環匯 (GPN) 2011 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to Global Payments third-quarter fiscal 2011 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will open the line for questions and answers. (Operator Instructions). 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 the Global Payments fiscal 2011 third-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, as forward-looking statements made during this call speak only as of the date of the this call.

In addition, some of the comments made on this call may refer to certain measures such as normalized and cash earnings for third-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 March 31, 2011, which may be located under the Investor Relations area on our website at www.GlobalPaymentsInc.com. Now, I would like to introduce Paul Garcia. Paul?

Thank you, Jane. Thanks, everyone, for joining us this afternoon. I am happy to report strong revenue growth of 15% to $456 million, as well as normalized earnings per share of $0.63 for the third quarter as anticipated. We continue to expect strong fourth-quarter results as well, and are poised to deliver our full year revenue and earnings estimates.

Now for the highlights of the quarter, and some recent events. I am pleased with the initial performance of our joint venture in Spain, which is on track to deliver $25 million to $30 million in revenue for fiscal 2011. As we reported during our last conference call, we plan to pursue sales strategies similar to those which we successfully employ in the UK. Accordingly, we have begun the process to add over 50 sales people over the next few quarters. When combined with the La Caixa brand, and 5,000-plus branch footprint, we expect to drive significant market expansion and long-term growth. We are obviously delighted with the partnership we are formed with La Caixa.

Speaking of the UK, I am pleased to announce we completed the migration of our UK merchant payment processing platform to the Global Payments back-end platform. This was a remarkably complex multi-year process, that affected over 145,000 merchant locations, and added 13 currencies to our payment processing functionality. Concurrent with this migration, I am also happy to report that we are now fully operational for all UK-related customer support functions in our Philippines call center.

North America delivered strong revenue growth in the quarter, with US and Canadian transaction growth rates of 20% and 7% respectively. Our international segment produced another quarter of strong results, driven by the addition of Spain, continued strong growth in Asia, and solid core performance in Russia, central Europe, and the UK. Lastly, we continued to make progress in our efforts to enter the Brazilian market, and will update you as further developments unfold. I will now turn the call over to David.

Thank you, Paul. North America merchant services revenue grew 13% for the quarter, driven by US merchant services revenue growth of 15%. 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. In local currency, Canadian revenue was flat with prior year, and we expect similar performance for the full year. Consistent with our expectations, North America merchant services normalized operating margin was 19.1% for the quarter, as compared to 20.8% in last year's quarter, with EBITDA up modestly over 2010.

International merchant services revenue increased by 20%, compared to last year. Operating margin increased to 28.2% for the quarter, compared to 27.4%, and now incorporates the margin-dilutive effect of Spain. Asia-Pacific growth slightly exceeded our expectations. Based on current trends, we expect revenue growth in the low 20% range from Asia for the full year, and given these results, excluding these addition of Spain, our annual expectation for overall international growth in US dollars has increased to mid-single digit percentage growth. Our total normalized Company operating margin from continuing operations for the third quarter was 17.9%, down from 18.5% last year. Excluding the addition of Spain, our overall Company normalized operating margin expectations remain unchanged for fiscal 2011.

During the third quarter, on a year-over-year constant currency basis, currency changes benefited revenue and normalized earnings by about $5 million and $0.02 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 strengthened against the British pound, Czech koruna, and the Russian ruble. And we continue to 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.

We reported total cash and cash equivalents of about $1.3 billion, a somewhat fanciful amount, as the large increase results from our quarter ending on a Monday, which means that cash balances included weekend merchant dollar volume, which is then offset by a corresponding settlement obligations balance sheet line item. Our total available cash at the end of the quarter was over $235 million. During the third quarter, we generated free cash flow of $82 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 $25 million on capital expenditures, and we now expect our full-year total outlay to approach $100 million.

In December we expanded our financing capacity, with a new five-year $600 million revolving line of credit, which replaced our previous $350 million line. We used the facility to pay off the remaining $150 million outstanding on our 2009 US term loan. Our GAAP and cash earnings are reconciled on Schedule 7 of our earnings release. For the third quarter, the Company reported $0.71 of cash earnings per share from continuing operations, compared to $0.63 on a normalized and $0.60 on a GAAP basis, and compared to last year's performance of $0.65, $0.58, and $0.58 respectively. Cash earnings exclude the impact of acquisition-related amortization, special or nonrecurring charges, and their related tax effects.

We also provided a quarterly trend of cash earnings by segment for fiscal 2010 and 2011 in Schedule 10, with the detailed reconciliations on Schedules 11 through 13. We continue to expect Spain to add about $25 million to $30 million of revenue from the December acquisition date through this fiscal year, and to be dilutive to GAAP and normalized earnings per share by $0.02 to $0.04, and accretive to cash earnings by $0.02 to $0.04. Our normalized effective tax rate for the quarter was 29.2%, and we continued to expect our full-year 2011 normalized effective tax rate to be about 29.5%. Our cash tax rate was 31.3%, and we expect our cash tax rate for the year to be about 30%. Now I will turn the call back to Paul.

Thank you, David. Based on our current outlook for normalized continuing operations, we have tightened the range for our full-year fiscal 2011 annual revenue expectations to $1.8 billion to $1.82 billion, or 10% to 11% growth over fiscal 2010. Our annual normalized diluted EPS expectations range for fiscal 2011 is now $2.70 to $2.77, reflecting 6% to 9% growth over fiscal 2010. Similarly, we now expect fiscal 2011 cash earnings per share of $2.99 to $3.06, reflecting 7% to 9% growth over fiscal 2010 cash earnings of $2.80.

I continue to believe that our Company is in great position to benefit from the ever changing payments environment, and I am confident in our ability to continue executing on our growth strategy. Prior to going to questions, Jane Elliott wishes to make a comment. Jane?

Thanks, Paul. Before we begin the question-and-answer session, I would like to ask everyone to limit their questions to one and one follow-up in order to try to accommodate everybody in the queue. Thanks for doing that, and, operator, please take the first question.

Thank you. Ladies and gentlemen, we will now conduct the question and answer session. (Operator Instructions). Our first question comes from the line of Adam Frisch with Morgan Stanley. Please go ahead.

Hi, it's Glenn Fodor for Adam. Thanks for taking my call. Now that you have the UK integration done, want to see what your plans were for pricing in the UK market, timing-wise, and is this something I guess going to be rolled out for fourth quarter, and is that for the full quarter, and can you help what kind of quantify it, and provide perhaps some color on the UK market and discounting and rebates sort of part of this market, something that could give back on the pricing once it is implemented?

Glenn, this is David. I think what I will do if it works for you, is walk you through the fourth quarter and put the UK in context from that perspective, because I am sure you along with many of your colleagues are thinking through how to put the pieces together for Q4 versus Q3 from a sequential perspective, so if you let me -- indulge me for a second I will step back and we talked from the beginning of the year, that we think a lot of this year's performance in growth is weighted towards the fourth quarter obviously, given the nature of our full year guidance and our Q3 performance, on track for what we expected, hence Q4 we think is on track for what we expected for quite some time, and really Q4 performance is down to our expectations for our three biggest markets, that's Canada, the US, and the UK. So I will do them in that order.

We expect Canada to grow modestly in the fourth quarter, to see more stable spread in volume trends there, as we have discussed all along. If we do, then we expect some help from Q4 seasonality, and that will give us relatively substantial in Canadian terms, sequential revenue, and contribution improvement for the fourth quarter. In the US, we obviously expect the typically strong fourth quarter from our ISO and our direct card processing business, which we think will be augmented by the fact we'll see the bulk of our, what we project as double-digit gaming revenue growth in the fourth quarter, including the implementation and having live the large customer win that you guys are all familiar with from earlier in the year, and then we obviously still expect a strong fourth quarter from our greater giving business, where an enormous percentage of our annual revenue comes in as the auctions hit the spring season.

Which leads us to your direct question, the UK, and here in the UK, in the fourth quarter, we're looking for good performance from the core business and then to your question directly, we are putting in place our new pricing mechanisms at the beginning of Q4, so they will be in place for the entire quarter, given that we have now successfully executed the back-end payment processing platform migration. So out of that, we should see substantial enhancement to revenue and earnings dollars and growth. To help you size that a little bit, if you are looking at your model, let's talk earnings now for a second, you're dealing with a sequential uptick in earnings that's fairly substantial, the UK is the single largest component, but we do see other sizable contributions from the Q4 performance we expect from the US, and from Canada, so splitting your sequential improvement among those three, but with more weight given to the UK for Q4, then either of US or Canada, is how I suggest you think about modeling, and that sort of is Q4 at a revenue level, maybe I will let Paul talk about the dynamics in the market overall.

Thanks, David. Glenn, Paul Garcia here. The answer to the question about the UK back-end conversion in particular, this will allow us to more appropriately price the way the existing legacy platform works, the HSBC back-end platform, it doesn't allow us to appropriately price for varying interchange levels. Whether that platform was created years ago, they didn't have these varying levels, and the platform never accommodated it. We're kind of guessing on where someone's rate should be. This will allow to us appropriately do so, and in some cases merchants will get reductions, and we will be assured what our spread is. That's why David feels the level of certainty in discussing Q4, just based on our visibility, and to just what our spread will be based on this new back-end.

Indulge me for one second on one thing on the back-end. This is a big deal. This is 145,000 merchant locations, and years of work, huge amounts of complexity, massive effort from a lot of people around the Company, around the world around the Company, and we just couldn't be more pleased with our end result here.

Thank you. A follow-up. In the past, you laid out some expectations for fiscal 2012 margin expansion and then you hedged a little bit on another call, noting that was pre-Durbin and pre-Brazilian investments, if I captured that correctly, understandably so, and at this point can you provide any update or color on what your expectations might be or when you might be ready to reintroduce some color there?

Glenn, it is David. I think we'll talk about 2012 as we traditionally will on the July conference call, as we post our Q4 results and talk about expectations for 2012. Our outlook and our view of the business remains unchanged.

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

Thank you. Dave, could you talk a little about, or the margins in the merchant business? I know what you said to look for fiscal 2011, and I am wondering what the impact of the ISO business is having on that, considering you had so much growth in the US business?

I think, Kartik, the impact of the ISOs on our margins in North America continues to pace. We weren't surprised, and as we said in previous quarters, we really think our exit Q4 rate and North America margin looks a lot like last year's Q4, and so we haven't been shocked by the developments in terms of the channel and the mix, and in fact we have a gaming business on track that operates at higher margins as you know, our direct business is executing solidly this year, and our giving business, the old auction pay is on track for the Q4, but the real way to think about the ISO business, as you well know, is challenging incremental margins relative to total Company margins, hence an overall deleterious effect on North America margins on a sequential basis, and no real changes, no changes to trend there. I would imagine your model, given the diligence you put into it, is probably right on track with that North America margin right now.

And, David, to follow-up on Canada, obviously last quarter you put in a price increase or fee and however we want to state that, and in relation to that, have you seen a tick-up in attrition at all, or do you anticipate that for the over the next three quarters, three or four quarters?

Let's step back and talk about Canada for a moment relative to price. We have not put in price increases in Canada into our direct merchant base. What we have done is introduced a new product, with which came different fees, different reporting products and things like that, so, no, I actually, when we look at the trends and I will let Jeff comment as well, we haven't seen a sea change in trends and attrition in Canada.

David, for Kartik, I would just say that Canada remains a competitive market as it has been for some time, and that has not really changed in the recent term.

Your next question comes from Tim Willi with Wells Fargo. Please go ahead.

Thanks. Good afternoon. Could you talk, I guess just a little bit about the ongoing question around M&A, and capital and obviously you have a joint venture on the books here as of December, and just sort of what that environment looks like, given what's going on in credit markets and sort of the re-emergence of private equity deals, and how you think about that maybe over the next six to nine months?

The question -- Tim, this is David. The questions about capital, I think we have prudently deployed capital on our own over the course of the year with selected buybacks and obviously, the Spain transaction, and so from our capital perspective we're right on track for the original plans and outlook, and I may let Jeff comment a bit on M&A, pipelines and things like that, and --

Thanks, David. Tim, it is Jeff. We continue to see a healthy flow in potential M&A transactions in our business. Private equity as it was throughout 2010 remains a good competitor of ours as we look at these deals, and we do think, though, that we have a number of advantages, relative to private equity. David talked before in his prepared comments about the redo of our capital structure in December of 2010, where I think we have a very favorable capital position as he just mentioned, and we have a long track record of successful, integration and execution on end market deals. So we rely on that when we look at these transactions, and while private equity is always out there, and is a good competitor, we feel we have a bit of a leg up. I would also say, when things go the private equity route, from my perspective, Tim, that's actually not a bad thing, because we generally tend to see those transactions again as they look for an ultimate exit, and so while that may have a good or a negative effect on pricing for deals, at the end of the day the one thing I am confident of is we'll take another look at the right time, and that's far better from my point of view versus a deal going to a direct competitor of ours.

Okay. That's all I had. Thanks so much.

Thank you.

Your next question comes from Dave Koning with Baird. Please go ahead.

Hey, guys, in North America, the EBIT dollars have been down, I think they were down about 10% in the first half, and they're now up a little bit year-over-year in Q3, and I am just wondering, is that sustainable now growth in North America and are all three components, the ISO component, the US direct, and Canada, are all three of those now in growth mode?

So, Dave, we'll stick to the outlook for 2011 where we have discrete financial expectations, and if you look at it that way, we did indeed see some modest EBIT uptick in North America. We obviously, if you think about Q4, are expecting to see similar or probably excuse me not similar, north of that uptick in Q4, relative to our Q3 uptick, and I would tell you the bulk of the Q3 really is US, it is across the product lines in the US, and remember Q3 is still sort of one of our stabilization quarters for Canada, but our Q4 implies that each of the two portions of North America, the US and Canada, advance their EBIT on a year-over-year basis, and so hopefully we are, as we discussed a number of times, exiting the year with Canada in the place we wanted it, and with the US the combination of ISOs and really also marrying to the gaming performance as well as the auction or greater giving performance all being in pretty reasonable shape.

Just a follow-up, typically Q1, and I know you don't want to get into next year, and Q1 is typically $0.10 to $0.20 better sequentially than Q4. Is there anything in Q4 this year that is much better than normal? You obviously have a really nice sequential ramp into Q4. Is there anything not seasonally normal that's falling into Q4 this year?

David, I think I will stick with we're staying with fiscal 2011 and we'll come back with fiction 2012 when we talk about fiscal 2012.

Your next question comes from James Kissane with Banc of America. Please go ahead.

Thanks. Can you provide more color on the strong performance in Asia, and it seems like your guidance implies a pretty significant deceleration in Asia in the fourth quarter. Just trying to get a sense in terms of why it would decelerate so much from the third quarter.

Happy to. Remember, our performance in Q2 in Asia was fueled by a couple of things, the material which I will come back to at the end, but the introduction of dynamic currency conversion, a couple of markets, and continued solid core growth, all augmented by a couple of product introductions by a single retailer we serve in several markets in Asia, so those as we sat in Q2 at the end of Q2, and talked to you guys in January, we believe there is introductions were essentially over, and we saw one more introduction that resulted in out-sized growth in the first month of the third quarter, and then we saw the subsequent weeks, the subsequent months settle back down to what you might think of as more normalized kind of double-digit mid-teens growth across Asia, so as we exit Q3, we're looking for Asia to settle back to a normal range you might have modeled at the beginning of the year, when we were unaware of this launch on its way, so it is really the single retailer we talked about before, one of the few brands that can introduce a new product and drive a lot of volume in a rapid timeframe, but we have seen those introduction, and they're settling back down, so our exit rate again as we leave Q3 is a normal kind of growth rate, and our outlook for Q4 is a normal growth rate. and hence it will decelerate, but it will decelerate back to what you would have expected anyway really from our Asia business.

Okay. You indicated it would decelerate coming off the second quarter.

Yes.

And it didn't decelerate much. I am trying to get a sense of you being conservative and this doesn't count as a question.

Then ask your follow-up as well and I will answer that.

And Paul is having Jane do the dirty work. Can you update us on your progress moving work to Manila and when we'll see the impact on your margins?

Yes. In order, your half follow-up and your follow-up, we did see, you are correct, we expected a deceleration in Q3 in Asia growth versus Q2, and we did see that and it didn't decelerate quite as much, because we had the spill over into the first month of the quarter, so Q3 performance is a little north of what we expected, not wildly north, hence you have seen us take our full year Asia expectation from about 20% to the low 20% range, putting in between, depending how you want to model us between 24, 25, something like that, so not a lot of shock, but you are correct, you are factually accurate, we had the spillover for one month and a little better performance than we might have expected.

Jim, Paul Garcia, in terms of Manila, we have the entire UK customer support operation there. We have elements of non-customer facing for the US in Manila and quite frankly this, and of course it's supporting a lot of Asia. This facility does have the ability to do a lot more for us, and we are kind of looking at those opportunities and we think that's some future upside, and we look forward to take advantage of that in a way that provides the best customer support we can provide.

Your next question comes from Darrin Peller with Barclays Capital. Please go ahead.

Thanks, guys. First, what was the spread between transaction growth versus the 15% revenue growth in the US and I know you mentioned Asia might decelerate a bit, but still, why would we expect overall Company year-over-year growth to decelerate from the 15% range in third quarter to now 8% to 13% in fourth quarter based on your guidance, especially with price increases in the UK?

Okay. So the difference to your first question because you actually wisely got a number of questions in there.

Fair.

Transaction growth is about 20%, and the revenue growth is obviously south of the delta is roughly pricing along with really mix at the end of the day, and in terms of overall reduction in percentage growth year-over-year, that's really part two of your question. Really if you think of the components, and really we're talking about it more sequentially, but I will relate it to the year-over-year. You will see Asia's sequential revenue decelerate which means you will still see solid growth year-over-year. You will see solid growth in Europe, obviously on top of with Spain added on top of that, and then at the end of the day, we're looking for a little modest growth in Canada and solid ISO growth in the US, and not all of those generate the same sort of incremental margins, and that's how the pieces come together from an earnings perspective, but in terms of deceleration overall, you have to disaggregate parts and pieces to get to that point, and if you go market by market, I think you end up in a place where your model is pretty solid, Darren.

Just seems like the UK business would more than offset the deceleration in Asia I thought, and with Canada accelerating sequentially year-over-year, as well still seem to think it would be higher than the 8 to 13 range, but we'll work through it in a little more detail.

I think the variable is always, what do you think the ISOs will generate, and those of course come with not as much earnings impact at the back end, and that is always the wild card. The opportunity for out performance on this outlook really comes from ISO fees, and those are very difficult for us to guess, and as you know, we are typically thinking long and hard before we put a bunch of ISO fees in we're not sure about.

Thanks David, and a real quick follow-up for Paul. Can you comment a little bit more on China Union Pay and how things are going there.

Sure, so Darrin, we have a robust relationship with those guys around the world, and as I mentioned, I think, in a previous call, we process billions of dollars for CUP all through Asia, and have a strategic relationship with them in a lot of European and North American locations as well. Now, China, which I believe your question is focused on, as you know, we're the only guy that can do -- only non-Chinese company that can acquire renminbi CUP transactions in the People's Republic of China, so we're in the process of building out more functionality into our product offering, and coupling CUP with bank card, and we are offering that currently in Beijing.

It is our desire to offer it in other parts of China. We're making progress on those geographies, but we actually have some more progress to make on the robustness of the product, too, so it is kind of a two-pronged attack, and I will keep you informed. I think the long and short of it is, I could not be happier with our position in China. Doesn't look like anybody else is jumping in there, and our hard work is paying off, so we expect big things over the years.

Your next question comes from Moshe Katri with Cowen. Please go ahead.

Thanks. Paul, can you get your views on the recent events that are taking place on the regulatory front, that's number one, and then you mentioned some developments in Brazil and maybe you can give us some more details on that? Thanks.

Sure. Okay, Moshe. So firstly with Durbin in particular, I think everyone's guess is as good as ours, and we don't have deep insight other than we think this thing, it feels like it will be delayed, just that I think it is hard to reach any other conclusion. As we said, this thing does have some benefit for the merchant acquirers, but in all fairness, it is not something that we are thinking about when we talk about our optimism about our future, so I would say Moshe, stay tuned on that one.

In terms of Brazil, we're making nice progress there, and I want to remind you, once again this is a greenfield. We'll sign one merchant and then two and then three, and it will not be a huge needle mover, and we're also not going to spend huge amounts down there, too, so you won't see a lot of negative surprises there either. It is a market you have to be in. It is the be-in brick. It is not our -- it wouldn't be how we approach every other market, but it was what was open to us, and I think we'll be in a position to be servicing merchants there in the not-too distant future but we still have work to do.

Last question on Japan. Do you have any exposure to that market?

Moshe, we do not. We do process for the JCB card, for tourists who use that card from Japan and a lot of our Asian markets, but in terms of Japan itself, we have no staff, no exposure, no facilities, no business.

Your next question comes from Bryan Keane with Credit Suisse First Boston, Incorporated. Please go ahead.

Good afternoon. A couple moving pieces, but we do have the full-year guidance so we essentially have the fourth quarter. David, I was hoping you could help us with the North American operating margin. I am getting to like a 21% to 23% for the fourth quarter trying to back into it and I want to see if I am in the ballpark.

Bryan, I think you are a little high. I think Q4 is going to look a little bit more like our Q4 last year for North America. That means obviously substantial ISO growth, it's going to mean nice gaming growth again, but with that comes processing costs, although obviously the margins there are north of anything like ISO margin it's the greater giving business and some help from Canada, but all in, I think you will look at a margin that looks a little more like the one last Q4.

Okay. Some of the margin improvement we will see, especially sequentially, as we head into next year, just big picture stuff, it doesn't seem like there is real one timers there in the fourth quarter, it sounds like some of these things are sustainable as we go forward.

I don't think there are a lot of one-timers really across the Company, depending on how you want to count the introduction of Spain, which really isn't going to be in the comps for a while, but I am not aware of big one timers, with maybe the possible exception of the sheer volume of new sales and new implementation in our gaming businesses, probably outside the norm, but in the context of Global Payments, I am not sure it is that material to you.

Your next question comes from John Williams with Goldman Sachs. Please go ahead.

Good evening, guys. How are you?

Great. Thank you.

Really quickly, I am surprised the question hasn't been asked yet, but this is a take on Durbin, I was curious to know what your views are, and Paul, this is probably a better question for you, something I know you have commented on in the past, regarding the network's ability to eventually push pricing increases through to you down the road, it seems as though that would be on the table and just curious to know what your thoughts are on that?

John, clearly I don't have any insight into this, but clearly if you're Visa and MasterCard, you're thinking about that, and you are thinking about ways to do that, that don't result in a direct pass-through to the merchant, and then it is just a big chain, so I don't know how that would happen. I get the spirit of your question. I happen to agree with that, and we haven't been approached on any ideas or methodology but clearly if you are with the association, it is of course what you are thinking about, and we'll keep you informed.

To perhaps expand that question on Durbin specifically, when you are thinking of the idea of having to share any potential, what would amount to de facto pricing increases with the ISOs, how does that back and forth typically go in your process of negotiating that with an ISO, whether it is related to Durbin or not, generally how does that back and forth go?

It is very straight forward. It is prescriptive, the ISOs pay, the fees that we pay, and there is no negotiation about it, and it isn't a large card issuer calling the association and saying you have to do better for us, and it doesn't work that way and they get that. That's very straight forward. Of course they are interested in the extreme, to how that impacts them, and they look to us for some explanations from time to time, but no, and neither do we mark that up. I mean, it is, or absorb any of it, and it is a straight pass through.

Your next question comes from Sanjay Sakhrani with Keefe, Bruyette and Wood. Please go ahead.

Just had a quick question with regards to la Caixa, I was wondering, can you break out what the revenue was this quarter and how we should think about it going forward? How big could it be ultimately, in the longer-term? Thanks.

I think what we'll do is stick to what we disclosed about la Caixa, which is we expect in the second half of the year, from the date we own it, which is roughly December 20 through May 31, $25 million to $30 million of revenue and we're on track for that, and they had a solid start from our perspective. As you might expect, not dissimilar to any of our other businesses, Q4 should be bigger than Q3, but they're on track, and so I don't think we're going to parse out the pieces of it, quarter by quarter, but know that they're on track for the $25 million to $30 million and we're feeling good about that as well as the earnings range for the increment from the Spain acquisition.

I would like to make a comment on la Caixa, if I may. I would just like to add that we really couldn't be happier with this. It isn't every day that you get to overnight have a number-one market position with a partner that is extraordinarily helpful and cooperative, and working shoulder to shoulder with us to expand our joint market position, so it is number-one with a bullet. We expect to add more business. We're doing so. We're making an investment in sales and some miscellaneous infrastructure, and once again, the partner is with us every step of the way with their over 5000 branches, so it is just about as sweet as they come, so I would encourage you to look for some good things from la Caixa in 2012.

Can you touch upon how much impact the operating margins in the international segment, was due to la Caixa?

Would you repeat that? You cut out.

How much was the operating margin in international segment was attributable to la Caixa?

In terms of the impact of that and I think the way to think about la Caixa in terms of total international is, it is going to cost us in the near term north of probably a couple hundred basis points of margin. I guess I won't get overly precise there, because it will move around a bit as we spend integration money and we ramp up the sales force, but it is north of 200 basis points as we think about it going forward.

Great. Thank you.

Sure. Thank you.

Your next question comes from Robert Dodd with Morgan Keegan. Please go ahead.

Hi, everybody. Just going back to Canada if I can, I realize the market is choppy, but if we look at this quarter essentially flat local currency, revenue somewhat similar to last quarter, but 7% versus the transaction growth last quarter, so looks like the revenue per transaction actually deteriorated in the third versus the second, and so can you give us some color on that and why is it mixed, and whatever you have increasing confidence, that Q4 is going to reverse that trend by even more than it did this quarter?

Sure. Maybe Jeff and I will double team on this a little bit. You are correct in that it continues to be a competitive marketplace, and the combination of that competition as well as a little bit of seasonality in Q3 means that on a relative basis, spread dropped maybe more than it had the quarter before. When we look ahead to Q4, it is less about whether or not that trend continues, and more about on a comparable basis versus prior year, are you stabilizing such that you can stabilize the revenue in the EBIT trends in the market overall, and so it is less about sequentially and more about year-over-year, and maybe, Jeff, on the market itself what we see competitively, et cetera.

Robert, I don't think, it is Jeff. I don't think the level of competition while it is intense, has changed sequentially, so now I think we have seen a number of quarters where it remains intense, but I think that intensity has been pretty consistent across the quarters so to David's point, I think we have a lot of confidence in David's commentary on the fourth quarter in Canada.

Okay. And to follow up, the parallel between Canada and the potential Durbin opportunity, because obviously it does look like it may be delayed and might not happen at all in the near term, but how does your experience with Canada, and I know we talked about this before, David, over the last three or four years, in terms of big price increase followed by significant competitive factors, driving that excess spread back out of the market? How does that review about what you might do with your direct customers if Durbin becomes effective? May be a little bit speculative but give it a shot.

This is Paul. I will take that one. You're exactly correct. If there is benefit from Durbin, and I will tell you that we are believing that the benefit in Durbin will not be significant, we will get some benefit from Durbin, and it is not figuring into our optimism quite frankly, and at this point, who knows when that actually happens, but whenever it happens, we are confident of one thing. Whatever benefit that is, it will go down over time, so we have seen that movie before. That's how it works.

Now, they will be all variants of this. There will be one company that's already said they won't take any of it, and maybe there will be ISOs that are aggressive and take it all, and we will be a lot more conservative in how much of that we would enjoy and therefore we don't see -- that's why we're saying it is not going to be a significant benefit. But you're exactly correct, Robert. That thing, it will be -- it would be fleeting for everybody.

Your next question comes from Dan Perlin with RBC Capital Markets. Please go ahead.

Thanks. Just, I guess maybe moving down the speculative path as well, but what is precluding you from potentially buying in your Asia JV?

What is precluding from buying in our Asia JV?

Yes. There a trigger mechanism we need to think about? Is there a timeline? Is that something that is too far off in the future that you're not prepared to make comments about and it would seem as though the timing of that would start to accelerate next year.

I think you will find us not ready to make any comments about it, other than to say we have a terrific partner there and a great partnership, and we're happy to continue to operate that for the long-term.

I would add it is always a possibility, and I think I would say stay tuned.

I comment on that because you made comments about changing payment landscapes and it is not just regulatory, and there is also technical issues with mobile and things of that nature, and I think people are questioning about the business, so anyway just looking for that. The second thing is the --

Let me comment for one more second. I think that it all depends on our partner, too. At the end of the day, we of course are willing buyer of that, and it depends on what our partner wants to do. They have chosen to sell us the rest of the JV in the UK. They may or may not do so in Asia, and we are ready, willing and able to do so, and of course, we have dialogs like that all the time but as David said, we'll take that any way we can get it. They're a wonderful partner.

Got it. The repositioning that took place in Canada last quarter, and you reduced head count, we thought it was around $4 million annually in terms of cost savings, and I would be interested to know, we saw much of that, if at all in this quarter, and is there any incremental cost you took in the quarter as Saturday of Brazil? Thanks.

In Canada, you really saw a full quarter of the benefit of the realignment of investment levels that we did in the fall and there is investment in Brazil in our numbers right now. It has been in there for a few months now and it is growing a little bit, and we continue to ramp up that investment level. As Paul said earlier, it is obviously not a material level, but there are investments in Brazil as we speak.

And I want to go back to use Dan question and something Robert said to give a little more detail on this Durbin issue. So it is clear that whatever benefit one enjoys from that, is going to bleed out over time and get all of it for some period of time and then half and then a third and then nothing, and that's kind of the way these work. That's in the stagnant environment. I think one would be fooling oneself to think this is it, that you're not going to have other issues, other pressures on interchange and assessment fees that could cause a downward pressure, downward progression on these fees and then one benefit may be picked up from another, so it is an evolving situation.

Your next question is from Brett Huff with Stephens. Please go ahead.

Good afternoon.

Hi, Brett.

Just a couple quick questions. Number one, can you tell us what you guys saw in terms of ticket sizes across geographies, or just give us a sense of how consumers are behaving in this market right now, and how you are seeing it so far in this quarter and maybe into next year?

Happy to, Brett. So in the US, average ticket was down 5%, very consistent with previous quarters. As you well know, though, the bulk of that reduction comes from the mix, the ISOs drive most of that reduction. In the direct business, it would have been closer to 1 or 1.5% average ticket reduction, so quite modest. We actually saw really no change in the Canadian ticket so reasonable starts there, and in the North America region. In Asia Pacific, ticket is actually going up, and ticket is really the wrong metric for that market, given the nature of the travel industry there, so across the board, pretty stable trends in terms of what we expected, and probably implicit in your question as well is the mix of US transactions credit via other and that did not change either, so PIN continues to still be below 10%.

The combination of signature and PIN is on the order of approaching two-thirds of our overall transactions, so and that by the way is very consistent with the last three or four quarters and even beyond that, so not a big sea change in trends overall and what that may or may not mean nor consumer behavior. Again, as I think we've said for the better part of a year and beyond, certainly things are not shocking us in terms of the trend, and they're stable which is good news as we came out of 2008 and 2009 and all of that fun, and we haven't seen a big uptick or a big downturn, but they're stable and that puts us in a reasonable position.

An unrelated question. The corporate was a little higher than I modeled and a little bit higher than the last quarter. Were there any one-timers, deal costs, anything like that in there, and what can we expect from that going forward?

It is a great question. There actually are one-timers, largely what you just said, deal costs, in the new accounting world, we're all expensing our acquisition costs and our deal costs and our advisors and things like that so a lot is Spain, and you may see some of that even trickle into Q4, and I don't think it will be gigantic Q4 from that perspective, but it shouldn't shock you if Q4 looks a little like Q3 in terms of the corporate expense.

We will take the last question from Chris Schulter with William Blair and Company, after which Mr. Garcia will give his closing statement. Please go ahead, sir.

Thanks for squeezing me in here. Just a quick question on the UK. So when you look at the repricing opportunity there, how are you thinking about the balance of taking a lot of price initially versus maybe reserving some of that benefit over the next few years?

I think you'd find, if you had our UK management team here, we're being very measured about the way we think about this, and as Paul said earlier, it is important to note some merchants will go down, some will go up, but we'll be better able to match services and value delivered to the incremental offerings we make, so whether it is a voice authorization for which you charge, and you can help merchant understand what that is, and maybe reduce those over time, out of which we should get terrific relationship benefit, but I think you will find again if we had our UK guys here, one of them whom you have met at the analyst day in the fall, you would find a very measured sober approach to this, that has a focus on what this business can be several years from now and not next quarter.

That's well said, David. I think, Chris, the most important thing for us is this is marathon not a sprint and we're not trying to pump up a quarter or year. This is a long-term commitment to this incredibly important market, we're growing market share and you don't get that by gouging merchants. This is appropriate pricing, truly appropriate pricing, and that will have a positive impact. It is appropriate, and I think our merchants understand that. Okay. Ladies and gentlemen, I wish to thank you for your continued interest in Global Payments and thank you so much for joining us this afternoon.

Ladies and gentlemen, this conference will be available for replay, starting today at 7.00 PM Eastern standard time and ending at midnight on April 14, 2011. If you wish to listen to the replay, please dial 800-642-1687, or international participants can call 706-645-9291. This concludes our conference for today. Thank you for your participation. You may now disconnect.