Spain, it just happened to be that that was an attractive opportunity and that was the one you could get done? What else is out there?

Bob, it is Jeff. I will answer that. So, I think Spain and la Caixa is a really good example of a great way to pursue our acquisition business. We spent a number of years in discussions with the guys at la Caixa and the better part of half a year really consummating the deal, and that was done on an exclusive basis.

I think it is a real tribute to the way we approach these transactions, which is we and they were able to pick each other as partners. So, I think that was the culmination of a very good bit of work that was done here and also on la Caixa's behalf, to reach a very good conclusion on both sides. I think we're very proud. And if that's the template for future deals, that's terrific.

In terms of the rest of the business, as Paul mentioned in his comments with David, we just closed that at the end of the year. We have a number of opportunities in the United States in addition -- as well as around the world in addition to la Caixa, so we're comfortable with where we are from a pipeline point of view.

Thank you.

Our next question comes from Dan Perlin from RBC Capital. Please go ahead.

Thanks, guys. Just to revisit Canada for one moment. You talk about share gains and introducing new customers in that market. We have seen kind of the pains of the ISO channel in North America, and it sounds like that's going to be increasingly a strategy in Canada.

So I have two questions. One is, I think the revenue rec and the revenue model in Canada is different, so can you remind us of that? And then two, have you right sized the business enough so that as we think about 2012, you're not going to have to reduce headcount?

Dan, it is David. You are correct in remembering that the revenue model is different. The revenue model in the US is the product of a couple decades of relationship building and volume driving and also the sheer volume driven by very large ISOs across any number of different acquirers.

In Canada it is a little different in terms of both the buy rate, the per transaction services rate one would charge an ISO. And also, there is typically some version of a revenue share in the rec there. So, in other words, there is a little bit of a share before you can calculate the buy rate. So, the economics are a bit different, the margin characteristics are different. It is fair of you to say, is it at the beginning of a trajectory that it will look like the US over some very long period of time? It is quite possible and probably quite likely.

The other way to think about the pieces of this are, that's a twenty-year production. That's really the history in [the States]. So, one final piece as you think about the rollout, we said very consciously, selectively roll out and really target the small to medium merchant market. We think we'll be successful with that, and we'll drive real meaningful share and volume. This revenue comes at a very nice margin. It doesn't look like the margin in the US at all, so we're feeling comfortable with the strategy overall.

And Dan, it is Jeff. I will just address your second points on right sizing the business. We took the hard steps that Paul described earlier this year in Canada. We don't anticipate any additional ones. We feel like we did what we needed to do to put the business in the right perspective, and the actions we have taken to date reflect all of that. We feel good about where we are, as David described, in that business today. And at this point, we don't anticipate any additional changes along the lines of what we have done this year in the Canadian business.

And another thing, Dan, this is David again. There is one public piece of your question I should answer, which is you asked about 2012. We're not speaking about 2012 specifically, but our goal for this year was having a stable situation as we exit the year. We think we're on track for just that.

And just one other piece, sorry, just to follow up on the first part of what David said, not to glom onto Dan's question. But in the first piece, we already have a number of ISOs with us today in Canada. So the other piece of David's commentary about what could happen, what might happen, we have got that reflected in some of our numbers today. We've been very successful with that and very pleased with our partners in the marketplace in Canada today. So, I agree with what he said about a longer term horizon, but I would also say we're very successful in that today.

I have to throw in on this, too, Dan. I think it is the -- I can't imagine a world for years and years and years and years and years and years and years up there where the ISOs are driving anywhere near the amount of revenue growth either in absolute numbers or as a percentage that we have here.

So, the Canadian, we already have several very successful ISOs up there. We're going to introduce some partners to reward them for their partnership with us, and we're looking at opportunities around the globe with these ISOs, by the way.

ISOs are a great model. ISOs are a good thing. ISOs are a great revenue generator. We make wonderful net margins on these. We're very proud of those associations. It's not -- we're not going to come to you and say the Canadian margins are under pressure because the ISOs have driven some massive numbers. That isn't going to happen. It isn't going to happen while I am -- before my retirement, I promise you that. Okay?

Okay. And then I have never heard you say take the ISO around the world. So, is the concept there that you would take existing relationships, because you have got some pretty big ones, and help introduce them somewhere else or build a relationship foreign market with a domestic ISO?

I think we will take -- well, it is kind of the same thing. We would take the existing ISOs we have around the world, and some of them are interested in some geographies and some are interested in others. But we're also going to augment that where it makes sense with local. But a lot of these geographies which will lend themselves beautifully to ISOs, they don't exist. We may even do some internal ISOs, right? Think of us as our own commission only sales force in some of these markets. So, we're looking at all of those models.

The ISO model remains a great model, or people wouldn't sell businesses for $1 billion that build these things in a short period of time, so it is a great model. I think what we have differently in Canada, we're taking that around the world. It is not give away every bit of it. It is to share in the ongoing success, and I am pretty pleased with that.

Okay. And then the margin believed to be over the previous quarters in North America seemed to kind of hold firm. Is that more a function of what did you in Canada this quarter?

No, Dan, because we didn't see much of the benefit this quarter. The action happened in September, so we got a partial quarter benefit. What you are seeing, which is actually satisfying to us, is we thought the North America margin quarter by quarter this year would be consistent with our exit margin last year, despite challenges in Canada and everything else, so our Q4 margin last year, and that really is what we're seeing.

So, we're actually pleased, and I guess satisfied is a better word, to see that it is operating according to plan. But no, we haven't yet seen the benefit, or certainly not a full quarter benefit of those actions yet in Canada.

Okay. So as we think about the back half of the year, we shouldn't kind of carry forward some 300, 400 basis points margin contraction, we should maybe keep it more straight line?

I would focus -- I want to make sure I don't confuse you or anyone else on the call. Focusing sequentially only, so forget year-over-year for a second.

Yes.

We are expecting fairly consistent margin performance over the course of this year. And as I said, it will look a little bit like our exit rate from Q4 '10 -- not our exit rate, but our actual rate from Q4 '10. And so this 20-point X percent kind of thing is kind of the place to be.

Okay. That's excellent. And then I will just ask one more, if I could. In Asia I thought you had rolled out some of the front end of G2 in some of those markets, and I am wondering, is this Asia product rollout, was that -- if in fact that is true, was that a helpful tool to have in order to launch it at that level of success? Or am I kind of off base on that? Thanks.

Well, you're not off base. It certainly helps us from a launch perspective. It helps us certify and it helps us ensure any compliance that's automatic across all seven markets -- each of the seven markets where G2 operates for us.

G2 doesn't play a role in the success of the product itself being purchased by consumers because that, as I was describing earlier -- trying not to describe earlier perhaps, the feature of really the product itself in this retailer and how its rollouts work. But yes, for our purposes, the ability to bring something new and process it rapidly across G2 for authorizations, and in some cases, a lot of these are e-commerce across our global transport platform, is very helpful for us from an efficiency and a processing standpoint.

Okay, thank you, guys.

Our next question comes from James Friedman from Susquehanna. Please go ahead.

Hi Paul, Hi David, Hi Jeff. I wanted to ask, in addition to Durbin, the other hot button in the market these days is mobile, and just a simple question. Is mobile a good or bad thing for a merchant acquirer?

I think it is a great thing. It's -- anything that allows more ubiquity of acceptance and makes it easy for the consumer to use their credit and debit cards, that's a great thing. In fact, I don't want to gobble up a lot of time here, but I would like to know your perspective on why you would think it could be a bad thing.

I would be inclined to agree with you, but it is more important if you say it than if I say it.

I tell you what, we'll do it off line. I know have you an opinion.

James, it is Jeff. I would add to what Paul said. Our view of the world is anything that touches a merchant in any form is good news for us, because our ability to allow those transactions to be processed in a way that is appropriate is very helpful. So, things like mobile are great news and as long as it provides some connectivity back to a merchant who wants to get paid, we're happy to be in the middle of it.

Okay. And then just switching gears for a second back to Asia, so could you -- so I believe, Ian was in the process of shifting, and I was wondering if you could update us in terms of the management structure specifically relevant to China.

Okay. So, the -- during the Investor Day we announced that Ian would be phasing out. He is doing that over the next quarter, and James Hicks has assumed responsibility. James came from the Czech Republic and ran our Global Payments Europe business. And James has relocated with his family in Asia, and I could not be more delighted. He is just a world class executive, just a terrific guy.

We have actually replaced James with an individual that came to us from Raiffeisen. Prior to that, he was with Euronet, his name is Rodney Farmer. Rodney is currently living in Vienna. He will be relocating to the Czech Republic with his family. Rodney will be assuming his role, I think literally, next week.

We also, you didn't ask, but we also have a CIO search underway, and I am delighted with the Canada pool we are getting. It is -- we have added thousands of thousands of people to our Company, and I will tell you that our goal is to constantly upgrade our talent. And I could not be more tickled with the people who are interested in us and the applications we're getting.

Specific to China, we are in a number of markets in China. We're expanding that role. We are adding sales people, and we'll be adding management as well, and James is getting his hands around all of that as we speak.

Okay, and then the last thing, just a housekeeping detail. Dave, I don't recall you mentioning the share repurchase in the quarter. Could you elaborate on that and where it stands, and I will close with that.

Sure, Jamie. We did not repurchase any shares this quarter, and that's probably the short and pithy answer.

Okay. Thank you.

Thank you.

Our next question comes from Jason Kupferberg from UBS Securities. Please go ahead.

Thanks, guys. Maybe I missed it, but did you guys give any update on the estimated date to complete the G2 rollout in the US?

Jason, this is David. No, we did not. We continue really with where we were when last speaking publicly before the quiet period, which is, we have got to finish off our requirements gathering. We have got to finish off the right plan for the right kind of coding and QA to absorb those changes and then link it to the ability of our customers to work with us on a migration path. So we have got work to do on that front.

So, sometime next fiscal year but just stay tuned on more precision there?

Yes, I think stay tuned is exactly the right message. Really, when I step back and think about G2, we're going to work on a date, and it's a date where we're obviously going to nail when the time comes.

You already know the various and sundry financial implications. You also know that we have absorbed the lack of G2 savings in our expectation this year. So, from that perspective, we will keep you posted. But I wouldn't suggest this is going to be a focus area for us as we go forward.

Jason, I think that David said two important things I want to reemphasize. Number one, whatever we tell you, we got to nail it, let me just nail it. So, we're going to be very circumspective. That's why you should take some comfort when we tell you we're going to get this back end migration in the UK. Because we -- it is important, and we're going to make it happen.

And in terms of the implications for G2 for the Company, it is a great thing. It works. It is working right now. It is going to work. It is going to produce some savings. But as David said, until we can explain that in great detail, we're just going to keep you informed as we go. Okay?

Okay. That certainly makes sense. I guess segueing into a more general discussion around overall operating margins for the Company, I know you're not going to be in a position it give any formal guidance on next year, but I think a lot of folks across the street are trying to get a sense of just rough orders of magnitude.

It sounded like at the analyst meeting you were certainly committed to some degree of margin expansion next year. There is a mix of headwinds and tailwinds, it seems like, in the business across different geographies and attributable to different factors. But any incremental insight you can lend there, just to give people a feel for, are we talking about a tiny amount of margin expansion next year when all is said and done or something more significant as you see it right now?

Jason, it is David again. Unfortunately, for any details you have to stay tuned until we set our FY 2012 outlook, probably in the summer. We remain committed to margin expansion on the core business. We expect to see it. I guess I will remind you of that definition as we were -- which is the one I stated at the Investor Day which is obviously, that is pre-Durbin. In fact, it was actually pre-Brazil I pointed out on that day as well.

Yes.

Business as you knew it at the moment we did that, and we expect to do just what we said. I would tell you the other part of this is, our goal and our plan is to be able to deliver solid margin expansion for a sustained period of time. And that is really what we're trying to build the business around as the three of us work on the pieces of it as it comes together.

Okay. I will leave it there. Thanks, guys.

Thanks, Jason.

We will take the last question from Bryan Keane from Credit Suisse, after which Mr. Garcia will give his closing statement.

Great. I will try to keep my questions to about 25. (laughter) I guess I thought I asked a lot of questions, but I guess my peers do as well. Let me ask you this. Europe was down obviously year-over-year. I don't know, I might have missed it, David. What's the constant currency growth rate in Europe, and how does -- what's the outlook in Europe look?

Yes, Bryan, we don't take constant currency down to that level. But let me just remind you of some of the pieces in Europe. You're right, it is down. You have really a couple of things.

Year-over-year currency is harming the UK, and it is pretty substantial. It is north of a couple million dollars. In addition, the acquiring business, what we call the international acquiring business, you'll recall we exited some of the more challenging verticals in that. That creates a year-over-year challenge. And that will annualize in April, and you will see Europe go back on path. So you get the UK business that is sort of fundamentally for this full year, before you deal with international acquiring and in local currency only, it is actually going to be a double-digit grower when you deal with what we do, what we expect to have happen in Q4 in the UK.

You marry it to Russia which is growing solidly in the high single digits, right where we want it to be. And the central Europe business with the major customer reprice is continuing to shrink. Then you've got your decline right now on the way to coming back to, in aggregate, an okay year. But all in, you have got a challenge of growing over that international acquiring business plus the central Europe business.

Okay. That's helpful. And then the raise in revenue, the $20 million, is that all currency, David, ex acquisition?

No. What it is a little bit of ISO fees in the US, so no earnings from that. It is the classic empty calories as they do the fees here in the States. It is FX, and it is Asia. The largest number of that is the ISO, although it is not even half of the 20 raise. And then the Asia and the FX would split the difference from there.

Okay. Last question for me. If I remember correctly, I think 50% of your US volume is signature debit and about 10%. Is that right? And the second piece is that, can you remind us how much less revenue it is for merchant acquirer when you are doing pin processing versus signature?

Yes. I will even -- I'll put a little more precision. It is less than 10% of our transactions are pin. Right out at third are credit and then the remainder is six, that's north of 50%. One thing that anecdotally may interest you is the percentages and the splits this is quarter were dead on where they were last quarter, which is interesting. And in fact, just fascinating to watch the pieces of this hang right where they were in proportion over any number of quarters. In terms of breakout, we don't go that far in terms of proportions. You guys all know the interchange structure and have a view of how the pieces will come together. In absolute dollars, it is substantially less revenue to move from signature to pin. At a margin level, a percentage level, we make perfectly good money in the margins, the incremental margins or even the contribution margins are about the same. But it is significantly less revenue.

That is the question, I guess. When you guys say that Durbin will automatically be positive for you, a lot of people, a lot of experts are arguing that you will see a migration from signature over to pin and in fact, that would actually have a negative impact on you guys on total dollars.

Bryan, this is Paul. I disagree with that. I don't disagree that people are saying it, I disagree with the conclusion. Here is why.You have pin based debit now at a significantly lower rate than credit or Sig debit at a quarter of where it is today. Now, it is going to go down from the $0.20 range to the $0.12 or $0.10 range, right? That's a big reduction. But what is happening in signature debit is 90 basis points maybe. It is massive. Now, what I fail to understand, merchants have already had a huge incentive to move consumers to pin based debit. And although this is a further incentive for them, that incentive already existed, and I think at some point the consumer is going to do what the consumer does. And I just -- I don't think -- it is nonsensical to me that I a lower rate for a merchant will enter into a consumer's decision. I think grocery stores have been successful, some big box merchants have, prompting for pin makes sense. But consumers are not going to use a pin based product for transactions with an average ticket over a certain amount, period, end of story, in my opinion.

Yes. We can follow up on that. Some people are saying that even the issuers, because the profitability, the margin is so much -- is going to be capped at a certain level. And the process -- the cost of processing when you include fraud is so much higher on signature debit, that they're going to actually be interested in pushing pin.

Well, I do agree. Listen, I agree with that, actually. Not pushing the pin, but I do agree that the issuers are clearly going to be taking that into consideration. And even if they're given that extra amount of money for credit, they're going to say wow, but -- for credit risk. But I think they would be pushing more likely, pushing you to a credit product, not to a signature -- excuse me, not to a pin debit product. But the future is going to be interesting, Bryan, so we will see.

Thanks so much, guys.

Our pleasure. Okay, well ladies and gentlemen, thank you so much for your continuing interest in Global Payments. A happy new year to everyone. Thank you.

Ladies and gentlemen, this conference will be available for replay starting today at 6PM and ending at midnight on January 18, 2011. If you wish to listen to the replay, dial 800-642-1687, or international participants can dial 706-645-9291. This concludes our conference for today. Thank you for your participation. You may now disconnect.