環匯 (GPN) 2011 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to Global Payments fourth 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). And as a reminder, today's conference will be recorded. At this time, I would like to turn the conference over to your host, Senior Vice President of Investor Relations, Jane Elliott. Please go ahead.

Good afternoon, and welcome to Global Payments fiscal 2011 fourth quarter and year end 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, Senior Executive Vice President 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, 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 July 21, 2011, which may be located under the investor relations area on our website at www.GlobalPaymentsInc.com. Now I'd like to introduce Paul Garcia. Paul?

Thank you, Jane. And thanks, everyone for joining us this afternoon. I am pleased to report that we delivered fiscal 2011 revenue growth of 13% to $1.86 billion, and normalized diluted earnings per share from continuing operations of $2.77, or 9% growth compared to last year. These results reflect the top end of the range of expectations we previously provided. For our fourth quarter, we delivered exceptional financial performance with revenue growth of 22% to $520 million, and normalized diluted EPS from continuing operations of $0.76, or 31% growth. This translates to a total Company operating margin of 17.8%, compared to 17.4% for the same quarter last year.

Now for the highlights of the quarter. I continue to be pleased with our joint venture in Spain, which delivered better-than-expected revenue for the fourth quarter. We have begun investing in sales strategies, like those we successfully employ in the UK, and we have added over 50 sales people. We believe these sales investments, combined with La Caixa's powerful brand and 5,000-plus branch footprint, will drive considerable market expansion and long-term growth.

North America delivered revenue growth of 14% in the quarter, primarily driven by performance in our US ISO channel, substantial growth from our gaming business, and seasonal strength in Greater Giving. Canada also delivered favorable results as we anticipated.

Our international segment produced another quarter of excellent results, with revenue growth of 49% fueled by all regions. These results include the addition of Spain, benefits from our successful February platform migration in the UK, and continued strong growth in Asia. Russia continues to deliver solid growth, and central Europe performed well in the quarter as well.

Finally, I am pleased with the progress we made expanding our global footprint and improving our economies of scale across the Company. As a result, I am delighted to report that our current financial outlook for fiscal 2012 includes the expectation that we will expand total Company operating margins by as much as 30 basis points. Please note that this does not include any impact from Durbin activity, but does include the negative impact of our growing investment in Brazil. David will describe this in more detail in just a moment. I will now turn the call over to David. David?

Thank you, Paul. I plan to briefly review 2011 results and then detail our fiscal 2012 expectations. During the fourth quarter on a year-over-year basis, currency changes benefited revenue and normalized earnings by $12 million $0.04 per share, respectively. North America merchant services revenue grew 14% for the quarter, with US revenue growth of 16%, and US transaction growth of 17%. Canada delivered local currency revenue growth of 2% for the quarter, with transaction growth of 1%. North America normalized operating income, or EBIT dollars, were up 7% for the quarter over prior year.

International revenue increased 49% for the quarter compared to last year, and operating margin increased to 27.6%, compared to 25%. The elevated revenue growth was fueled by our Spain acquisition, while margin improvement reflects the successful UK migration and continued growth in Asia and Russia.

For fiscal 2011 we reported $3.08 of cash earnings per share, compared to $2.80 for growth of 10% over prior year. Cash earnings exclude the impact of acquisition-related amortization, special or nonrecurring charges, and their related tax effects. We reported total cash and cash equivalents of about $1.4 billion at May 31. This balance is not representative of our actual cash available as it results from our quarter ending after a holiday weekend. Our total available cash at the end of the quarter was over $240 million.

Finally for fiscal 2011, we generated free cash flow of $303 million, representing 19% growth over last year. We defined free cash flow as net operating cash flows, excluding the impact of settlement assets and obligations less capital expenditures and distributions to noncontrolling interests. During the year, we spent $99 million on capital expenditures, and we anticipate our full-year fiscal 2012 capital expenditures to be about $85 million to $90 million.

Turning now to our current expectations for fiscal year 2012. For fiscal 2012, we plan to report our financial results on a GAAP basis and on a cash basis. Please refer to schedule 10 in our earnings release for reconciliation of our GAAP and cash outlook for 2012.

From a currency perspective, our outlook for fiscal 2012 assumes that over the course of the year, the US dollar remains about constant against the Canadian dollar. And remains constant or slightly strengthened against the British pound the euro, the Czech koruna and the Russian ruble. We believe the aggregate effect will likely be about neutral to slightly positive to our earnings per share in 2012 compared to 2011. Fluctuations in exchange rates, of course, may cause variances to our outlook.

For the US, we anticipate overall revenue growth to be in the low double-digit range for fiscal 2012. We expect strong performance from the ISO channel, though perhaps a slightly slower overall growth rate, given the sheer size of the channel and solid growth from the rest of the US.

In Canada, we expect local currency revenue to be about flat or grow in the low single-digit range. In total, we expect cash operating margins to be down slightly in North America, driven by ISO growth. However, we again anticipate North American EBIT dollars to grow.

In Europe, we expect revenue growth of over 25% driven by the addition of Spain, solid UK growth, and growth fueled by continued [card] adoption in Russia. We anticipate our Asia-Pacific business will grow in the low to mid teens as we annualize the robust performance the business posted in fiscal 2011. We expect overall international revenue growth in US dollars to approach 25%. We expect international cash margins to expand considerably in 2012, due to ongoing scale benefits across the region. We expect corporate expenses to grow, as we now operate a fully functional service center in the Philippines and increased investments in our technology infrastructure. We expect our global service center to be about breakeven in 2012 and provide savings thereafter.

In terms of the sequence of 2012 quarterly earnings per share, we expect first quarter cash earnings per share to grow over Q1 of 2011, but to be down a bit sequentially compared to Q4 of fiscal 2011. As the strong seasonal performance we posted in Q4 settles down and our tax rate increases a little. We expect strong cash earnings performance in both Q2 and Q4 with less earnings in Q3.

Based on our present outlook and with our current assumptions, we expect total Company cash operating margins to be flat to up as much as 30 basis points, compared with our fiscal 2011 cash operating margin of 20.9%. All of our financial expectations exclude the impact of potential Durbin activities, but include the impact of our increasing investments in Brazil. For fiscal 2012 we expect both GAAP and cash effective tax rates to be about 30%. We expect our diluted share count to approach 82 million shares. Now I will turn the call back over to Paul.

Thank you, David. Based on our current outlook, we are providing full year fiscal 2012 annual revenue expectations of $2.1 billion to $2.15 billion, or 13% to 16% growth over fiscal 2011. We are also providing annual fiscal 2012 cash EPS expectations of $3.35 to $3.43, reflecting 9% to 11% growth over fiscal 2011. We plan to expand cash operating margins by as much as 30 basis points for the total Company for fiscal 2012. All expectations, of course, exclude the impact of the Durbin Amendment.

Finally, I am delighted with our Company's financial and strategic performance and our global market position. I am confident that we will continue to successfully execute our strategies for growth in an ever-changing payments environment. I'll now turn the call over to Jane.

Thanks, Paul. Before we begin question-and-answer session today, I would like ask everyone to limit their questions to one and one follow-up, in order to try to accommodate everyone in the queue. Thank you. Operator, we will now go to questions.

Thank you. Ladies and gentlemen, we will now conduct a question-and-answer session. (Operator Instructions). Our first question comes from Tien-Tsin Huang with JPMorgan.

Great, thanks. Good afternoon. Glad to see you guys moving to cash EPS. My first question, the revenue guidance up 13% to 16%, sounds like margin's flats up 30, but the EPS guidance is only up 9% to 11%. It sounds like, David, something happening below the line. Can you help clarify that?

Yes, I'd be happy to Tien-Tsin. There are probably a number of factors that we could go through in more detail. Below the line, as you might imagine, to speak specifically to your question, the biggest thing that happened is interest income or expense, the net, gets worse as you go into the year. We will have a full-year of the debt associated with the Spain acquisition. That is probably the main thing, and then taxes are about flat. But if you indulge me, I will go through the pieces and see if it all fits together a little bit better. Some of this will be a repeat of prepared comments, but I will walk it all through with a little more color.

You have got your low double-digit growth in the US, and remember, that is a combination of strong double-digit growth in the ISOs. With that comes the concurrent deleterious effect on margins, and I will come back to that a little later when I get to the end of the conversation, but I want to point that out. That's where we start out, a little in the hole on the margins, at the beginning of year. And then really solid growth from the direct card business, more double-digit growth from gaming. So nice performance across the board in the US, we expect.

In Canada we're looking for a stable performance coming off of what we've characterized as a stable Q4 of 2011. So there we are really thinking we return to, essentially, market growth in local currency. That means roughly flat to perhaps low single digit growth in local, and that ought to turn into a little bit of help from FX. Now we take that down to North American income, we do expect then cash EBIT dollars to grow, but cash operating margin to decline, due to the effect of the ISO growth and our increasing investment in Brazil.

So, if we park that for a moment and move to international, in the UK, we continue to expect core card business to grow nicely. We've got a little help from repricings related to the back-end migration. Part of the growth and part of why you're not seeing quite as much turn itself into the earnings line is a lot of the growth you will see in international and particularly in our UK business is coming from the international acquiring business, which we're looking -- from which we're looking for a big year. And as you know, that operates at a substantially lower margin than the rest of the businesses over there.

All in, we think it's strong local currency growth in the UK, but a fair amount of that growth again comes at a lower margin from that international inquiring. We do expect central Europe to return to growth in 2012, not material growth but turning positive, which is a nice change in trend, with Russia continuing its pattern of solid growth, tied to increasing card payment adoption and acceptance. Now of course, Spain is the key to the revenue growth, and you know where we jumped off with Spain, which was, for this year, ending 2011, fairly modest cash earnings dilutive to GAAP and normalized on the order of approaching $30 million US or so of revenue for the year. We obviously expect that revenue to increase substantially, as we, full year on one side and half year on the other.

That said, with Spain, what we are doing is driving growth, but also investing heavily in the sales force. So you have that dynamic that I will ask you to recall as well. So, that outside growth that will fuel that over 25% growth in Europe we talked about. Maybe get a little bit of currency help as well. But not all of those pieces fuel an awful lot of earnings growth for obvious reasons. Spain's (inaudible) what we can do there long-term is an example in the international acquiring business.

In Asia, we have the dynamic currency convergence products fully rolled out. As such, you'll see growth slow a bit. We've talked about that major customer before where we've got the bulk of their introductory product growth really in 2011, but we get solid growth overall in Asia and continuing build on the margin line there. So then, obviously, total international then is set to approach 25%, and it's expansion there, despite the moving parts I just described that really fueled the total Company expansion.

It's really important though for me to reiterate we do expect corporate expenses to grow. We'll see the impact of the fully operational service center, but also increased investments in our technology infrastructure for data center and network infrastructure expansion and additional compliance. So you pull all that together, and you aggregate all those color to the total global payments level. You've got the North America revenue growth low double-digits, the EBIT dollar growth there, even including the negative impact of Brazil. Still the margin challenge created by the success of the ISO channel.

Internationally you have got the high revenue growth, significant market expansion, but also a series of sales investments in places like Spain. And then you see the investments in our corporate segment. Then you'll see again as I said before, the net interest expense increases. So we have a full-year of the impact of Spain, tax rates about flat year-over-year.

Then there's one other below the line item that's really important to keep in mind here, which is the share count. I don't believe this is in very many models, but we expect shares to increase to approaching 82 million shares with stock grants and the normal, routine things we do to operate the business. That will reduce incremental EPS in your model, frankly, quite substantially at the high end of the range. Those are the two -- the two below the line answers are share count and interest to your direct question. The end-result of that is the earnings range, and the revenue range we discussed.

If we pull them that back to the margin expectation, citation the flat to approach a 30%. Remember, we start off the year with substantial ISO growth that drives margins down, that's the starting point, before we ever start with margin expansion around the world.

Really, the way we've thought about this 2012 outlook, so the way I think about, is we've created a plan here that I think does a nice job of balancing the short and the long-term. By that I mean we believe we have the business assets executing at a level that allows us to expand margins in 2012, but we are not solely running this business for 2012 results. We're trying to balance delivering good progress in 2012, while also maintaining our focus on the long-term.

To that end, we are investing additional data center technology and network infrastructure capabilities that I described, that we expect to support this business and drive the business for the long-term. We're investing in new product, including the ability to participate in the various mobile and alternative payment initiatives we all expect to see come to fruition over the next few years. We're investing in sales force capabilities in Spain and around the globe, increasing our investment in Brazil, all of which are incorporated into this outlook. They may, these investments, provide head winds to maximizing margin expansion 2012, but we certainly believe these are prudent investments in sustaining our competitive advantage and increasing our leadership position in the markets we serve around the world. Sorry for the long-winded -- I thought I'd go through the whole thing from top to bottom and lay it all out there.

It's good to hear. I wish I could mix it all into the model as easily.

That is what we do later.

That gives me a framework to work with. My follow-up, and I will jump off. I think it makes a ton of sense to not talk about Durbin, but obviously that's a big caveat to everything you just talked about. Maybe if we can distill it down. Is it safe to say that it's still neutral to positive impact even assuming the cost you have to bear to get compliant with the new rules?

Tien-Tsin, this is Paul Garcia. I think it's safe to say that it is positive period. This is going to be a net positive for the Company. Now as you said, and we appreciate that, we have not included it. The truth of the matter is, Durbin is, the whole situation is nascent. It hasn't developed yet. Although we clearly have our own internal strategy, until all of the pieces play out with all of those players, we can't fully comment.

Even then, Tien-Tsin, to be honest, it's October 1 it's affected. Even then, I don't think it's going to be in anyone's best interest for us to parse all the components. But I will tell you we will provide some appropriate color as the year progresses, and once again, it's absolutely a net positive for us.

Great, I appreciate that. I think that's the right call. Thanks so much.

Great. Thank you, Tien-Tsin.

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

Thanks, guys. A first quick question on the European segment. When we look at the revenue increase in Europe, I understand there's now three months of La Caixa versus two. But the increase was pretty substantial for that one month extra, which I'm assuming is mostly going to be the UK price increase, which you alluded to earlier, along with Russia I guess. I would have imagined that the price increase is almost entirely going to pass through to the margin. So, can you help us understand the specific puts and takes on that area as to why the margin wouldn't expand more internationally. I understand there is some investments in La Caixa, but how substantial is that?

Darrin, I will walk you through the pieces because the geography to which you've pointed is actually one where everything moved forward in Q4 on a sequential basis, particularly on the revenue line. Not all of it translated necessarily into earnings. So, you put your finger on the first item, which is a full quarter of Spain. And you've already modeled a view of that, as we said before, modestly cash accretive. Then on the normalized to GAAP side, not so much.

You also had a strong fourth quarter, sequentially, in central Europe, a couple of nice one-time service and software implementations there, a strong quarter in Russia, and a very strong international acquiring quarter in our UK business. And remember, international acquiring is that piece of the business that operates at a lower margin. And then you lay the impact of the back-end migration and some of the recast of the pricing on top of that.

So the pieces that contributed really were not -- the majority of this is not the price at all. In fact, it is a minority item on the list. It's a nice piece that aids in the sequential increase in earnings per share when you watch things tick up over the quarter. But it's just one piece of a puzzle, that when you take the total Company's earnings, progress in Canada, progress in the US, progress in Europe etc., those pieces all come together.

Optically it is an excellent question in that you'd think you would see a little bit more drop. When you break it down to the product lines and geographies themselves, the pieces don't come together in quite that way.

All right, thanks. As a quick follow-up, it seems like you've said -- as a company wide, you've been set up for a year --Paul you can help me out with this-- set up for a year on the 2012 front with some benefit from La Caixa, benefits from this price change in the UK, as well as potential benefit at least somewhat benefit from Durbin. It seems like at least from that perspective, those perspectives, you'll have decent growth rates, at least top line for the year. I would be curious to know what you're planning on doing. What strategic rationale do you have for the next year to help position yourself for continued type of growth in 2013 and beyond?

Darrin, that's a great question. That is part of David's answer for why aren't we maximizing margins in fiscal 2012. What you heard him say is that if we didn't make the investments we were making, if we didn't invest in infrastructure, if we didn't invest in Spain, if we didn't invest in Brazil, if we didn't do the things that, by the way we are not breaking out, we are just sucking that up as part of our guidance. That if we -- and of course have the reality of the ISO growth. If we didn't do all of those things, I think you would see much more aggressive margin growth. But those are investments that will allow us to continue to expand margins in the future.

Also we are -- we do have plans, they are proceeding, to leverage our infrastructure systemically, orr entire systems infrastructure, as well as the entire global service center in Manila. Now this year, we are going to exit that with not being a headwind, it becomes a reasonable tailwind. I think this is pretty well set up. Now once again, the only thing I would disagree with, it doesn't include Durbin. Durbin is falls to the bottom line thing. That's to be determined, what happens with that.

Okay, thanks, guys.

You're welcome.

Our next question today comes from Jason Kupferberg with Jefferies & Co. Please go ahead.

Good afternoon, guys. I just wanted to dig into the margins a little bit more, if I could. Zero to 30 on a cash basis, ex- Durbin, I get that. How about understand on a GAAP basis how margins are going to trend year-over-year, what would be the range?

The margin ranges for GAAP -- give me one second here.

Thanks.

Sure.

Jason do you have a follow-up while David is doing that?

Jason you will find them picking up a little bit as well, not wildly different from the type of numbers we're talking about for cash. So on the order of that 30 bits, it could be a little bit less. Some of that is going to depend on the purchase accounting and amortization, and what FX does there. And that creates the delta, as you know. Generally, they track each other fairly well, at all levels as we look at the rates or the comparative rates. Obviously, the growth rate is higher in GAAP give that as we head into 2012 we no longer have the various carve outs we were dealing with in 2011.

Okay but the GAAP margin outlook there also excludes Durbin just because we don't know?

Yes. Everything excludes --.

A follow-up, Paul, just to get your opinion on more of an industry question, post-Durbin. And if we think about some of the anti-exclusivity provisions of the Durbin Amendment, I would love to get your thoughts from the issuers perspective how you think that they might comply there, and then how it might affect you guys. What I mean by that is, do you think that they will go to exclusive debit cards and rip off the existing PIN debit network and replace it with an unaffiliated PIN debit network? Or will they simply add an unaffiliated PIN debit network alongside the existing affiliated one to be compliant, if you catch my drift there?

I do. Jason, as I commented earlier, it is nascent, so I think we are waiting to see just as you are. I suspect though, that we haven't heard the last from the card issuing community, including how many signature debit cards continue to be issued and continue to be used by consumers. We don't know that; that's another piece of the equation.

I think is a lot to be developed. I think there's some opportunities for the issuers here. You pointed to one of them. I think there is a requirement; that is the latter part of your statement, that they are going to have to have dual bugs available. Therein lies somewhat of an opportunity for the merchant acquirers. We have some opportunities y to do something with that, not that I can comment a lot on that. I think you follow that drift.

So I think it's going to be a very interesting year. By the way, this is an the last thing we are going to see here. Durbin, I don't think, hopefully, will see much more federal activity, at the federal level. I think that we will see some non-legislative movements in all of these fees. I think that's a continuing trend. That is, once again, a nice tail wind for all of us.

Okay, thanks for the comments guys.

You're welcome.

Our next question today comes from Sanjay Sakhrani from Keefe, Bruyette & Woods. Please go ahead.

I was just wondering, I know a lot of questions were asked on the operating margin, but I was just wondering in the North American segment, how low could those margins go? Was all of the deterioration this quarter specific to the ISO mix?

And then second question was on HSBC. Obviously they're a good partner of yours, and they've also been talking about some strategy changes. I just wondered how that affects you guys. Thank you.

Sure, this is David. I'm not too sure how to tell you how far margins can go. If the bulk of the growth in our US business continues to be ISO driven, and that means by definition the bulk of the growth in our North America business is ISO, they can continue to proceed down. I think what you're hearing us say is we're putting together the assets worldwide to begin to be able to bend that trend and shape that trend a little differently as head into 2012. We made a little progress on that in 2011, and we're going to advance the ball, we think, in 2012.

They can continue to go down. I don't know how to answer the how far they can go, but I think I'm answering your question by saying they can continue down given the revenue mix and the channel mix we have right now in North America. Then part two of the question?

Before we get to part two, I'm going to ask Jeff Sloan to answer the HSBC question, Sanjay. But, I would add to what David said two things. To Darrin's earlier question about how do we keep this momentum going, and what are the -- one of the drivers for margin expansion and growth in the future? It's a interesting footnote. We just had our 10th anniversary. We are adding more revenue in fiscal 2012 than the entire Company produced prior to our spend, which is pretty extraordinary. Where that revenue, in large measure, is coming from is high margin, new markets, international. When David talked about international, that is a piece of the UK. That is what we call the big super large customers. The overall margins from these businesses are just terrific. And we're getting terrific growth from all the international markets, and we intend to continue to capitalize that and expand it. We are getting great growth and reasonable margins from our US business too. Ditto with Canada.

The ISO headwind, and that is the way that accounting works. We also have talked about providing some more color on as much of that as we can going forward and there are competitive reasons that we are afforded to do so. So we continue to struggle with that. Jeff would you answer HSBC?

Sure. Sanjay, it is Jeff Sloan. I'd say a few things about your question on HSBC. First, they're a terrific partner of ours, not just here in the United States, but really around the world. So it really is very much a multinational relationship not dependent on any one geography. And we're very pleased with our partnership.

Second as you know, and I think David and Paul just touched on this, we're really diversified by channel, by distribution channel here in the United States. We spent a lot of time a second ago talking about the ISO channel, but we are not overly dependent on any one channel here in the in the US. And that includes our variety of bank partners. So, as we sit here today, we are not troubled by anything that has been out in the press about anyone else's strategy, as far as we can tell sitting here. Obviously, that is something that is to be played out over time. We're very pleased with how they're doing. And we'll leave it at that.

I appreciate it. Thank you.

Our next question comes from Julio Quinteros from Goldman Sachs. Please go ahead.

Hello, guys. Good to hear everybody's voices again.

Welcome back.

I wasn't too far away; I was just on other calls. Just to go back to -- and this is more for my own education, Paul. I have heard you say a few times that Durbin is good for you, but I haven't actually heard you say why. Maybe guys talked about this in the past. Can you walk through what those one or two thoughts are on why you guys feel this is good for you guys?

Yes, and Julio, this is a bit of a slippery slope. Here's the bottom line. The Durbin Amendment, effective October 1 will -- as the Fed defined it, even with the adjustments, will yield a pretty significant reduction, particularly in [sig] debit, with a higher average ticket. The way, the nature of how this is basis points in cents per transaction, so it's a pretty big reduction. Now, with the great majority of our merchants, clearly our large merchants in terms of volume, we have what's called interchange and assessment. So that's a past view. They get the full benefit of it.

The smaller merchants, you have discretion whether you give that all to them or not. The competitive nature of this business is such, and we've had one competitor that was very public about giving every bit of it away to every single merchant regardless of size. So you consider the reality of the competitive environment, and you make decisions, but every basis point you keep is a basis point of profit. And you of course temper that with you don't want to lose that merchant. You want to offer a fair, competitive deal.

So that's the strategy we have in place. It's not a strategy, Julio, that we would be well-served discussing in a public environment or any environment except internal. And just be assured that there will be opportunities for us to keep some of that appropriately.

The thought that a very large merchant and a very small merchant are treated exactly the same is not how it works in a free enterprise system. So we recognize that, but it also does not mean that if you treat anybody inappropriately or unfairly they vote with their feet. And our attrition numbers are something we are proud of, meaning it's very low.

So the very windy answer is that Durbin is going to be beneficial for us for some pricing opportunities. It's also beneficial for us even if we gave 100% of it back in that it takes a little pressure off of pricing renegotiations. You're having a very happy discussion, at any level, whether you give some of it back or all of it back. You're having a very happy discussion with somebody saying, "Guess what? Your rate is going down." In some cases, materially. Your merchant of any size, you're going to feel good about that, and you're going to feel good about us about that. So that's pretty much the sum.

That makes a lot of sense. My quick follow-up. To the extent that you guys can talk about any type of normalized basis points, margin expansion after fiscal 2012, so the flat to 30 basis points, heard that for fiscal 2012. I've heard everything in terms of what you guys are doing there. That makes a lot of sense. How do we think about this beyond fiscal 2012 in terms of sustainable margin expansion trajectory. Obviously there's always the balance of investments that need to be made. Do you guys foresee that flat to 30 as the range, or is there a different way to think about what the potential beyond margin expansion could be beyond fiscal 2012?

Julio, this is David. I think we are going to focus on fiscal 2012 for this call, and we'll come back to fiscal 2013 and beyond. Do know that our comments earlier were directed -- we are trying to run the business for the long term as well as showing you how the essence of the business comes together in the shorter term. But we are going to stick to 2012 on this call.

Julio, I will add one thing. We clearly understand it's our job to drive margin expansion. We get that. So part of the beauty of the business is it does have leverage opportunities.

Okay, it was worth a shot. Thank you.

Our next question comes from Glenn Fodor with Morgan Stanley. Please go ahead.

Hi everyone. Thanks for taking my question. Wondering if you could update us on the competitive environment with regard to pricing and retention. Were there any notable wins or losses of partners in the quarter, and have yields changed on your retained business at all?

Glenn, it's David. At a metrics level, there is no change in trajectory in our key metrics, and particularly focused on retention. No change at all in any of our geographies, and I can say that across the globe. In terms of key wins, no single key win is necessarily material to us, so we really don't have a lot to talk about there. You won't hear us list those off at any given time. I'm sure Paul you want to add some color to that.

I would say, Glenn, that we would love to give you a list of those. Actually, we had some pretty significant wins. David's correct. It's not material, especially when we are talking about the numbers we are now producing. But we had a number of nice new signings literally in every geography. A major hotel group throughout Asia and Europe, a pretty nice merchant here in the US. Canada we did very nicely. We have a number of things we could talk about. We could fill up the call with those. I'm happy to say now, we're at a size --. Directionally, I understand the spirit of your question. The question is are we winning? We're winning deals, and we're winning them in every geography. And we are very pleased with that.

That's good to hear. I was wondering if you could shed a little color on any efforts you have underway for exploring growth channels in the US outside of acquisitions. Can we envision any actions taking place that diversify the US business, perhaps a little bit more away from the ISO business, water that down a bit?

Hi Glenn. It's Jeff. I will answer your question. Primarily we're organized by vertical here in the United States. I view our partnerships, or ISOs as a key vertical for us. But we think about go to market in terms of what verticals are we in and what verticals do we want to get bigger in. We are very proud of our gaming vertical, which David and Paul talked about in the press release. We are proud of our Greater Giving vertical, which we view as partly [VAR] in terms of what they do.

I would look additional expansion in those markets in particular, Glenn, on an organic basis with more investment in the gaming business, more investment in things like Greater Giving. We have got a differentiated VAR proposition in that business, for example. We have other large verticals that we currently have at the universally level.

Like here in the United States at the community bank level, and I would look for us to grow bigger in all those areas. We primarily manage it by those verticals, and that's how we measure quota and that's how we measure productivity. So I think it's less about verticals that we are not in and finding new ones, and more about getting much bigger in the verticals that we are already in that we're pleased with.

On the community bank level, is this looking at partnerships like you have with Comerica?

Yes, I think we are very flexible. Specifically, Glenn, the way we do it is, we are very open with folks about how they want to partner with us. One is like Comerica, which is really a formal JV. We also deals where they're just referrals. And we have deals where they're really just revenue shares. But we continue to expand our community banking base of business, just to use that as an example. And we're much higher today in that business in terms of number referring branches than we were just a year ago. I think our hallmark there is flexibility. I think that's something we're pretty good at. All right, thank you appreciate it.

Our next question comes from Jim Kissane with Banc of America. Please go ahead.

Thanks. Paul can you give us a sense of your appetite for stock buy backs, and maybe combined with that the pipeline for M&A, and how you balance the two here given where the stock is?

Jim, we -- our first and primary use for our dollars is to make acquisitions. And we are very focused on doing those all over the world. We hope to make progress in that regard every day. But stock buy backs from time to time make sense, and we have those discussions with our Board. And we executed a successful one not too long ago. So, that is always out there too. I would be misleading you if I told you to expect a huge one. I think it's more in line with the dilution of options etc. That our general thinking. First and foremost acquisitions, secondly tidy up some of that. David, do you care to add to that?

I will. I think that's exactly right just a little more color, Jim. You will see us routinely buying back stock. You will see us balancing that based on the priorities Paul described. The first is being able to expand our markets on a worldwide basis by deploying the capital for growth. In the absence of that, as we build cash balances, and you'll recall Jim, that the majority of our cash balances are still abroad. So we won't be repatriating cash in order to initiate a buy-back. We balance the growth opportunities against the building balances, and frankly, eyeball the stock price and think about returns. Then we will come back to you on that.

But for the moment, our capital is set to be deployed for the growth opportunities. We think that's the right priority for the Company as it stands right now. We will be routinely back in the market as time goes on.

Jim, it's Jeff. On the overall pipeline, I would say that to date in 2011, we have been very pleased with the amount of deal inflow that we have been seeing. There's been a fair amount of volume that we've reviewed. I would say in comparison to prior periods, that has been probably equally distributed around the world, including here in the United States, and including elsewhere. I believe that we continue to be in a very good position to execute that strategy. As I think I said a couple of quarters ago, I do believe that we're the partner of choice, and having looked at a number of deals in the last number of months, I continue to believe that.

That's great. You're not carving it out anymore, but it sounds like the Manila start-up costs continue, but probably in a more moderate pace. Can you maybe quantify what's left this year? Is it possible to bracket what the investment in Brazil is for this year? Thanks.

Sure, Jim. I can add a little more color to each of those two. You are thinking about the global service center investment in exactly the right way. Where we are with that as we enter the year is it's not at full capacity, but it is fully operational. As we add more resources to that center over the rest of the year, we will exit 2012 with, we think, fully productive and beginning to deliver savings for the Company as we head into 2013.

What that means in financial terms is that for 2012, there's a piece of what I would call, and hopefully this term resonates, unallocated overhead, that's leftover for the additional capacity. The additional seats and cubes and things like that, awaiting the next addition of employees over there. That is a few pennies for this year.

Frankly, the Brazil investment is right alongside it. A few pennies incremental this year, and those two create a little bit of a headwind, but to your point we're not carving out it's baked into the numbers on both sides in terms of earnings as well as whatever it is doing to margins. Hopefully, that helps size it a little bit for your modelling.

That's great. Thanks.

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

You haven't talked too much about Canada today. I know it's been a much more stable market the last few quarters then kind to that. I'm wondering on the margin side even though you expect flat to slight growth. Is it still a very competitive pricing market, and do you expect margins to continue to trickle down a bit, or is that also stable, just like the revenue?

David, it's Jeff. I'll start with the market dynamic and the revenue. And David, I think, will comment on the margin characteristics in Canada. I think we ended up the fourth quarter exactly where we wanted to be. And what we've said previously, and David addressed in his comments, with a stable Canada, and a Canada going in the right direction, not just in the fourth quarter, but also for fiscal 2012 in terms of expectations which David laid out. I would say it's a very Intensely competitive market; that has not changed most recently.

But I do think our ability to be very competitive and productive in that market that adds to revenue is something that we are very pleased with and is very consistent with what our expectations are heading into the fourth quarter, but also into fiscal 2012. What I would say from our perspective is we are where we want to be in terms of the goals we have laid out in the fourth quarter in 2012 with Canada. We monitor it very closely in the event that anything changes. But we're pleased to be where we are from a revenue and a pricing point of view there.

David, it's David. If you build on that, the reality of the market is such that with that level of competition and a little bit of introduction of ISOs at the margin that we've discussed previously, by definition, the very high contribution margins we see there, which as you know are before the full operational costs we service out of the US for that business, will be taken down. What Jeff has described as the execution levels we're looking for to be able manage that take down in the greater context of Global Payments, and we think we are in that situation right now.

As David described in his prepared remarks, we have been able to add EBIT dollars on a consolidated North American basis, not withstanding the factors that David just alluded to. So I think we are very happy with where we are ending fiscal 2011, relative to where we were earlier in the year.

Great, thanks. My follow-up, the UK benefits from the platform conversion there. Is that something like the Canadian pricing a few years ago, where what the ISOs described around Durbin as something that could be a big benefit now, but 12 months to 18 months out, it might subside as it becomes more competitive. Is the UK platform benefits, is that similar to that, that 12 months to 18 months out, some of that benefit gets competed away, or is that something you feel pretty stable for a long time?

Dave, I would think more of the latter than the former. It's different, it's quite different from what we saw in Canada. The answer to the question, to be clear, is this was more an adjustment not a pricing increase. We were guessing on interchange levels; we were estimating payments -- estimating charges. This is a sophisticated system that in many cases actually does produce a lower charge for a merchant on a certain transaction. We think these are very sticky. We of course watch that very carefully.

Now, is the business competitive highly? It is a highly competitive market. I would say just as action itself, for Canada we were a little more aggressive. That did have an impact on how long one could enjoy that. That is not the case. It was commented on earlier, you see UK carrying through. It does. The UK benefit, we will continue to enjoy, that we believe, for fiscal 2012.

Great thanks guys.

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

Good afternoon. The two questions I have, the first one on Brazil and then a follow-up. I'm curious as you move down the road with Brazil now, how would you gauge your thoughts about the trajectory of investments? Are you putting more into it now than you thought when you first decided to go to Novo? Do you think there's a likelihood for all the right reasons? That you might even get more aggressive than you currently think? Just a feel for how that's moving?

Tim, this is David. Right now, the investments on a run rate basis aren't materially different from what we've described to you. They are incrementing up because we are working on multiple themes at once. In other words, we're bringing platforms forward, product forward as well. But they are not materially different from the trajectory. What we are talking about is annualizing the building run rate we've had over the course of fiscal 2011, and that turning into the negative effect I described in Jim Kissane's question earlier.

That is all pointing towards being in market and successfully matching the delivery of a platform to having some referral partners and some sponsors in the market to help us be able to execute in the market. To the extent we see initial access, we absolutely will move on that. And especially accelerate investment, but that would be matched to the beginning of revenue delivery and real transactions and real volume. But again, gated by the idea, and you said it in your question. I'm just going to say it for the broader audience. It is Greenfield. We're starting with transaction number one, when that transaction comes through.

So, we watch it very closely. We measure it very closely. To be perfectly honest, we can throttle it, and that's how we will manage it as we go forward.

My follow-up touches on Durbin a bit. Given Durbin and issues around routing rules and arguably two-tiered structures and throwing in the rapidly moving mobile payment environment. Paul, as you look out at how dynamic payments maybe has once become here, and you think about revenue opportunities per transaction for Global Payments, whether it is new products and services, just being able to -- I don't want to say confuse people or take advantage of it -- but it creates windows to mark things up and sell new products. How do you think about your revenue per transaction on a go-forward basis because of payments getting more complicated as then maybe what we've had to deal with in the last couple of years? Does it open windows for you to create new products and services to maybe get more rev per transaction?

Yes. I think, Time, the long and short answer is yes. The barest case is, well it becomes more commoditized. I think exactly the opposite. I think precisely what you just said. I think that our job is to deliver whatever the consumer wants to our millions of merchants worldwide. Those relationships with the merchants are key. Our ability to provide those services are key. And there is real value in bringing all of these parties together, these evolving parties, from PayPal to mobile payments, to Isis, to all the things you mentioned, and all the things we haven't seen with mobile payments around the world. That is our value proposition, and I am encouraged by the future opportunity to bring real value and make real money.

Perfect, thank you very much.

Thank you.

Our next question comes from the line of Tom McCrohan from Janney. Please go ahead.

Thanks for squeezing me in, guys. I had a quick question. For the new IRS reporting requirements, can you touch on that? How prepared are you folks as far as complying with those new regulations? And are those costs baked into your guidance? Is this something that could be called out next year as normalized? Thanks.

Hi Tom, it's Jeff Sloan. I will start with the operational side of what you asked and the customer facing side. And I think David will add a point of view on the cost. As you know, the IRS rules go into effect on January 1 of 2012. This year has been a data collection exercise to make sure that we have the ability to do (inaudible) matching. We have had that ongoing throughout the course of the year to clean up our systems, cleanup our customers data and make sure it matches with the pins in the IRS database. I would say we are completely and fully prepared for the effective date of January 1 of 2012. That has been an ongoing process here for some time in particular, including calendar of 2011. So as an operational matter, we are very good about where we are.

Financially, Tom, the costs are already baked into this. I mentioned earlier in answer to one of the questions, it might have been tinges early, with technology investments and network infrastructure and data centers and compliance. This is a piece of that compliance. So there are more costs to come. As Jeff said, we're feeling very good about where we are. We're ready. We've got more costs. We're coding things, testing things. We are ready, but the costs are fully baked. Thank you.

Our next question comes from Brett Huff from Stephens Inc. Please go ahead.

Good afternoon, Paul, David, Jeff. A little bit bigger picture question. I have been pleasantly surprised by the data we have seen from the Fed in terms of balances on credit cards and also from competitors, studies that have come out. Both the volumes on credit cards and even debit cards, as well as the transactions continue to tick up nicely. But I'm most curious about credit. There's theories out there, one is that the top half of the spenders are not feeling the recession as much, and are therefore getting more spendy. The other theory is that the folks who are living more paycheck to paycheck are now turning to credit cards as a financing vehicle again. What do you guys see, and does that continue from a cyclical trend?

Brett, I am going to give you a worldwide perspective in all the markets we are in. We like what we're seeing. We're seeing -- even when the economy was looking pretty dismal, we were seeing some pretty reasonable usage and volume numbers and average transaction numbers. So -- but we are seeing that actually improve a little bit. Not that it went down terribly, but it's improving a little bit. I share your optimism, and based on the data we have seen, its -- is by the way there's a major thunderstorm here in Atlanta if you just heard -- that wasn't David falling over. Anyway.

We too see what you see. We are pleased with the data. David would you care to add anything to that?

Our core metrics have remained stable for a while. We haven't seen a bend to trend. But the developing, surrounding metrics of the industry at large, Brett, I would concur with your opinion and your question as well. So, hence our view that things are rolling along and staying in a fairly stable place, maybe with the opportunity to improve over some period of time.

Great and the follow-up is, we haven't talked -- your growth was great, and it sounds like it's going to be great next year. In that mix isn't a whole lot of card not present. I wondered, it was a little bit of a tangent similar to the mobile question before. But how do you guys see that fitting into your strategy? I know you've talked about liking that portfolio if you could find it? Is that one of those verticals that you would be willing to get bigger in I guess?

Yes. The answer is absolutely. The ironic thing is we are actually pretty big internationally. We have less exposure in North America to it. We are focusing -- and one of the reasons Mr. Sloan is sitting next to me is to do exactly that. Jeff, do you care to be the final word here, before we wrap up?

We actually have quite a few CMP-related customers, many in the retail and hotel areas, as Paul mentioned. I would say here in the United States, Greater Giving, for example, through its e-philanthropy. Some of our large retailers, where we do multi channel distribution, both the physical stores, as well as on the Internet are good examples of folks we have relationships with in the CMP world. Paul is right, one of my mandates and responsibilities here is to increase that, for there shear reason that is growing faster than the general market. So it's something we do now. We feel we are good at doing, but we need to get bigger in it. And that is one of our imperatives, as Paul described.

Both organically and in organically.

Thanks and I appreciate your time.

Ladies and gentlemen, we have reached the allotted time for questions and answers. I will now turn the conference back over to Mr. Garcia for closing remarks.

Thank you all for joining us on today's call. We appreciate your support as ever of Global Payments.

Ladies and gentlemen, this conference will be available for replay starting today at 7.00 PM Eastern standard time and ending at midnight on August 5, 2011. The conference ID number for today's call is 76889256. Again the conference ID number is 76889256. If you wish listen to the replay, please dial 1- 800-642-1687, or international participants can dial 1-706-645-9291. This concludes our conference call for today. Thank you for participation. You may now disconnect.