環匯 (GPN) 2013 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Global Payments fiscal first quarter 2013 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.

Thank you. Good afternoon and welcome to Global Payments fiscal 2013 first 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 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 today September 27, 2012, 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. We met our expectations for the first quarter of fiscal 2013 and we are on target to achieve our full year financial expectations. Revenue grew 9% in the first quarter to $590 million, resulting in cash earnings per share of $0.87. On a constant currency basis, revenue and cash earnings per share grew 12% and 3% respectively. I'm pleased to note that the two previously announced acquisitions, namely the US-based Accelerated Payment Technologies, or APT, and the purchase of HSBC's 44% ownership interest in our Asia-Pacific joint venture are both expected to close in the second quarter. We also anticipate increasing our borrowing capacity by up to $850 million which David will take you through in just a moment.

I think the benefits of the Asia-Pacific transaction are obvious, as it allows us to execute our long-term expansion strategy. As APT was just announced in August and represents a significant investment, I'd like to spend a few moments discussing the strategic benefits of this acquisition. APT is an innovative provider of fully integrated technology payment solutions for small to medium size merchants. This deal allows us to add a very profitable, defensible, high-growth direct distribution channel. APT markets its products through a network of 700 value added resellers, or VARs, covering 30 verticals.

Integrated payment solutions are a tremendous growth area for small to medium size merchants, which of course is our sweet spot. These merchants value customized solutions that streamline back-office operations Ike scheduling, inventory, record management, and billing to name a few. APT seamlessly integrates a payment module into software solutions for vertical markets including dental, medical, pharmacy, specialty retail, automotive, and veterinary. Growth will be fueled by ongoing organic trends, adding new merchants via existing VAR partners, and through establishing new VAR relationships. Importantly, once these relationships are established, the business tends to be very sticky resulting in low attrition rates. As we have had a long-standing relationship with APT and process approximately 90% of their volumes, there is little to no integration risk.

In summary, APT has sustained excellent margins and a loyal customer base while leveraging industry leading technology. We look forward to welcoming the APT team to Global Payments. I'll now turn the call over to David. David?

Thank you, Paul. As we expected, currency changes were a headwind during the first quarter on a year over year basis. For the total Company, currency changes negatively affected revenues and cash earnings by about $16 million and $0.04 per share respectively with the most significant impact due to movements against the euro, Canadian dollar, and the British pound. North America merchant services delivered revenue growth of 13% in the quarter, driven by US transaction growth of 12%. Canada's revenue declined 8% in local currency on a year over year basis. This reflects ongoing pressure on spreads, partially offset by transaction growth of 3%. Canada delivered about what we expected from an income contribution perspective.

For the quarter, North America cash operating income, or EBIT dollars, were $71.4 million, a decline of 4% primarily due to Canadian performance and unfavorable Canadian exchange rates and an increase in technology spending, partially offset by profit growth in our US business. The resulting operating margin in North America was 16.7%. International revenue was slightly below prior year, primarily due to foreign currency exchange rates across all currencies. On a local currency basis, Europe performed well, especially given current macroeconomic conditions driven by revenue growth in the United Kingdom and Russia. Spain grew modestly on a local currency basis, which was impressive given that this quarter we annualized the joint venture marketing fee true-up from last year's first quarter.

For the quarter, Asia-Pacific revenue grew 1% over last year's first quarter and delivered its expected income contribution for the quarter. International cash operating income in total of $65 million was down 1% and of course was affected by currency translation. Operating margin of 39.8% was about flat with prior year. Remember, that the Q1 2012 margin included over 100 basis points of margin benefit from the marketing fee true-up in Spain. Our first-quarter GAAP and cash tax rates were 31.4% and 31.8% respectively. We continue to expect of GAAP and cash effective tax rates to be about 29% for the full year of fiscal 2013 with lower quarterly rates for the remainder of the year.

We generated free cash flow of $44 million, down from $67 million in the prior year, primarily due to cash outflows related to the processing system intrusion and the timing of capital expenditures. 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, capital expenditures were $29 million, primarily related to the data center and infrastructure initiatives and intrusion remediation activities and we continue to anticipate our full year fiscal capital expenditures will total about $110 million. Our total available cash including working capital at the end of the first quarter was approximately $275 million.

Regarding our data intrusion remediation efforts, we are on track to hit our target of completing our remediation efforts to our processing systems by calendar year end. First quarter pretax charges related to this initiative totaled $24 million, and included investigation costs, incentive payments to certain business partners, remediation costs, and professional fees. We continue to anticipate that for the full year of 2013, intrusion costs will total about $55 million to $65 million or net expense of $25 million to $35 million after expected insurance proceeds of $28 million are applied. This of course includes the $24 million amount we recorded in the first quarter.

Under our stock repurchase program, through September 26 we have purchased a total of 280,000 shares at an average price of just over $42 per share for a total of about $12 million. $138 million remains outstanding on our $150 million authorization. In the next few days, we anticipate closing a new senior unsecured term loan of up to $700 million and to increase our existing revolving line of credit by as much as $150 million for a total increase in capacity of $850 million. We appreciate the support of our partners and want to thank them for their efforts as we complete this transaction. After the imminent close of the APT acquisition, we will have over $700 million of dry powder for acquisitions and ongoing share repurchases.

Now, given all the moving parts, including the acquisitions and the new financing, I thought it would be helpful to review the details of our Outlook for 2013 incorporating these new items. We continue to expect annual fiscal 2013 revenue to range from $2.36 billion to $2.4 billion, reflecting 7% to 9% growth on a reported basis and 8% to 10% growth on a constant currency basis. We continue to expect revenue growth in the United States of low double digits and we expect Canada to decline slightly in local currency. We continue to anticipate total international revenues will grow at a mid-single digit rate in US dollars. That includes mid-single digit growth in local currency in the United Kingdom and Spain.

We expect the Czech Republic's revenue at local currency to be about flat with Russia growing over 20% in local currency. When you translate this performance into US dollars, this results in low single digit growth in a difficult macro environment in Europe. Then in Asia-Pacific, we expect high single to low double digit revenue growth. We continue to expect foreign currency to negatively affect cash earnings per share this year by approximately $0.08, assuming downward pressure from all currencies with the most significant impact coming from the euro. We expect APT to be about neutral to cash earnings per share in fiscal 2013.

Given that we currently process over 90% of APT's volume, our revenue expectations already include the impact of this acquisition. We also expect APT to add about 70 basis points to North America margins and approximately 50 basis points to the total Company operating margin for fiscal 2013. So we now expect overall Company cash operating margins to decline a little over 100 basis points on a reported basis. We now anticipate our Asia-Pacific acquisition will close a little later in the second quarter. However, the impact of this delay on cash earnings will be offset by the positive impact of the small share repurchases we've executed to date. Interest and other expense from the new financing has already been factored into our Asia and APT financial expectations.

So in summary, based on these current assumptions, we continue to expect our cash earnings per share to be in the range of $3.59 to $3.66, reflecting 2% to 4% growth over fiscal 2012. On a constant currency basis, we expect revenue to grow 8% to 10%, and cash earnings per share to grow 4% to 6% over fiscal 2012. As a reminder, this outlook does not include the impact of any future share repurchases. We've updated our fiscal 2013 GAAP earnings per share expectation to include the impact of the APT acquisition. Based on preliminary purchase accounting estimates, we expect APT to be about $0.23 dilutive to fiscal year 2013 GAAP earnings per share. We now anticipate GAAP earnings per share excluding the impact of all intrusion remediation costs to be in the range of $2.99 to $3.06.

And one final note, in the next couple of days, we will be filing an amendment to our 2012 10-K to correct clerical errors in a couple of places in the original filing. There will be no changes to the financial statements or related disclosures. The revised filing will include an explanatory note that will point you to the changes.

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

Thank you, David. I am pleased with our Company's financial performance, our global market position, and our execution on strategic initiatives such as our recent announcement to allow our merchants to accept PayPal at the point-of-sale. We have strengthened our US direct business with the APT acquisition and we intend to aggressively expand our Asia-Pacific presence. In closing, I am confident that we are on track to successfully execute our strategies for growth.

I'll now turn the call over to Jane. Jane?

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

(Operator Instructions)

Jim Kissane, Credit Suisse.

David, can you give a little more color on the outlook in Canada? It sounds like you're expecting the decline to moderate somewhat for the balance of the year? Just trying to get a sense in terms of why you expect that to decline and are you seeing really stability up there because it doesn't look like that in the quarter just past. Thanks.

I don't think we're expecting fundamental changes in the core spread declines, Jim, on an organic basis -- and I'll turn this over to Jeff in a second to talk about the market and what we're seeing there. What you will see though as the year goes on, first off, is less pressure year over year from currency perspective which will certainly make a big difference in the reported outlook in US dollars. In addition, we have a couple of different actions, and again, I'll let Jeff add color to this. Working on some products, pricing, and also some sales actions over the course of the year that begin to have a little more impact in Q3 and Q4. But again, really nothing fundamental changing in terms of the trajectory and some of the ongoing pressures. There's some things around the edges that help ameliorate things later in the year.

Yes, thanks David, Jim. It's Jeff. If you recall, there was a quarter last year where we really felt like the spread diminution got ahead of us. I think we've done a nice job and I think David's commentary reflects this, taking a very good view about what spread trends are likely to be for the year. And that's encompassed in our -- in David's guidance today. So as we said in the July call, we do expect Canada to be a modest headwind for this fiscal year and we've done a few things just to be more specific.

First, we had some reductions that we took at the end of last fiscal year and we'll get the full year impact of that throughout fiscal '13. Second, we continue to see new good sales trends for new direct revenue signings, Jim, in Canada. Those will help as we go throughout the year -- so we're happy with that -- as well as additional product introductions. And then, selectively throughout the year, price actions. So I think you come to a good view of where spread is likely to continue to trend with the advantage of some of the things that we've done last year and some good sales efforts this year, we feel comfortable with the guidance that David reiterated. And as he mentioned in his prepared remarks, we did end up about as expected on income contribution for the quarter.

Jeff, is it all spread compression or is it an increase in client attrition, so decline in retention in Canada as a result of pricing and more competition up there? What's the mix of that? Thanks.

Thanks for pointing that out, Jim. Actually, attrition in Canada has declined fairly markedly in our Canadian business. I think, as I've mentioned that the previous calls, I'm glad you raised it, we put in place a fair amount of analytics by way of framework around value added customers. And we actually have seen a decline most recently in attrition and that's part of our outlook that, that continued and is part of the reason why we're giving the guidance we are giving for the rest of the fiscal year.

Just one last question, I'm sorry Jane. Jeff, do you see the light at the end of the tunnel in Canada?

I think what we've seen is the spread diminution persist, and we're going to make sure that we avoid some of the pitfalls, Jim, that we had last year where we assumed that would really moderate. And instead what I think we're doing is managing for that continued scenario. And if we're pleasantly surprised, then that's a happy outcome for everybody.

Tien-Tsin Huang, JPMorgan Chase & Co.

Just following Jim's question around Canada, just maybe the products, I'm assuming it's things like DCC? How are those things testing in marketplace? And then just on the pricing side, I think historically that's usually come together with rule changes or interchange adjustments. I didn't see any big changes, maybe I missed it. So I'm curious what the strategy is around the price in Canada?

Tien-Tsin, it's Jeff. I'll start and David, obviously and Paul can jump in. First on the pricing changes, there really has not been a meaningful interchange change from the networks in Canada for I believe three years now. But Tien-Tsin, that's an environment we've been living in for quite some time and have taken selective actions as you know over the last few years in that landscape. So we're not anticipating, Tien-Tsin, that, that change at all, and that's imbibed in our commentary -- in David's commentary about our outlook for fiscal '13. That's your second question first.

On your first question, we have introduced DCC into the marketplace in Canada. I can tell you that, that product is running ahead of our expectations at this point, which was part of my explanation to Jim in his questioning. And we hope and expect that to continue in Canada. We're also looking at introducing other new products and customers in different segments into that marketplace in fiscal '13. So I feel good about where we are. It's really the small medium size business spread diminution coupled with a relatively difficult macroeconomic climate in that region, but we're managing for that and I think we managed it well in the first quarter.

Okay. That's helpful. Thanks, Jeff. And then just a bigger picture question around APT and ISOs and buying in some of those ISOs. I know the VAR channel is quite attractive. It has a good asset. But I'm curious in general what the ISO reaction has been to you buying accelerated here? And I know there's been a lot of chatter about other portfolios potentially coming to market, and whether or not if that's something we should consider global -- committing more capital to doing and potentially bringing in more ISOs down the road? Just a bigger question around that if that makes sense thanks.

Okay, Tien-Tsin, this is Paul. The APT deal was unique in that there really not a lot of companies that we're familiar with that fit that profile. The reaction from our ISO customers has been I think the correct one and that is they know this has no impact on their relationship with us. It has no impact on their relationship with existing or potential customers. And they're in no way disadvantaged at all. In fact, it's possible they may pick up some additional services and offerings out of this deal as we understand more about what we can do with this asset. So the reaction has been pretty much really not much of a reaction at all quite frankly. Now so, and also to be clear on what we would -- do you expect to do more of these deals, I think it's probably unlikely we're going to be actively participating in other ISO opportunities because once again this was something that was unique.

Roman Leal, Goldman Sachs.

I guess as a follow-up to Tien-Tsin's, help us understand what are some of the potential uses of capital? And I know it's hard to answer the question, but $700 million is a lot of dry powder. And more curious on the timing just happens to coincide with a lot of chatter on the ISO front, but maybe help us understand what you're hearing elsewhere?

So Roman, this is David. I'll take the first part, maybe pass it off to Paul for a bit more color on the second. What you're seeing us do with the term loan and the addition to the revolving line of credit is indeed resetting the capital structure and resetting our dry powder. What that does is give us the flexibility to go forward and continue to pursue our growth strategies organic, inorganic, some more acquisitions, but also to pursue share buybacks as we talked to you before about, being opportunistic with those. We obviously have a current authorization of $150 million. As you heard in the prepared comments, we've used just a small bit of that because we were circumspect during the quarter on the way to actually getting close to executing the financing I described in the prepared comments. So what this really does is allow us to pursue exactly what we've described to you for some time in terms of capital strategy, continued organic expansion, continued focus on acquisitions that bring us either some version of near-term accretion and/or long-term growth opportunities married to consistent buybacks opportunistic or just routine in order to offset dilution. So we're on track to do all those things and really pleased to execute that in the middle of a lot of complexity around the Company. So very happy with the way all these pieces have come together, having the imminent close of APT married to that all works together very nicely for us. Want to add a little more color, Paul?

Yes, thanks David. Roman, I think your point about the chatter, I think what you're worried about the ISOs that potentially could be looking for a transaction. I would tell you it is a rare ISO, and I would speak for ours and I know some of that aren't ours, it's a rare ISO that isn't for sale at the right price. There's just some more overt action that takes place from time to time, but I would say it is to be expected and quite frankly although you never say never, I'm not -- I would not tell you to expect us to be actively engaged in any of those processes.

Okay, thanks. And maybe for Jeff, obviously there was a big announcement out of Brazil with the Redecard acquisition, just curious to hear your thoughts on how that changes if at all your strategy there?

Thanks, Roman. So just give you a quick update on Brazil, as a reminder, we're still in licensing with the networks. We're getting toward the tail end of that process in licensing and moving onto certification. I think one happy change with the Redecard transaction is that we're seeing a higher level of interest among potential bank partners in that market to pursue outsourcing, a JV, or other relationships with us for the sheer reason that they do view now Redecard really as being part of another financial institution. And I think it's one thing to be owned by a number of financial institutions for banking products and it's another to be owned by one especially a large ones. So we certainly have seen a pickup in interest, Roman, in the last number of months from financial institutions in Brazil in having an active dialogue with us which is consistent with what we thought and it's good news.

Great. And is there any update on the potential timing of getting your licenses which I think is maybe the last hurdle there? And also maybe -- sorry if I missed this, but on the tax rate, it was a little higher than we were expecting this quarter. What was the cause of that and I guess the implications are that the tax rates are going to be a little bit lower for the next few quarters?

I'll start, Roman, it's Jeff.

By the way, for the record, that was just one follow-up.

(Laughter). Artfully, it's two pieces. Roman, it's Jeff. I'll start with the Brazil question and I think David will talk about the tax rate.

So on Brazil, we're very much toward the tail end I believe of the licensing effort with both the networks in Brazil. And then it really moves toward certification. So what we're targeting is toward the tail end of this fiscal year, fiscal '13, to be in pilot and then to be live. That goes beyond the licensing and certification date because obviously then we're ramping up the sales force and introducing the products and then going into pilot. And February as you know in Brazil tends to be a pretty light month given the schedule down there. But I would say we're very pleased and on track with where we are with licensing, and we view certification as really the next step. And with our technology partner there, we feel like we've got a lot of visibility in getting that done.

And on the tax rate, Roman, I would point you back to 2012 where you saw the same trajectory, a higher Q1 and then a much lower Q2 through Q4. What's happened in each of the last two years to start the year is the UK has changed its effective corporate income tax rate. That causes us to revalue some of our deferred tax assets which causes us to take some extra tax expense in Q1. And then it all washes through with lower rates as you said in your question in Q2, Q3, and Q4 on the way to the about 29% we'd like to see for the full year.

Operator?

Glen Fodor, Morgan Stanley.

Asia-Pacific sounds like you, if I caught the message right, that the outlook for the year is just slightly couched a little bit more to the downside with about high single digit, low double digit caveat. Why the slight ramp down in expectations?

Hi, Glenn. It's David, and I'll let Paul comment as well. So what we saw in Q1, maybe not different from some other headlines you've seen around Asia, we saw a bit of a decline in average ticket which hindered growth a little bit. We're obviously watching that closely, maybe as important as anything else is we expect Asia to be on profit for the year. It was on profit for the quarter. We have managed out some unprofitable merchant relationships. You know about the airline we managed out two or three quarters ago. So that obviously is a bit hindrance to growth. So in looking at the macro in Asia, looking at the initial indicator of the average ticket, we're taking a slightly more cautious look on the top line in Asia, not the bottom line. We still expect our business in Asia to achieve its bottom line objectives. So when you pull the pieces together, we're expecting higher growth in Q3 and Q4 than we've seen in Q1, little better performance in Q2 as well. And to marry that, just explain a little bit because it's the obvious follow-up, what we're seeing is a couple of product launches in Q3 and Q4 from some of our big merchants, particularly some big electronics merchants. We do expect to have volume from some new referral partners we've signed coming online in Q3 and Q4 as well. We've got some target marketing actions around some of our products, installment payment plan products and dynamic currency products as well. But all-in, yes, you read the tea leaves correctly, a little cautious on the top line outlook, but feeling like the execution is there in Asia to drive the bottom line.

Okay, that's great color. Thanks, David. And then regarding Discover, just so I'm clear and how this relationship works, will you be actively soliciting merchants to accept it or is that just something that is on the merchant to come to you to say we want this PayPal acceptance? And then to map out the potential revenue lift for you, is it just simply we assume some level of volume increase with roughly your same economics or will there be something different there with this model?

Hi, Glenn. It's Jeff. Let me start with that, and then David and Paul obviously can jump in. So we're very pleased in our partnership with Discover and with PayPal that was part of our announcement today with our earnings. I would say that we are going to actively market this through Discover in the same way that we have a very active partnership with Discover in the United States and around the world today. So this is another way that we're making it easier for our merchants to accept any form of payment from a consumer that, that consumer chooses to utilize. So just like CUP for example, is something we enable acceptance for around the world, so is PayPal at the point-of-sale. In the United States, PayPal on PayPal is something else that we're going to enable acceptance of among our merchant base which I think is very exciting for them.

In terms of a revenue lift, I think it's too early to really get into that kind of segmentation. I think you'll note that Discover has said that this is really a Q2 2013 calendar initiative for Discover and PayPal. So we're very excited about it, but we really view it as a another point of technology enabled distribution that we can provide as a value to our customer base.

Glen, I would also tell you, in all fairness, it's similar economics. And the question is does it result in additional transactions going from cash or are you just taking another credit or debit card and turning it into this one. And quite frankly, we don't know that. We suspect probably a little bit of that, and I think -- so we're going to -- this is about offering products and services to our customers. It's about supporting Discover who has been a great partner, and quite frankly, PayPal is a good customer of ours as well. So it just made a lot of sense for us, but I would think the -- any revenue implications this year are going to be modest.

I would like to comment on Asia-Pacific though if I may and go back. The issue with Asia-Pacific, and we've said this a number of times, is about $35 million for the quarter. If it increased by 10% or 15% or 20%, I mean it's a very small increase for the Company overall. I mean it might impact the overall growth by 1% or 2% on the upper end. The opportunity for Asia is all about taking advantage of China and India, and heretofore we really haven't had that opportunity. With this transaction we're hoping will close in the not to distant future, we now can take advantage of that, and that's where the excitement is. So hopefully we'll be talking about Asian growth that is significant and eventually a significant part of our Company. All right thank you I appreciate that.

Kevin McVeigh, Macquarie.

Just wondering if you could give us a little more color on margin progression across international North America on a sequential basis quarterly for the balance of the year just directionally?

You mean just the segments themselves and how they shape over the course of the year?

Yes, and just so I think I'm clear, the full year impact of the margin progression would really be more significant in terms of the back half of the year, right, if it's a full year impact. So if it's 50 basis points, is it 100 in the back half of the year and that just annualizes to the 50, just a little more color on margins overall would be great?

Yes, sure. I'd be happy to give you some of those pieces. So the way to think about this just in terms of progression sequentially is that the North American margins likely hang around about where they are on a cash basis over the course of the year. You see a little bit more movement in the international pieces just depending on the timing of some FX and how the pieces come together in terms of the performance in which market at which margin do we see the performance over the course of the year. So you'll see more movement in international sequentially than domestic.

Now what you'll see in total, when we add all this together, is almost some traditional seasonality. So you see our margins dip a little bit into Q2 and then into Q3 which is are seasonally weakest quarter around the world, in other words, in every market around the world in that December through February period for us you'll see our lowest margin and then you'll see the margins come back maybe toward even Q1 levels in Q4. And then all-in, that's where you'll get the overall impact. Now recall, when I say that about the US margins that means -- or the US margins, excuse me the North America margins, they're being held by the addition of APT coming in Q2 in helping provide a little bit more balance to that margin in Qs 2, 3, and 4, hence the trajectory there may be a little different from your model right now just because that little bit of extra help you get in each of the quarters from APT.

Super. And then any sense of -- and this may be hard to segment, but of the $850 million, how much would be dedicated towards buyback, it sounds like you'd be a little hampered in the quarter versus growing the business organically versus potential acquisitions?

I think what you have to like about what we've done in terms of resetting the cap structure is we have attractive pricing, we have attractive amortization, so we now have the flexibility to pursue what are not mutually exclusive goals. So we have in extent authorization for buyback. As you know, we have a track record of executing on those buybacks, there's $138 million remaining. So it's premature to talk about anything beyond what we've done today, and the fact that we have a track record to execute on those, but this gives us the opportunity to do both those things and continue to pursue growth while appropriately balancing that with returning capital to shareholders with buybacks. And that's really how I think about the dry powder at this point.

I would just say -- it's Jeff. Let me just add to what David said. I would say from an M&A pipeline point of view, we still have a very full pipeline. I would say most of the deals are probably on the smaller side in terms of purchase price from a capital point of view versus some of the deals that we've done to date. So we're pleased with the opportunities, but those look like they're probably going toward the smaller side versus the larger.

Brett Huff, Stephens Incorporated.

Hi, can you guys hear me okay?

Sure can, Brett.

I hope everybody's doing well today.

Thank you.

David, just a quick question for you, in terms of the cash available, I know some of your cash is overseas, can you remind us what the split is between what you can use for a repo and what you can't?

Yes, I think the simplest answer, Brett, is we can assume right now that almost every dollar of that available cash is abroad, is overseas. And it was another piece of what was important about straightening out the cap structure was to make sure we have the flexibility to go anywhere with capital deployment. So appreciate the question -- I'm glad -- I should have highlighted that earlier.

Okay, that's helpful, thanks. And then I guess my follow-up, and I'm not sure who is best to answer this, but you alluded to Europe as still being an interesting place where some portfolios might come. Can you just give us a sense of what things you're thinking, what your sense is near and medium term about what attractive portfolios might be out there? I mean in my view, you guys are the best acquirer of those portfolios if I'm a bank in Europe. Can you just give us more color on that because I think a lot of folks are interested in hearing about that?

Brett, thank you for that last comment. This is Paul. I would say that we are limited in what we can say. We will tell you that part of the pipeline that Jeff just referred to does involve Europe and there are some attractive properties. We can talk about one opportunity in Spain. As you know [Vikasha] has purchased some financial institutions or is merging with those and they do have some portfolios available, and you know that we always said that when that happens we'll have an opportunity to do something there. Those aren't big at all. But there are some other opportunities outside of Spain that we are pursuing, so I would tell you stay tuned.

Wayne Johnson, Raymond James.

More of an industry centric question, could you comment on the impact, if any, Square, Groupon, their pricing strategy per payment processing in the small retail market, is that a potential threat to industry pricing? Does it impact GPN? Just any commentary around that, Paul, would be very helpful.

Okay, Wayne, thank you. I think it would be disingenuous to suggest that all the advertisements where in particular and of course some recent announcements from Groupon that's trying one-up them, doesn't have some impact? So you could say that they've kind of set the high bar at whatever they announced.

Now, the reality is there's a lot more to pricing. I think that our ISOs who are primarily involved with that space, that's not really something we pitch directly, they do sign tens of thousands of new customers every single month with us and successfully doing so. And in some cases the headline rate is lower than the Square rate. In many cases, though, it is not, and in most cases there are some fees, appropriate fees. I think the major difference between what they're doing and what Square's doing, I would say their business is pretty profitable. I think Square has different objectives other than profit because at these levels on these merchants, they can't be making a whole bunch. I think Groupon, obviously, I don't have any deep insight there, Wayne, but they're taking advantage of touching all of those merchants and that's probably a clever add-on. And they are another ISO for want of a better term. And welcome to the party and let's see how they do.

Okay. That's really helpful. And just a question on a Company specific item. Could you give us an update on how the domestic G2 conversion is going, any directional color there would be helpful?

Yes, Wayne, it's David. We continue to move the methodically through the G2 migrations. As we've discussed, we're not giving lots of highlights and still not giving expectations. We have moved large customers including our largest customer onto the platform. And we continue to move through and very collaborative environment with our customers as we nail their requirements and we're ready to move and they are ready to move, we continue to move through the base. So we think we're on track and continuing the solid performance in this regard, not highlighting it because with everything else going on with all the moving parts, it's not core of the strategy to rush customers toward G2 when they're profiting perfectly well with great service on existing platforms.

Bryan Keane, Deutsche Bank.

Hi, this is Ashish calling on behalf of Bryan Keane. Quick question on the Durbin benefit. Can you just let us know if you're still getting that benefit from Durbin Amendment and -- or has it been completed of it? And what are your expectations of that benefit going forward?

This is David. At this point, it would be difficult analytically to find the impact and parse out the impact of the debit legislation. Anything we've discussed with you before, which really dates back almost to January when we last really parsed this individually, remains of the base. We do expect obviously over a very long period of time mortifying to some level and pricing is pricing, but right now the price is the price and any debit legislation is in the price, continues to be in the price, and we continue to work in a highly competitive market signing new merchants and retaining and maintaining existing. But analytically, it would be very difficult to parse that out for you the right now.

Okay. So the expectation is that it will continue to help going forward and obviously the question was just how long do you think it will be before completed of it? And then a quick follow-up on Visa's new debit strategy. So they have this new debit strategy where they're giving out increased incentives for the merchants and acquirers. Have you seen any benefit from that and have you seen any change in routing volume based on those benefits? If you can provide any color on that.

Sure, happy to. I think first, I'd start by reminding you and everyone else that routing is something we do on behalf of our customers as inexpensively and as well as we can. That means on a routine basis, we are always looking for the cheapest option. I don't regard the debit routing incentives that you're describing that have been disclosed by other parties in the market as a huge seat change in the way debit is processed in the market in terms of the economics to us. Each couple of years we're looking almost from a procurement perspective to get the best deal we can and this is this year's example of it. Is there a benefit in our income statement this year? Absolutely, it is quite small and nothing I would point out to you very directly. I would suggest it's probably an effective strategy and we're happy to work with folks who incent us and give us the best benefits we can to give routing and drive the most volume to the right places.

Jason Kupferberg, Jefferies & Company.

Wanted to just ask a follow-up on the question regarding some of the newer entrants to the market and particularly with Square and Starbucks. Paul, just to get your gut feeling, if we're sitting here 12 to 18 months from now, do you think we'll be saying that Starbucks is a one-off for Square in terms of a real large merchant signing up with them and Paymentech or do you think that it has the potential to actually set off a chain reaction among other large retailers in that type of quick serve retail environment.

Yes, I would think -- I would say more the former. I think it's -- I'm not in any way dissing the clever nature of it, and I think that certainly garners a lot of headlines, but there are some inherent pricing disadvantages to how they're approaching it. And also some of the sexy stuff they're doing is still not to be realized and quite frankly not proprietary, like facial recognition and things.

What I would say, Jason, is that I think you'll see more clever, creative approaches, but I think what we saw with PayPal is more indicative. And I know it sounds a little self-serving, but I happen to believe it's 100% accurate, it's more indicative I think of how we'll see things happen. There are very well worn, very proven ways to get back and forth to merchants, and those people that want to ride those rails and willing to pay all the participants appropriately will find themselves with a huge amount of new customers. I think the PayPal adoption versus the Square adoption, I think you'll see some significant differences with the emphasis on the PayPal side just because of what they're doing.

Okay. And just to shift gears a bit into the gaming business. I know it's not that big in terms of revenue, but it is high margin and just given some of the shakiness in the of the macro environment and discretionary consumer spending, any impact on your gaining business or just talk about how it's performing versus plan?

Thus far, Jason -- this is David -- it's right on track for what we expected so we haven't seen it yet. Interesting question, it certainly bears watching and we are watching closely, but thus far, right on track.

And Jason, it's Jeff. I would just add to that, we're very pleased with how we're doing in new wins in the gaming business. You probably saw probably saw our press release some time ago about a new customer win, and we're very happy with how that's going and more to come.

That's great color. Just lastly on Brazil, any more color on your plans to sell into that market this fiscal year? Are we still looking at another few pennies or so of investment in that market in fiscal '13 similar to last year?

Yes, Jason, we are, not this so much, it's really off the run rate of last Q4. So it's up a bit year over year about sort of lost in the sauce inside of $3 plus of overall cash earnings.

Dan Perlin, RBC Capital Markets.

So, Paul, I wanted to come back to the JV -- HSBC JV buy-in, and you talk about this as being a huge opportunity long-term. And what I'm trying to reconcile is the timing of the potential for these deals, understanding that if you CUP in one market, I don't know, something like five years, and so by having CUP sign off on you guys is that like the due diligence check in that market and that's what gives you confidence to believe that these other large financial institutions will be willing to join forces with you? Or are you just talking in the context of five, six, seven years from now, this is going to be big for global?

I would say the former not the latter that we think this has a more immediate impact. Now, I will tell you, even though, in fact, we haven't actually closed the deal yet, but we haven't been waiting to do that to have conversations number one. Number two, they're not just necessarily CUP related, I think your point is well made though. It took years and years and years, Dan, to establish a presence. By the way, we're in four areas now with CUP.

We haven't really made a big deal out of it, but we now have expanded that geography well beyond where we were even the last call. I think we had two last one and we added two more since. So we're expanding throughout PRC with CUP acceptance, but what we're talking about is something even more dramatic than that. Now, I hesitate to say that, that will take six months or six years, but the bias is to have something happen more quickly that is -- that will move the needle, and that's what we're all focused on.

And Dan, this is David. Maybe a little more color. Part of that focus is additional partnerships that you can structure now while maintaining the fabulous partnership we have with HSBC and the marketing, you can tell that from the extension of the marketing group with them. But expanding partnerships around the region rather than a pure singular focus on China which is a bit of how I took your question. So there are opportunities to move maybe more quickly than just the China you've tracked over the last few years.

That's an excellent point. Thank you, David. Because India and also some other markets that quite frankly we're not in, but we'd like to, that to have some reasonable demographics.

Right, okay. So that's a point well taken and the idea is that post closing and even pre-closing you're having these discussions throughout all of Asia, and the way we should be thinking about it is hopefully 12 months hence closing we will have something. And these deals when you talk about them are you talking about them insignificant unto themselves or are you talking about it in the basket of all of these deals once aggregated?

I think it's -- that's also tough to pin us down. I would say both. There are some countries where you're looking at a series of relationships and there's others where just one could be significant. And we will approach them all differently and there's other ways to -- there's ways to structure those relationships, not necessarily all cash. So there's a couple -- we've been working for quite some time, and I would say this, you're right, in a year from now, if we're still talking about this and we don't have anything to show for it, I'll be disappointed.

Okay. And then since everyone else got to ask three questions, I'll ask one more. The deal with APT to me, clearly not about revenues at this point at least. And it's certainly seemingly more about protectionist and the expansion of your North American margins which we've all complained about for so long. But once that gets absorbed into the system, then we have to still worry about North American margin degradation because we will grow over the 70 basis points. So I'm just wondering what's the next act that you have that you can utilize this asset for to have paid so much money for. Thanks, I'll jump off.

Okay. So again, let me start that and I'm going to ask David to jump in too. First of all, the 50 basis points is just for this year's impact. It will offer more than that on a longer-term basis in addition because it's and accretive grower to our business. Those margin benefits, we continue to enjoy those margin benefits going forward. So as we -- this business -- if it just maintains its growth rate, we hope to accelerate it, we'll continue to get margin benefits of significantly more than that for year after year after year. The other actions we're taking is that we are going to be entering the next fiscal year with a terrific operating platform that offers leverage opportunities. And in North America, in general, Jeff is growing the US. You guys haven't seen that in a long time, and that's -- he's doing a terrific job with that. And we think that Canada does stabilize over time. So there's a number of nice things that we can look forward to in North America. And internationally, we have I think we're in the best markets, we have some wonderful businesses, and we have opportunities to execute on a number of initiatives there too. And I think the story there is pretty bright. David?

Excellent, thank you.

Thank you. David, you want say anything? No, okay. Okay, operator, another question?

Glenn Greene, Oppenheimer & Co.

I'll just keep it to a couple of questions. The first one's pretty easy for David on Vikasha. I guess I was surprised a little bit that Spain was up modestly. I was wondering if you could give us the volume based growth versus the pricing growth or was it all volume based?

Glenn, we don't really parse the specific markets out. If you look at Spain itself, we saw transaction growth there. You continue, as you would expect in that market and that economy, to see pressure on average ticket. So all-in, I think we're seeing organic growth, and that's a tribute to the partner we have in that market, Vikasha. So fundamentally, we have organic growth in Spain which I think is a pretty unique thing to say.

Okay. And then I'll throw in one more Square question for Paul. And the only reason I ask this is because it seems to be there is a lot of confusion out in the market and the way you describe it I thought was pretty helpful. Is it just simply the best way to think about this is they're kind of comparable to an ISO, and the competitive threat to someone like a global would be sort of an indirect competitive threat to the extent that they can potentially take away business from one of your ISOs?

Is he talking about Groupon? I missed it.

No, Square.

I think, Glenn, Square is another competitor. I think they've done a very clever job of going after a much smaller customer and I think they are -- in their innovation with the first guy out, their advertisement, that stuff is all very impressive and Jack Dorsey is an impressive guy. He's bringing some excitement to our business, and I personally am grateful for that. But in terms of what impact it has for us, I would say it's not a business we're in, number one -- with Starbucks aside, although that wasn't our customer -- it's not business we're in, number one.

Number two, he's got, I will tell you, he's got some challenges if that is his economic model. The reason none of us have chased that business is it's not terribly attractive. Now we do have one of our ISOs who signs thousands and thousands of Square-like merchants right now successfully. He has a slightly different model. He hasn't cornered the market on that. So long story short, I would say that there are more benefits to have Square as a competitor quite frankly than there are negatives.

Not to bully, I won't get into the benefits because that could be a long answer. So I think I'll just leave it at that and say thank you

Glenn, thank you. Okay, well ladies and gentlemen, thank you so much for joining us on the call this evening.

This concludes today's conference call. You may now disconnect.