環匯 (GPN) 2012 Q2 法說會逐字稿

Welcome to the Global Payments second-quarter fiscal 2012 earnings conference call. At this time all participants are in a listen-only mode. Later we will open the lines for questions and answers. (Operator Instructions). As a reminder, today's conference will be recorded. At this time, I would like to turn the conference over to your host, Senior Vice President of Strategic Planning and Investor Relations, Jane Elliott, please go ahead.

Thanks, good afternoon and welcome to Global Payments' fiscal 2012 second-quarter conference call. Our call today is scheduled for one hour. Joining me on the call are Paul Garcia, Chairman and CEO; Jeff Sloan, President; and David Mangum, Senior Executive Vice President and CFO.

Before we begin, I'd 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 cash earnings which are not in accordance with GAAP. Management believes these results more clearly reflect comparative operating performance. For a full reconciliation of cash earnings to GAAP results in accordance with Regulation G, please see our press release furnished as an exhibit to our Form 8-K dated January 5, 2012 which may be located under the Investor Relations area on our website at www.GlobalPaymentsInc.com. Now I'd like introduce Paul Garcia. Paul?

Thank you Jane. And happy new year everyone and thanks so much for joining us this afternoon.

I'm pleased to report that we are executing well across all of our businesses as evidenced by our solid results for the quarter. Second-quarter fiscal 2012 revenue grew 20% to $531 million. Cash operating income grew 14% to $109 million, and cash earnings per share grew 13% to $0.86 for the quarter.

As you are aware, the debit interchange legislation took effect October 1, reducing interchange rates on most domestic debit transactions. Our strategy is to pass along a significant share of this benefit to our customers. Consequently, this legislation resulted in less than $0.02 of cash earnings per share for the quarter. However, we added nearly $15 million in revenue primarily from our ISO channel. While it is still early, we consider even these results to be transitory due to the strong competition in the marketplace.

I am pleased to announce three targeted acquisitions which will expand our international and eCommerce presence. First, we increased our footprint in Russia by acquiring a merchant business with more than 6,000 merchants from Alfa-Bank. Alfa-Bank is the largest private Russian bank by total assets and operates a network of over 300 branches in the market. This expands our existing referral network and overall sales distribution by adding over 20 new regions within the Russian federation.

Secondly, we acquired HSBC's merchant business in Malta, consisting of nearly 4,000 merchants. We believe solid card usage trends will continue in Malta primarily driven by its tourism sector and the government's continued focus on increasing card-based payments. Most importantly this transaction demonstrates the ongoing strength and expanding nature of our global relationship with HSBC.

Finally, I'm pleased to announce that we have agreed to acquire the US merchant portfolio of CyberSource from Visa. This transaction will broaden our US eCommerce presence by adding over 9,000 merchants, and it will expand our eCommerce strategy by augmenting our existing US distribution channels. We expect this to close during our third fiscal quarter.

Now, second quarter highlights. North America delivered revenue growth of 16% in the quarter driven by our US ISO channel, strong growth from our gaming business and solid performance from our direct channels. Canada continues to perform as expected delivering 4% local currency revenue growth with transaction growth of 5%.

Our international segment produced another quarter of solid results with revenue growth of 30% fuelled by all regions across Europe. These results include the addition of Spain, which continues to perform well, coupled with solid performance across Europe. Asia's revenue growth was flat for the quarter primarily due to the strong growth in last year's quarter related to an enormously successful product launch by one of our merchants. I will now turn the call over to David. David?

Thank you, Paul. We are pleased with our second quarter performance and our outlook in this difficult macroeconomic environment.

North America merchant services revenue growth of 16% was about what we anticipated, fueled by US transaction growth of 13% growth in gaming and continued stable performance in Canada. As a result North America cash operating income or EBIT dollars were up 5% for the quarter over prior year. While the results of debit interchange legislation added nearly $15 million of revenue, once again, the majority of this came through our ISO channel. The net benefit to cash earnings per share approached $0.02 for the quarter and the net unfavorable effect on total Company operating margin was just under 15 basis points.

Our international segment delivered solid results. International cash operating margin increased to 35.5% compared to 34.5% in the prior year.

The aggregate purchase price for the three acquisitions will be about $45 million. We expect these deals to add about $15 million of revenue for the remainder of fiscal 2012. We expect these transactions to be about neutral to slightly dilutive to fiscal 2012 cash earnings per share and dilutive to GAAP earnings per share primarily due to integration costs. In addition, we expect these deals to reduce total Company cash operating margin by about 20 basis points in 2012, primarily due to our accounting for CyberSource as an ISO going forward.

For the quarter, we generated free cash flow of $79 million representing 24% growth over last year. 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 $23 million on capital expenditures. Incremental capital expenditures coming from the three acquisitions will take our expected full-year fiscal capital expenditures to about $95 million to $105 million.

Our second quarter effective tax rate, whether you track cash or GAAP earnings was down a bit as we anticipated coming in at about 29%. We continue to expect our effective tax rate to be about 30% for fiscal 2012. Our second-quarter GAAP and cash tax rates as calculated from the face of our income statement, were each a little less than 28%, again, as anticipated. We expect our full-year tax rates based on the face of the income statement calculations to be about 29%.

During the second quarter on a year-over-year basis, currency changes slightly benefited each of GAAP and cash revenue and earnings by about $2 million and $0.01 per share. We continue to believe the aggregate effect of currency will likely be about neutral to slightly positive to our earnings per share for fiscal 2012 compared to 2011, due to the general strengthening of the US dollar to date and our outlook for the rest of the year. Fluctuations in exchange rates, in particular rapid further strengthening of the US dollar, could cause variances to our outlook.

Before acquisitions and without debit interchange legislation, our core expectations for revenue and earnings per share and operating margin remain unchanged including margin expansion by as much as 50 basis points for the year.

We continue to believe that any benefits resulting from the debit legislation are uncertain and transitory in nature due to our competitive marketplace. Additionally, we plan to use a small portion of this temporary income to make targeted investments in key vertical markets, sales and infrastructure, to drive long-term growth. Based on our current assumptions and net of investments to be made, we expect the debit legislation to add approximately $40 million of revenue and about $0.04 of cash and GAAP earnings per share and to unfavorably affect cash operating margin by about 20 basis points in fiscal 2012.

Once again, we expect the three acquisitions to add about $15 million of revenue, be neutral to slightly dilutive to our cash earnings per share and to reduce our cash operating margin by an additional 20 basis points for the remainder of the year.

In total then for fiscal 2012 we now expect revenue of $2.15 billion to $2.2 billion, and cash earnings per share of $3.50, to $3.58. On a GAAP basis, we now expect earnings per share of $3.14 to $3.22. Now I'll turn the call back to Paul.

Thanks, David. Based on our current outlook and assumptions, we are increasing our annual fiscal 2012 revenue expectations by $50 million to a range of $2.150 billion to $2.200 billion, reflecting 16% to 18% growth. We are also increasing our cash earnings per share expectation by $0.04 to a range of $3.50 to $3.58, reflecting 14% to 16% growth over fiscal 2011.

Excluding the impact of the debit legislation, and our recent acquisitions, we plan to expand cash operating margins in our core Business by as much as 50 basis points for the total Company for fiscal 2012. I'll now turn the call over to Jane. Jane?

Before we begin the question-and-answer session, I'd like to ask everyone to limit their questions to one with 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) Tien-Tsin Huang, JPMorgan.

Thanks so much, happy new year, I just wanted to ask about international, maybe starting out with Europe. I'm just looking at the revenues and the profits both down sequentially which was surprising to me. How did that come in relative to plan, and what should we be looking for here in the coming quarters on the Europe side?

Tien-Tsin, happy new year to you as well, it is David. Relative to our expectations, Q2 came in about where we expected. For Europe, as well.

I would tell you, if you put me on a rack and press me, I would like to see maybe a little bit more revenue in the UK and we were clipped a little bit more by FX than we thought during the quarter, and some of that was in the UK, some of that would be in Canada. But as a general rule, across the Business we were about on forecast, about where we expected to be. In aggregate we were where we expected to be as well.

If you look out into Q3 and to speak particularly to Europe, I would expect Europe to be up a little bit sequentially in Q3 and then up a little bit again in Q4. And then of course across the Business, as you well know, Q3 will look like our weaker -- weakest quarter of the four from a pure earnings perspective relative to sort of percentage of total earnings for the year with Q4 being far and away being our strongest. Maybe even a little more color in that regard, I would think about modeling roughly, and I do mean roughly at plus or minus the same percentage of earnings in Q3 compared to full-year and in Q4, compared to full-year, as you saw last year. So in Q3 as a percentage of total full-year earnings roughly in the same percentage ranges for each of the next two quarters.

Okay. Okay. And then I had the same question on Asia-Pac, also kind of surprised there with no growth. I know Paul you said it was a tough compare which we're aware of. But what's the outlook there for Asia-Pac, can we assume that we're back on a growth mode in the second half of the year?

Yes. Tien-Tsin, this is David. I'll take this one, again. To your point we are flat this year and that's compared to a quarter where last year we grew 42%. I guess I should remind you in Q3 of last year we grew 31%. But we think in Q2 we're right back to double-digit growth. We think -- I'm sorry, in Q3, I apologize, we're right back to double-digit growth. In Q4, we're back above that into sort of the mid-teens range you expect to see. So for the full-year we remain right on track for that same low double-digit into the mid-teens range we expressed at the beginning of the year.

I don't doubt for a second that flat is a little bit of a surprise because it is tough to get yourself all the way to flat. Just looking at it from the outside in and you think about Asia. But that product launch we've talked about, fairly often really was substantial and the real telling point of that is of course 42% year-over-year growth last year.

Just to be clear, David, that includes acquisitions in terms of all the commentary you just made?

It does. Of course for Asia we really don't have one. But for Europe as well as the total Company, I was just answering your first question, it is inclusive of everything at this point, yes.

Okay. All right. Thanks a lot.

Jason Kupferberg, Jefferies & Company.

So just to clarify and reiterate, what you guys are basically saying is that if we put the acquisitions and Durbin on the side and just look apples to apples at your guidance what you were talking about last quarter versus what you're talking about now there's no change. Is that correct?

That's correct.

Okay. Okay.

Perfect way of saying it, we reaffirmed.

Okay. Okay. Going forward just on the point with Durbin and obviously all the disclosures is helpful, so you had $15 million in revenue based on two months of Durbin contribution but it sounds like you're only going to have another $25 million over the subsequent six months of your fiscal '12 to get to $40 million in total, so just wanted to understand why the run rate slows down so much.

That's a great question. This is Paul. Let me also add to that we did about a little less than $0.01 a month, right, two months -- $0.02 for about two months of results and that would suggest around $0.05 or $0.06 for the remaining six months yet we're telling you it's going to be like $0.02. So the words and the music aren't going together here.

Here is a couple fact points that I think are important because a number of people have actually written some reports that would suggest about $0.01 a month and that is about right, quite frankly. But we have taken a more conservative approach for two reasons. Number one, the situation still is nascent. I mean, we don't really know what the associations are going to do. I mean we're not exactly sure where the card issuing is going.

Competition although I will tell you this, Jason, we watch this like a hawk, we watch any kind of attrition and just the opposite, our position has been to be very generous hoping it will stimulate new business for us and we're very pleased with that and it's done exactly that. But yet we have taken a conservative stance because of all of those factors.

The revenue is more driven on the ISO side. I would say our ISOs have taken I would think a commercial approach here. They're a little more aggressive, but quite frankly they have a very small merchant base but yet they have been pretty open with sharing a large amount of that with the ISOs. I mean, excuse me, with their customers. We think the, that actually continues they end up sharing a little more of that. So the good news is, it didn't have the big hit on margin that everyone feared. But yet it didn't also drive EPS on our side but on the positive side it didn't have the ISO effect everyone feared. David you want to take another shot at that?

Maybe just to supplement a couple of things. I think we have seen the ISOs being more circumspect than one might have thought, which is actually great news for the market so we're cautious on the outlook of how those pieces come together over the next few months. I think we're cautious on our own, as well.

This is something that was effective really the month of October. So nascent as Paul said is exactly the right word. We're a couple of months into this and really only a billing cycle maybe two into what the customers are seeing and how the pieces are really coming together. So very interesting.

I would just give you one other sort of anecdotal data point and this may well be apropos of nothing. But I think we've talked the last quarter or so that we've started to see credit transaction growth in the US approach debit transaction growth. This past quarter we actually saw credit transaction growth north of debit transaction growth, first time in you can imagine, Jason, how long that has happened. Doesn't mean it is a trend. Doesn't mean it's even related to this issue, it just gives you a little more insight into the moving parts of issuers, networks, competitors, our own channel partners, as well as just consumer behavior, all these dynamics make us circumspect ourselves as to our outlook for the impact of the legislation.

And just last for me, the CyberSource acquisition seems like a great move to expand your eCommerce presence. I think you guys have talked in the past about wanting to accomplish that. Can you just give us a sense, order of magnitude wise how much does this expand your overall eCommerce business and particularly in the US, whether you want to think about it in terms of merchants or revenue just so we can get a sense of how big of an impact this will have on that slice of the Company.

Jason, it is Jeff. I'll take it a stab at answering that. So I think we have talked about in the prepared remarks that it adds more than 9,000 merchants in the eCommerce segment here in the United States.

Now from our perspective that's a substantial enhancement to what we currently do. It is a very attractive portfolio in its own right by way of metrics and growth. And it really puts us in a market that we historically have been underrepresented in. And what we're going to do is, and I think this was in the script as well, is allocate sales resources, IT resources, and operating resources, against that portfolio of 9,000-plus customers. So as we think about it strategically this gets us a really good toehold in a market that we've been smaller than we would like to be and allows us to build very substantially off that market. In terms of sizing it is a little bit more than 9,000 merchants is what we're disclosing.

Jason, I would add too we're going to be the best partner to CyberSource that we can. We're not alone in that regard. There's lots of other institutions and processors who would like to do the same thing. But we believe that we are going to be very responsive and we're hoping our relationship with them expands.

How many merchants did you have US eCommerce prior to the acquisition?

I don't know if we have ever broken it out, Jason, but you well know that eCommerce is a segment where we would like a bigger presence than we've historically had, so this is a meaningful step in our eCommerce strategy, there's no question about it.

This I would add, this is a well diversified portfolio, so to the extent that we had eCommerce folks before, they tended to be a combination of bricks and mortar as well as online presence. This is really specific to the online presence. So I think this bolsters what we were doing previously but it really is a very big step in the right direction.

Thanks for the color, guys.

Glenn Fodor, Morgan Stanley.

On Brazil I know you're building out the capabilities there, I was just wondering if you could update us on where you stand and is there any way HSBC is helping play a role with your buildout there?

Glenn, we have good news for you here, Jeffrey, why don't you fill Glenn in.

Sure. Thanks, Paul. We're pleased to announce that we've executed a sponsorship and referral agreement with a financial institution in the Brazilian marketplace which is a meaningful step forward for our Business in Brazil.

Second, in the last quarter we have signed a significant technology contract with a large vendor for the construction of our front and back end platform in Brazil and that platform construction is beginning, and is underway as we speak. So as we look at where we are today, Glenn, relative to the last number of quarters, we think we've moved the ball pretty far down the path on sponsorship and referral as well as on our technology build. And I think the next step for us down there will be certification with the associations with our Brazilian partner as well as with our technology vendor.

Great. Congratulations.

Thank you.

Paul, just a theoretical question for you. There's a lot of talk about this Brooklyn case out there and one part of a potential settlement that people talk about is allowing merchants to surcharge at the point of sale. So I think you're well versed in answering this given you know the US market so well. I mean, how do you see it -- if merchants are allowed to surcharge in the US how do you see this playing out in terms of merchants actually doing it, consumers reacting to it, could this be a large catalyst for a shift from credit volume to debit volume?

I have to tell you, that's an excellent question and forever you could give a discount for cash, there has never been a prohibition against doing that. I think the basis for this type of relationship has kind of been in place and merchants haven't truly taken advantage of it.

I think that to surcharge your consumer when she pulls out her preferred payment I think is a bridge too far. I really do. There might be some exceptions, but I personally think it was -- it's not going to be a biggie. I don't think we're going to see a big shift. I really don't. We'll see. We'll wait in front of that and we'll see if I was bright or stupid there, but that is my take.

Thanks, Paul, I appreciate it.

Chris Brendler, Stifel Nicolaus.

So just put it to you on CyberSource and also the other acquisitions in particular, they're not closing I guess with a whole lot of time left in your fiscal year. I know it's probably a little early to give 2013 guidance, but from my rough estimation it looks like CyberSource itself was doing about $100 million in annual revenue in the acquiring business, so I'm just trying to get a sense of what this could look like for 2013 for CyberSource and the other two relationships you announced this quarter. Sounds like it could be meaningful. Is that a good way to characterize it?

Chris, this is David. You would have to look at exactly what we're purchasing, and I don't believe you can find an external fact that would help you other than what we said in our prepared comments and in the press release earlier.

So if you take the combination of the three transactions, which we're saying add on the order of $15 million of revenue, for what is effectively call it five months of the year, it's really four and a half, because you're right they haven't all closed, but they'll all be closed we think by the end of January, so maybe call it four or four and a half. If you want to annualize that, that is step one. Now know that we expect each of them to perform better than those four months and to grow next year, you can let them grow a little north of the pure annualized level. But no we're not verging on the kind of numbers you're talking about at all with these transactions. There is probably a disconnect between something you've been able to find externally and the actual portfolio we're purchasing in any of these three acquisitions.

CyberSource obviously is the only one I can really get anything on since it was public at one point.

Understood.

Is there any color, David on exactly what the difference could be, and what you're purchasing, is it not the whole portfolio or is it they lost some relationships?

Chris, I think that is a fair question. So the ongoing relationship with CyberSource is they continue to have an economic interest in these relationships.

So that is why the purchase price is what it is. That is why this is about winning future relationships, continuing to encourage them to do business with us in the future, so it's a -- it's a stated amount from the existing portfolio which we purchased and it is an opportunity to participate in other deals. So that's really what this is and there is some of the economics, some significant amount of economics that stays with CyberSource, and that is why your numbers -- that is where you're getting kind of balled up on these numbers a little bit.

Okay. I'm sure we'll learn more about that as it goes on.

Absolutely.

Separate question. Just following up on the obvious European question, I didn't hear from your previous answer if you saw any signs of the Armageddon that everyone is fearful of, with transactions falling off a cliff and consumer spending retrenching in any significant way, any color there? And also if you could address Asia-Pacific was flat, I guess, on a year-over-year basis after growing 18% last quarter. Is that currency or is there anything changing there in terms of spending patterns? Thanks.

Chris, I'll do the color on Europe and I'll ask David to talk once again about AP.

So of course our business in Europe is Russia, the Czech Republic, Spain, and the UK. The euro is actually in Spain and it's the toughest economy of all of them. That business is growing at a double-digit amount. I mean, just pure and simple. Now, in low double-digits but it is growing at a double-digit amount. We are organically growing this business in an economy with 20% unemployment and some real challenges at a double-digit amount. Now that is because we're taking market share, we're adding sales people, we're doing all the things we can do.

The UK is much -- it's a market that also provides opportunities. We had a good quarter in the UK. I think David said we would have liked to have had a little more. We would like to have a little more everywhere. But still the UK was a solid performer for the quarter.

You would say Russia and the Czech Republic are kind of outliers a little bit, but the long and short is we're not seeing a meltdown. Consumers are still spending. They're taking vacations, they're going to dinner, they're shopping at their favorite retail establishments, and the transaction counts are pretty decent and you're seeing those same numbers from others who report. David, do you want to talk about AP?

Yes. I would also say relative to Europe the core sort of metrics we watch, Chris, the transaction, the average tickets, what that means for volume, are all hanging in there fine relative to our expectations. And that is probably the core of what we watch. The large complex business, there is some things south of what we wanted, some things are north of what we wanted, in the mix we're on track and we feel good about that relative to the headlines and everything else involved in driving your question.

Relative to AP, I think the real key to AP is that big large customer launch. It was really the official launch of some new products in Asia in Q2 of last year that drove you may recall 42% revenue growth. We talked about that launch quite a bit. I know it is tough to model flat revenue growth particularly when you're talking about Asian markets, but it really was right about where we thought Asia would be.

We do expect Asia to return then to double-digit growth in Q3 and in Q4 as well. We still expect the exact same low double-digit to mid-teens full-year growth in Asia as before. So no real shocks in Asia at all. Just the sheer math of taking something that fueled 42% growth last year and annualizing that. And again in Q3 of last year it was 31%, we'll annualize that, we'll still grow we think double-digits in Q3. So it's just bringing those pieces together, nothing fundamental in the 11 markets we serve there overall.

The reality is that Asia is -- most of the revenues are being generated from places like Hong Kong, and Taiwan, and Malaysia, and Singapore with not very much at all from India and from China. And that is where the real opportunity is, obviously. And that is what we're very focused on. We're making progress on that every day, so I continue to be very excited and optimistic about our first mover advantage and our opportunities to do some meaningful things in those markets.

Excellent. Thank you very much.

Bill Carcache, Nomura.

Paul, can you talk about what we should expect to happen to the gap between revenue growth and transaction growth post-Durbin? You've spoken in the past about how at a minimum one of the benefits from Durbin is you'll have -- when you sit down to renegotiate with merchants it's going to alleviate pricing pressure. I just wondered if you could just share your thoughts on that point.

Sure, Bill I think that is -- I stick by that statement and I would say that we have a couple months of hard data that would suggest that's exactly right.

So now, and that goes across the gamut. So you are dealing with a large merchant who just got obviously every penny of this back in a very big meaningful way. Their rates went down. It takes a little pressure off you. That doesn't mean they still don't do their RFP processes, et cetera. But the merchants are feeling pretty happy right now.

Even the smaller guys that -- you saw the magnitude of the giveback and that's for Joe's Pizza. The magnitude of the giveback we had was pretty significant. And ditto with those guys. We track things like attrition. We track, obviously, signings. We're taking full advantage of that posture. I mean, we could have sat back and earned a lot of money. We chose not to do that and we did that for hard, economic reasons. And those hard, economic reasons are being borne out as we speak.

Okay. Great. And on a completely different topic here looking ahead a little bit, there has been a lot in the press about Square and some other mobile acceptance technologies out there, and I just wondered whether if the scale is still just not large enough for it to even be on your radar screen or whether you've come across a greater desire of some of your SME merchants to want to incorporate mobile acceptance in their business. And then, if so, how do you think about the impact of mobile acceptance on your business model overall as we look to the future?

I would tell you -- I would start, Bill, by saying I love Jack Dorsey. I love -- he's the Steve Jobs of payments.

It is creative, it is interesting. I mean, it's, I love stuff like that. Because it gets new -- it gets new payments. It gets consumers interested in our industry, and I think that's all good and that tide is going to raise all of our ships.

We also, you can be sure we have our own answer to those technologies, and I think I would encourage you to stay tuned. But we have different needs. I mean Square initially is focused on a US non-EMV-compliant application. We have, and we really think there is even more applicability for that type of mobile payments for international developing markets which quite frankly are EMV, have EMV requirements.

So I would look for us to be coming forward with some technologies to take advantage of that and we are very high on it. We think particularly once again for the developing markets. So, no, we don't think it is too small. I think if you took a little narrow piece of it and said, okay, it's painters and people who are doing home delivery and if you just people P2P payments, you could probably define that but you're not going to get terribly excited. I think this is a lot more than that. And so stay tuned. Jeff, do you want to share anything?

Yes, so I think to follow up on what Paul said I think it is good news to the extent that cash is being displaced by electronic means. That is good for us, no matter where it occurs. It is also good news that it is cheaper to accept cards. That is also very good news for us.

So, as the size of the pie expands in the United States and globally we'll be the beneficiaries of that and we'll leverage some of the distribution channels that Paul mentioned around the world where we have a competitive advantage like multinational inquiring, experience with EMV, both in a card present and a card not present environment. So I think this is all very good news as we see it from where we sit today, and we'll continue to capitalize on those opportunities as they come around. So we look at Square as something that's very complementary and additive to what we do.

That's helpful. Thank you.

Tim Willi, Wells Fargo.

Just two questions. One is, if you could talk a bit about M&A, obviously you did some smaller niche stuff this past quarter, but what are you hearing, I guess, in terms of pipelines and I guess I'm particularly curious around the European continent where it seems like the banking industry is probably going to have to go through the same drill that the US banks did several years ago in terms of raising capital which did involve divesting payment assets? Any thoughts around what that looks like now or what you think it may look like over the next couple of quarters?

Tim, this is Paul. I will start by saying you're exactly correct. That is happening. That is good news. Let's face it, we have our relationship with la Caixa and I couldn't be happier with that deal. We wouldn't have our relationship with la Caixa if it wasn't for those same pressures, quite frankly, they were looking at assets and this made a lot of sense, great decision for them, great decision for us, there are other institutions in Europe, that are doing exactly that, as we speak. And you can be sure that we're all over that.

The three deals we did, they're not huge, but they are meaningful to us for all different reasons. Russia is certainly a complicated place, but 140 million Russians we think it was well worth the risk and it gives us some additive benefits above and beyond just that portfolio from Alfa.

Obviously we've talked all about the other two deals and they are terrific. We actually didn't talk too much about Malta. It is a tiny little country, obviously, but that's all about servicing our huge partner HSBC, that is part of their stated objective and we responded accordingly and quickly and in a timely fashion.

So the long and short of it is that our pipeline has been as full as it's ever been. I could not be more pleased that we got these three done and I think that bodes well for things to come and hopefully we'll be talking to you about deals for quarters to come. Jeff, do you want to --

Tim I would just add of the three deals we announced today, two are with non-North American financial institutions. So Alfa is in Russia, HSBC Malta is obviously in Malta and while banks will of course have their own points of view as to their motivations to do it. Clearly a key theme is what is going on in the worldwide economy.

So as that continues we're going to see more of these attempts to raise capital and exit businesses that we view as core to us and banks may view as a little more around the periphery for them. As Paul mentioned, our pipeline is full. That is true worldwide and I expect to see more on financial institution modernizations in the near and intermediate term and all those trends are very good news for us.

Okay. And then my follow-up had to do with sort of the second impact, I guess, of Durbin which is network routing preference, and then that whole discussion of which obviously it is not in your income statement right now but there has been discussions and Visa as many people talked about paid some rebates and incentives and touched on this issue. Can you share any thoughts around what you think the impact of the whole routing and sort of that routing preference will be once it's instituted and where you sit in the ecosystem?

Yes, Tim, this is David. I will take a crack at this one and let the other guys chime in as well. This is another instance where not unlike some of the other questions we've answered earlier, there really isn't anything but good news here for us when you think about it. Particularly when you focus on the small to medium merchants as we do throughout our multiple channels as we go to market in the states, we already provide the least cost routing we can to our merchants as part of the service we offer. We're happy to enable that.

So what you have in reverse then for us is essentially a procurement opportunity here to continue to provide the least cost routing we can to benefit our own income statement on the way there. As you might imagine we've had any number of conversations notional and a little beyond notional about how that might work with some of the other folks who are going to be competing for volume in this new world of competitive routing, and as I say there's nothing but good news for us as we head into late fiscal '12 on the way into fiscal '13.

Great. Thanks much.

Wayne Johnson, Raymond James.

Just a couple of follow-ups here. On CyberSource, did any technology come with that particular acquisition, or is this purely merchants that you guys were buying?

Wayne, it is Jeff. It is largely a portfolio of the 9,000-plus merchants that David and Paul alluded to in their prepared remarks.

Well, I would just add, though the other part of this, Wayne -- this is Paul -- is that it puts us in the position to continue to work with CyberSource, to win new business. Now, all their technology is a key to a lot of those wins. So in that regard we have the benefit of that.

That's a fair point, Paul. It's probably worth pointing out which I don't think we've done yet that Visa/CyberSource is an existing customer of ours. So an amount of this volume we're already processing for today. So from a technology point of view the difference here is that we're acquiring that portfolio from an ownership perspective.

But a lot of the technologies around processing that portfolio already exist within the world of Global Payments since it's a customer of ours today. What is going to change, as Paul alluded to, is our ability to allocate sales, IT and operating talent, to a portfolio that we now own to enable it to grow the same or more quickly as it did with CyberSource in their own right.

Terrific. I'll look forward to hearing more about that relationship. If I can just follow up on some tangential but yet related topics in my view. When you're acquiring CyberSource and when you're going to be acquiring the Alfa-Bank merchants and HSBC Malta, is there -- is that going to be on G-2, or where is the technology that enables those particular merchants going to be located?

That's a great question, Wayne. So let's talk about those in sort of in order of your question. For Alfa, we were going to migrate the customer processing, to the platforms we own and operate in Russia in our existing Russia business. As you know, any sort of migration of Russia considering you can imagine the customization involved in that toward a G-2, or even toward our own, back here in the states, is much further down the road map than anything in sort of the near to medium term. So Alfa moves really directly over to our Russian. So it's again consolidating platforms, driving economies but all within the Russian Federation.

Malta is a bit of an interesting case in and of itself. There is an eventual migration there. Again it would be further down the road map. There are some unique characteristics to Malta particularly in terms of the manner in which the fairly insular couple of debit networks operate in Malta that mean it's really not again on a near term migration path at all but it will be part of the vision for consolidated platforms over time. We're in very good shape contractually with continuing to operate the existing platforms for a while there with the existing providers.

And then on the CyberSource portfolio as Jeff mentioned a moment ago, we process that volume today on our existing platforms, mechanically a couple of things will change in the infrastructure from the outside looking in, even from -- for the three of us sitting at the table talking to you, really very little changes and the IT folks will now crucify me for having said that out loud. So we've got a lot of work to do to do the full migration and bring things over. But it is on our platform so it will be on our current front end which, as you know, is a combination of G-2 as well as our various main frame solutions. And so it'll move that way, we'll have the ability with G-2 and with new volume that comes from CyberSource to board new merchants to G-2, just as we're doing today with new merchant volume that comes.

So we've got I would call optionality in the US in terms of how we board right now which we can determine based on functionality, scalability, and even product sets that are on the various platforms we run. All with still that same long-term vision towards platform consolidation and maximizing economies of scale.

Please forgive me for this follow-up but I've got to go there. How is G-2 progressing and if you had to -- if you could put a percentage of completion on it, or a range could you give us any color on it? I feel like we haven't heard anything on it in a while.

Oh, then working as planned, Wayne. I would be happy to give you a little more color. I don't think you can trap me in a percentage completion but I would tell you this.

The front end vision remains the same, thinking about G-2 and consolidated front end to platform consolidation. Obviously in an industry like ours where scale is key consolidation is nothing but a good thing. We are, as I mentioned, in answer to your previous question, we are migrating volume to G-2 as we speak. We migrated the majority of the volume for one of our largest customers over the last quarter or so.

We are also boarding new merchants to G-2 as we speak. In fact, one of the items in Q4 that drived such a such big Q4 for us is some large sales that are coming live in the US in that Q4 time frame, those will be boarded to G-2.

Now as I said earlier, we're selectively doing this based on functionality, which platforms are ready for which customers, whether it is a migration or new, so we're still boarding -- we still have many customers on the legacy mainframe platforms. We continue to work on all the things we talked about the last few quarters, the requirements we need for any existing customers, the right sequencing of migrations which as you know involves a conversation with the merchants themselves. They have work to do and that's participate in the testing so we're trying to roll all that out thoughtfully in a planful manner and no longer predict or promise to you which volumes or which percentage win, but again we continue to make very nice progress, incremental progress in terms of being thoughtful and pragmatic about how we drive the front end strategy in the US and then eventually globally.

I appreciate that response. And I realize it is a sensitive topic but I'm going to bang the bell one more time here. Would you say you're more than 50% complete or less than 50% complete as far as the US goes?

Wayne, you can't pin me down on that. It is an excellent attempt but I would say we're thoughtful and pragmatic and as we start moving more and more of this meaningful new volume that those percentages are going to rise steadily over time.

I thought I would give it a try.

You had to.

Greg Smith, Sterne Agee.

Back to the routing issue with Visa and MasterCard, have you received any payments, then, from either association?

Greg, the answer is we have ongoing dialog. And I will tell you this, though, it is not going to be -- it will be something of some -- how would I put arms around it -- (multiple speakers) it will be something meaningful. (Multiple speakers). It will be significant. So we're in the process of that. I think meaningful is a better word. So we have -- we are having conversations, we're in the process of completing those and it is going to be meaningful.

Is that likely from an accounting standpoint just to hit in a single quarter?

It depends, Greg, on how the pieces come together, but for us we certainly are looking at this with an eye towards reducing ongoing processing costs rather than any sort of single event.

Oh, okay. Good. And then, just back on CyberSource, so is that -- it sounds like you have a great opportunity to actually grow that portfolio through this new relationship, but is that exclusive or are we going to hear about other acquirers doing deals with CyberSource?

Hi, Greg, it is Jeff. I think you have to look at the way we've discussed it, which is to say that we're buying the existing portfolio, which is a little bit more than 9,000 merchants. We've had a relationship with CyberSource historically. We're going to continue to have a great relationship with them going forward. We're the only ones buying that portfolio that we described in the release and that is all we can really say about it.

Okay. And then, just one last one, David, I think you said these three deals would be slightly dilutive to neutral on a cash basis. If that's correct, why is it not a little more profitable?

Most of that, Greg, particularly for this first period, this first couple of quarters and maybe it ticks into early '13 it's integration costs. So we do have as I just mentioned before platform work to do for some of the CyberSource stuff. We've got integration work as you might imagine just to be able to report financials in a place like Malta even though we really aren't starting formal platform migrations there for some time and we have real platform migration work to do in Russia.

If you think of the relative size, you can imagine just a little of integration expense can very quickly take you from a modest profit down toward neutral and then a hair dilutive from there.

Okay. Fair enough. Thank you.

David Togut, Evercore Partners.

If you strip out the Durbin benefit in the November quarter, can you quantify the unit pricing trends both in the US and Canada merchant processing business?

I can give you color, David -- this is David. I can give you color not quantify it. The merchant pricing trends in the US were very solid and stable quarter-over-quarter. I believe you're asking the question sequentially. So very stable and right where we expect them to be. In Canada we saw what is really sort of the traditional Canadian pricing scenario right now which is a little bit of leakage as our new sales come in at lower spreads than our existing sales particularly our existing customers, excuse me, particularly in the small to medium channel.

So I would say that that leakage, that little reduction, matched our expectations in our forecast, but that is the place where you're seeing a little bit of leakage as again we replace higher-priced merchants with lower priced on a fairly consistent basis.

Can you quantify your unit cost reduction plan both for US and Canada in the quarter and for fiscal '12 as a whole?

In what fashion?

Well, since unit price historically has been declining, presumably you were reducing unit costs to offset unit price over time.

Of course. That's right. And so what we do is we target each infrastructure department with a cost per transaction target.

For example, our IT department, which they are required to reduce on an annual basis, they may or may not be reducing that in any given quarter depending on investment levels and the timing of any expenses and so, yes, you're exactly right. Our infrastructure departments as well as our sales channels are all tasked and budgeted based on either or both of cost per transaction or incremental margin. We don't go into the details of how the pieces come together. In any given year we may well be investing in the United Kingdom while making sure we scale Canada. So that will vary based on our own choice. As you well know, David, we operate in that way on a bit of an asset allocation strategy but each business and each business unit is targeted in the fashion I described.

Obviously David you're discussing what is our leverage and what's our margin ability, and we are reaffirming as much as 50 basis points for total Company cash operating margins, and that's a good thing. And gaining. And clearly we have designs that go well beyond that. As long as you have been following this business, you know that's one of the great components of this industry, is that there is wonderful operating leverage.

Obviously the ISO accounting is a significant headwind, but it is our objective and certainly the task of all of us to expand our margins and continue to do so. So we'll continue to report on it.

Just finally, Paul, did the UK price increase from the August quarter stick in November?

The answer is yes. The UK pricing did very well and the answer is that it absolutely stuck.

So that says two things. Number one, it was balanced, it was properly -- once again we really don't characterize it as an increase, it was just a pricing methodology. So it was appropriately and properly administered and it absolutely has stuck. Thank you for that question.

Thank you very much.

Ashwin Shirvaikar, Citi.

I wanted to ask and I apologize, since I probably missed this, but what was the currency impact in the quarter and what are you saying about the forward assumption on currency impact?

Ashwin, we did not have that question, so David?

In the quarter, currency helped revenue by $2 million, and helped earnings per share by about $0.01 of earnings per share, and as we look out for the rest of the year and refresh our forecast Ashwin, we're expecting the US dollar to strengthen a little bit more against our key currencies on a sequential basis in Q3.

In fact, as we sit here tonight, sort of period to date in Q3, all of those currencies have -- the dollar has strengthened against all of the currencies, Canadian dollar, pound, euro, the Czech koruna, the ruble, so we continue to see the US dollar strengthen really for the rest of the year. Which means on a year-over-year basis, currency which was our friend in Q1, kind of less of our friend in Q2, will not be our friend in Q3 or in Q4 on a year-over-year not sequential basis.

Right. And obviously that is all incorporated into your guidance, right?

(Multiple speakers). That is correct.

My second question is the year-over-year margin improvement in international, the sustainability of that especially as you sort of go through a cycle of investment in Spanish sales force and integration investment and so on, and in a couple of quarters you've got the UK pricing anniversary coming up. Could you sort of frame the sustainability going forward for international margins?

Yes, be happy to and I think here is another place where if everything operates as planned time is our friend here and things sequence fairly nicely.

You're exactly right, the UK is carrying a lot of water for us this year as the UK has for quite some time. It will continue to have the opportunity to expand margins but probably not at the levels you saw based on the changes David asked about a moment ago in his questions. But the other pieces are really scaling nicely. We're having a solid year in the Czech Republic. The Russian business as you might imagine is an early adoption, sort of acceptance story, but the margins there continue to scale, it still is the same kind of scaled economies market regardless of whether you're talking about Russia or any of the other places. So we expect that business to continue to grow at double-digits and scale its margins steadily.

We expect the same of Asia. And it is making nice progress on that very assignment. As you well know a few years ago that was a breakeven business, even a money losing business when the company embarked on that venture. It now has very solid margins with a 2 in front of it. So it's made very nice progress and there's no reason it doesn't continue to scale.

So the final piece of that puzzle is really Spain at least for the existing assets we have today, not speaking to Malta or how Alfa comes into the business. And, Spain, you're right, as we speak we're investing in the sales force and it is in the learning stage. You start off the first couple quarters of this fiscal year investing in hiring and getting folks trained, and now we're looking for them to begin to become productive over the latter half of fiscal '12 so that we can see some benefit from that and have Spanish margins hopefully scale for us in 2013 and beyond, marrying that opportunity for double-digit revenue growth Paul talked about to the opportunity now for increasing that if the sales force is truly productive, and having that be profitable expansion, so margin expansion to begin to supplement where the UK settles down to a more normalized trend of margin expansion but notional marginal expansion rather than the more outsized number you obviously are seeing inherent in our international margins this year.

So I actually think there is a nice opportunity again for the sequencing of this to work well for us over the next handful of quarters.

Okay. Great. That's very useful. Thank you.

Dave Koning, Baird.

Just two quick ones, the first one North American EBIT growth mid-single-digits, is that sustainable? I know you have hit now four quarters in a row of about mid-single-digit growth so you're hitting a little tougher comps, but are there any reasons that that wouldn't be sustainable going forward, given kind of Canada is stable and the casino business getting a little better?

Dave, this is David. No, not really. The growth in North America EBIT is all about continued US progress and we believe we're seeing that, a stable Canada, absent any FX really driving you the wrong direction and then the timing of any investments in the infrastructure, as you know most of our technology investments tend to affect North America rather than international. But as I think about those pieces and how they come up in the next couple of quarters, to answer your question, no, I don't know of a reason why you wouldn't still see a version of EBIT growth in those couple quarters on a year-over-year basis.

Great. And then, just the other question, Durbin, you talked about the $15 million this quarter and getting a little smaller, shrinking as we go through the course of the year, is that because you've already seen starting in October a bigger benefit that started to deteriorate a little bit or is that more just out of conservatism.

It's more the cautious outlook we've described a couple of times given the whole series of unknowns we talked about in answer to a couple of the earlier questions, Dave.

Sounds great. Thank you.

This concludes today's question-and-answer session. At this time I would now like to turn the floor back over to Mr. Garcia for any additional or closing remarks.

Well, thank you, everyone, for joining us on today's call and we wish you all a happy, healthy and prosperous 2012.

Thank you. Ladies and gentlemen, this conference will be available for replay starting today at 7.00 PM eastern and ending at midnight on January 19, 2012. If you wish to listen to the replay please dial 1-855-859-2056. Or for international participants, they can dial 404-537-3406. This concludes our conference for today. Thank you for your participation. You may now disconnect.