環匯 (GPN) 2013 Q4 法說會逐字稿

Welcome to the Global Payments' fourth quarter and year end fiscal 2013 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.

Good afternoon, and welcome to Global Payments' fiscal 2013 fourth quarter and year end conference call.

Our call today is scheduled for one hour and joining me on the call are Paul Garcia, Chairman and CEO, Jeff Sloan, President, and David Mangum, Senior Executive Vice President and CFO. Before we begin, I would like to remind you that some of the comments made by management during the conference call contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to vary, which are discussed in our public releases including our most recent 10-K. We caution you not to put undue reliance on forward-looking statements. Forward-looking statements made during this call speak only as of the date of this call.

In addition, some of the comments made on this call may refer to certain measures such as 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 today, July 25, 2013, which may be located under the Investor Relations area on our website at www.GlobalPaymentInc.com.

Now, I would like to call introduce Paul Garcia. Paul?

Thank you, Jane and thanks to everyone for joining us this afternoon.

For fiscal 2013, we delivered revenue of $2.4 billion, and cash earnings per share of $3.65. Fourth quarter cash earnings per share of $0.98 was towards the lower end of our expectations primarily due to lower than expected volumes in Asia. As you know, we focused a significant portion of our efforts in fiscal 2013 on remediating security processes and regaining our PCI certification. As part of these initiatives, we accelerated planned investment in technology during 2013 to provide improved scalability for years to come, including new technology infrastructure, data centers and enhanced security capabilities.

A key element of our planned 2014 growth is through the expansion of new and existing distribution channels, which we call our partner of choice strategy. We are successfully partnering with financial institutions, value added resellers, and other payment service providers offering merchants high quality payment services around the world. Our business in the United States has benefited from differentiated distribution through the strategic acquisition of APT, which has performed above our expectations, and we anticipate it to continue to perform well in the coming year.

I'm also happy to announce that we recently signed a multi-year contract extension with our largest and fastest growing US third-party sales partner. Canada reported solid operating metrics and flat revenue growth in local currency in the fourth quarter. Very importantly, May delivered the revenue growth we expected. This performance sets Canada up for a much improved 2014.

We are also delighted to announce a significant expansion of our relationship with CaixaBank. Given the success of our joint venture in Spain, we will now partner in Brazil with the opportunity to further expand our partnership into other markets in Latin America over time. CaixaBank will take a 50% share in Global Payments Brazil and will bring additional global customers, leading edge products, and their acknowledged expertise into the Brazilian market. We plan to rename the company Comercia Global Payments Brazil. This investment underscores the strength of the relationship we have developed with CaixaBank.

In our international segment, Europe's strong revenue growth of 7% for the year was driven by solid performance in all geographies. As payments evolve around the world, we continue to look for innovative partnership opportunities to provide cutting-edge solutions for our merchants. As such, I'm happy to announce that we recently initiated a new partnership in the UK with Paypal Here, a mobile POS product which we expect to launch in late summer.

We posted flat revenue performance in Asia for fiscal 2013, however, we expect to increase our market penetration and drive revenue growth in 2014. In fact, we are making progress in Asia, signing additional distribution partnerships as we speak. Finally, we are committed to completing additional strategic acquisitions and to continued share buybacks as evidenced by the newly announced $250 million authorization.

Now, I'll turn the call over to David. David?

Thank you, Paul.

Fourth quarter cash earnings came in toward the lower end of our range of expectations, primarily due to performance in Asia and Canada. On a year-over-year basis, currency changes negatively affected total company revenues and cash earnings for the fourth quarter by about $6 million and $0.02 per share respectively. North America revenue grow 4% with US revenue growth of 6%.

During the quarter, new fees that payment networks introduced last year annualized and the fees billed by our ISO channel in aggregate grew sat a slower pace than in the same quarter in fiscal 2012. As a result, we reported a lower revenue growth rate than in a typical fourth quarter. However, it was about what we expected, and as a reminder, ISO fees to merchants are revenue pass-throughs to us and have no effect on operating income.

In Canada, transactions grew 3% for the quarter, while credit spreads were down about 4%. We implemented our repricing actions as planned late in the quarter, resulting in strong performance exiting the year in May. North America cash operating margin was 17.8%, with operating income down 1% for the quarter. This reflects growth in the US, offset by an increase in technology spending and performance in Canada. International revenue grew 2% for the quarter in US dollars.

US dollar revenue growth in Europe of 3% reflects unfavorable currency exchange trends, especially in the UK. In local currency, Europe delivered solid revenue transaction growth in all markets. Asia-Pacific revenue declined 3% over last year primarily due to lower than expected ecommerce and retail volumes across the region.

International cash operating income of $57 million was down 7% compared to last year, primarily due to performance in Asia and currency translation. Fourth quarter GAAP and cash tax rates were in line with our expectations at 28.6% and 28.5% respectively. During the fourth quarter, we incurred pre-tax charges of $28.5 million for data intrusion remediation efforts. Full year expenses totaled approximately $37 million, net of about $20 million of insurance proceeds. Remediation costs have recently run higher as we work to ensure all of our applications, tools, and systems fully reflect our revised security standards and are operating at our required production scale and performance levels as we enter 2014.

For the fourth quarter, we generated free cash flow of $101.6 million. We define free cash flow as net operating cash flows, excluding the impact of settlement assets and obligations, less capital expenditures and distributions to noncontrolling interests. Capital expenditures were a little under our expectations at $23.6 million and $98.6 million for the fourth quarter and full year respectively. Our total available cash, including working capital, at the end of the year was approximately $250 million.

And for the year, we purchased a total of $175 million of shares under our original July 2012 $300 million authorization. This includes the $125 million accelerated share repurchase program that we announced in January and which we completed during the fourth quarter, as well as an additional $38 million of shares repurchased during the fourth quarter under this authorization. We anticipate completing the $300 million authorization during the first quarter of 2014. All purchases under this program are included in our 2014 financial expectations.

I am also pleased that our Board of Directors has authorized a new repurchase program of $250 million for further buybacks. Potential share repurchases under this new $250 million authorization are not included in our fiscal 2014 expectations.

So now let's turn to 2014. We expect revenue to range from $2.51 billion to $2.56 billion, reflecting 6% to 8% growth, and cash earnings per share to range from $3.93 to $4 per share, reflecting 8% to 10% growth over fiscal 2013. Our fiscal 2014 outlook includes an incremental step function increase in security spending of approximately $17 million, or as much as $0.15 per share, and without this increase, cash earnings per share growth for the year would be 12% to 14%. We expect total company cash operating margins, which includes the negative affect of the security spending, to be slightly down compared to fiscal 2013.

We expect North America revenue to grow at a mid to high single-digit level with growth in the US of mid to high single-digits and Canadian revenue growth in the mid single-digit range in local currency. We expect cash operating margins in North America to be about flat to perhaps slightly increasing. We expect cash EBIT dollars to increase in the mid single-digits compared to last year with both our core US business and Canada increasing.

We anticipate that our international revenues and cash EBIT will grow mid to high single-digits in US dollars. We expect stable cash operating margins for International. We expect mid to high single-digit revenue growth rates in local currency in the UK and Spain, strong double-digit growth in Russia, and flat revenue in the Czech Republic. We expect Asia to produce mid single-digit revenue growth.

We expect foreign currency effects to be about neutral to a slight headwind for cash earnings per share for the full year. We expect our effective tax rate to be about 29% and our diluted share count to be about 75 million. And, as with 2013, we anticipate our highest tax rate, over 30%, in the first quarter with the other quarters then coming in at lower tax rates. We expect the distribution of quarterly cash earnings per share to be roughly consistent with 2013. And finally, we expect capital expenditures on the order of $90 million.

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

Thank you, David.

To recap, for fiscal 2014, we intend to grow revenues in the high single-digits, and cash earnings growth from at least that rate to the low double-digits. Importantly, these expectations include a significant step-up in security costs of $0.15 in cash earnings per share for the year. Excluding these costs, annual cash earnings per share growth for fiscal 2014 would be 12% to 14%.

We are positioning our Company for sustainable long-term growth throughout all regions and capitalizing on our scalable technological infrastructure and financial flexibility.

I'll now turn the call over to Jane.

Before we begin the question-and-answer session, I'd you 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.

And operator, we will now go to questions.

Thank you. We will now begin the Q&A portion of today's call.

(Operator Instructions)

Our first question will come from the line of Tien-Tsin Huang, JP Morgan.

I'll ask about Canada. Just Canada with the flat revenues, I think you all were looking for something slightly positive on a constant currency basis. It looks like transactions picked up. So what was the delta there and also in May, can we assume it was growing in the mid single-digits and that is what is giving you confidence in the mid single-digit outlook for the year?

Yes, Tien-Tsin, this is David. Overall for the quarter, we did see volume and transaction growth. I would say it was just a little lighter than we expected and so Canada fell a little shy of our revenue expectations. If you go back to when we were entering the quarter, I would have said, and I'm sure I did say, it is a very important quarter for Canada and that we wanted to see stability in the core metrics there and I think the good news is we did. We saw relatively stable metrics return to a little bit better transaction growth, 3%. Maybe most important of all and really importantly that was consistent with the third quarter, we saw about a 4% decline in core credit spreads, so as we discussed going into the quarter, more manageable declines and that is of course before any impact from any re-prices.

So then you really hit the nail on the head with the most important part of the quarter for Canada, relatively stable metrics, nice sort of base from which then to go ahead and implement the price increases driven by the network assessment changes in the market. Those did indeed go in late in the quarter in May, as planned. That performance in May sets us up for a much improved '14. I'm not really going to parse exactly what growth was in '14 but you're on the right track. Nice growth in '14, nice implementation of the price increases with reasonably solid underlying metrics mean that I'm far less concerned about a little bit of lightness in revenue in Q4 in Canada. Much more pleased about the outlook for Canada in '14 as we head into the year giving the implementation of the re-price.

Tien-Tsin, it's Jeff. And just to add to what David said, what we talked about in January on investor day was to make sure we exit '13 with a stabilization in Canada. I think David described it about exactly right about where we are. I do think his guidance for fiscal '14 about Canadian revenue growth in mid single-digits in local currency is really where we want to be.

Okay. Got it. And then Asia, I know you said it is lower than expected, lower than we expected it as well. Just it sounds like there is some distribution deals that you are working on. Again, same question there visibility to get back to growth in '14, it feels like it has been steadily declining or decelerating, so just trying to get a sense of the visibility there.

Obviously, fair question as that was one of the real challenges for the quarter. We do have new distribution partners who have come online. It is certainly not enough volume to have offset what we saw in Q4 but it should build nicely over the course of '14. Maybe as important or more important will be new partners we bring over the course of '14 and maybe when I'm finished with this part of the answer I'll let Paul add a little bit more color to that piece. But really what we saw in Q4 in Asia was some sequential deceleration, deceleration to make sure I'm clear on that, in ecommerce and really a year-over-year decline that was obviously unexpected. We saw weakness in general retail as well. That was headlined by a year-over-year decline in one of our larger customers in the region and a little bit of weakness in DCC and IPP where we had expected the growth in the installment payment plan products.

I think when I think about going into '14 then, a couple of things really go in our favor. Quite honestly, the most straightforward one is are the comparables are much easier. We have seen relatively stable underlying metrics as we exit the year. So transaction growth, for example, across the region. Relatively stable tickets and solid growth in transactions and volume in general should set us up for the kind of growth we are talking about. And we are not expecting anything other than solid but not spectacular growth across the same product lines I was discussing earlier, retail, ecommerce, DCC, IPP, and then we'll do a little bit of targeted re-pricing in markets that can support that over the course of the year. So all in, I think if you look at the way we exit '14, you are right, not a lot of great things going on in the Q4 of '14 -- or Q4 of '13, excuse me, as we enter '14, looking for solid but not spectacular performance and I think we are poised to deliver that over the course of the year.

So Tien-Tsin, this is Paul. I would add that keep in mind that Asia is 6% of our revenue. And we are committed to grow it. But the bigger story is that Asia should be a much larger percent of our revenue. By growing it 10% is not, quite frankly, satisfactory. We have a -- and to be specific, I was asked a quarter ago, how long is this going to take? Now there is no -- there is no guarantee on deals in strategic alliances and all the things we are working on. But we feel we have enough irons in the fire that I made a pretty bold statement that we would get something done and I'm sticking to that statement. We are going to get something done. So we're going to grow Asia organically but we have high expectations of something more dramatic in some exciting areas and I understand everyone needs to wait and see that. And, you know, we plan to deliver that.

Okay. Thank you.

Your next question comes from the line of Dan Perlin, RBC.

Thanks. So I had a couple of questions. Can you start off by helping me disaggregate a bit on the top line for fiscal '14, the guidance? You know, this part of it is pricing, this part of it's transactions, this part of it's products, but I would like to get a better sense because I hear David talking a lot about pricing which sometimes is much harder to grind out versus the feeling that there is something better in the region or you have got some products, you've got some partners. So if you could just help me parse that a bit, I would appreciate it.

Sure, Dan. Happy to do that. I think in regard to pricing, I'd point out we were earlier talking about Canada there and the changes driven by the networks more than anything else on a worldwide basis. So if you were to disaggregate the way the markets are going to roll out or the way we think they are going to roll out over the course of the year, the US is an amalgamate of a number of product lines. In the US, we are expecting consistent growth from the ISO channel but reflecting essentially the law of large numbers, that channel gets ever bigger so on a percentage growth basis, it's not going to grow at the same rate it may have grown in '13 just as '13 didn't grow the same as '12. And the direct channel, you are familiar with our direct business there. It's going to perform solidly as it has for the last year or two. No real change in trend there if you are thinking about how should I take my model forward from '13 into '14. That direct channel includes of course our joint venture with Comerica which performed well in 2013 and we'll continue to execute well in 2014.

The gaming business we talk about from time to time is a very nice vertical play in the United States that generally hovers around high single-digit to low double digit revenue growth. It should perform again at that same level in 2014 based on our current expectations. We now will fully annualize APT, the acquisition from last year, and we are expecting that to continue to grow in the mid teens with real operating leverage as well. So all in the US, we are talking about mid to high single-digit revenue growth and operating income or EBIT improvement in the United States as well. So those are the pieces of the US and where we expect growth. When you think about the underlying metrics, while we do not provide forward-looking guidance on things like the operating metrics, we really are not looking for any fundamental sea change in how fast transactions grow or what happens with average tickets, hence what happens with volume at all in the United States.

In Canada, we are looking for continued solid metric growth. So transaction growth, fueling volume growth, stable average tickets, and then that is the one market where I would really call out pricing because of what is going to happen from the networks, what already happened from one network, what happens again from the other network come July. So consistent performance of what we saw in Q3 and Q4 with underlying metrics that then results in mid single-digit revenue growth in local currency. Now if you are doing your model, one thing to keep in mind is Canada is one place that will likely get hit by currency in 2014. So mid single-digit revenue growth in local currency there will be ameliorated somewhat by the effect of currency.

So let's keep going east and we'll head to Europe where in the United Kingdom, same underlying comment I had made in the other markets. In the United Kingdom, we have, as you're familiar with, a couple of product lines but the core credit and debit processing business we expect to perform in very similar fashion to the way it performed in 2013. So that is in local currency. Mid to high single-digit revenue growth. Now that base business will grow in our international acquiring business or acquiring cross border. Card-not-present transactions will continue to grow well and help fuel that growth as well. In Spain, we are actually looking for again, mid to high single-digit growth, once again defying gravity in a Spanish economy with our partner CaixaBank. Again, in Spain, though I would you say once more, transaction growth consistent with 2013 is helping to drive that.

With Russia, we have seen really accelerated high double-digit volume and transaction growth. We expect that still going into 2014 but we've brought those expectations down just a hair. Again, the business keeps getting bigger therefore expect the exact same percentage growth. We'll take a couple points off of that as the business gets a little bit bigger but the same kind of strong, double-digit revenue growth we saw in 2013. Then the business in GP remains flat so very consistent assumptions as you're building your model for that business going forward. And then with Asia, it's really the answer I was chatting about with Tien-Tsin just a moment ago, which are the 2013 was a challenge, the comparables are set and the question becomes can we grow over that 2013 comparable with a mix of better penetration with the existing products, improved distribution, and then can we see just a little bit more stable underlying metrics and we think we are poised for that as we go into '14. So all in, I don't think there are a lot of surprises if we pull apart the guidance at a little lower level of detail for you. It is mid to high single-digit growth in North America. It's international growth in total of mid to high single-digits which is an amalgam of an awful lot of really nice trends and a little bit of a haircut due to FX adding up to the full range 6% to 8% year-over-year at a total company level.

Okay. And then let me just ask one other one because that was a long answer so then I'll hop off. Paul you talked about acquisitions and it sounded like -- you kind of hit it quickly but you sounded like you were a lot more serious about it in the way you kind of presented it. So is that something that we need to be mindful of and if so is there a geography that you are hopeful and maybe more serious about going after?

Dan, we have a pretty good pipeline and they are in pretty much in all of the geographies that we are involved in. But the question was about Asia. And I think what I said was that -- the reason we bought the other piece of the business from HSBC was in part to give us the flexibility to do some other deals. And we've been having -- now that -- when did we do that transaction, David?

December we closed it.

Okay, so we have had some conversations prior to that date, but now we're very serious about it. And yes, we very focused so I would say that Asia is a primary candidate for us doing some new types of deals. Now there are some other opportunities around the world we're looking at as well. But Asia is a primary point of focus for us as we speak.

Okay. Thank you. Your next question will come from the line of Roman Leal, Goldman Sachs.

Great. So similar question on just the breakout of all of the different drivers but just on the margin side, can you give us -- can you perhaps disaggregate as much as you can what is driving the margins, specifically, North American international would be great, but especially in international, why not show -- what is handicapping the margin in 2014 there?

Happy to share that you with, Roman. This is David. So if you take the pieces of margin and total for the Company. I'm going to do North America first. I'll spend a little bit of time on international. North America is the addition of APT and is the law of large numbers hits with ISO. There's going to be a little less pressure than the ISOs than you may have seen a year or two ago. And then the improved performance in Canada, as you well know with the ongoing ISO pressure, having our second largest business then, creating a big margin challenge. It's been among the more difficult things to manage from a margin perspective for the last couple of years. So to have that asset turn around in '14 as we expect makes all the difference. And then being able to see a flat to slightly increasing margin on a cash basis in North America.

In international, you really have two stories not unlike the revenue story in Q4, quite frankly. The more mature markets, or the more established markets is probably a better phrase, particularly in Europe, Spain, the UK continue to drive operating leverage and continue to drive margins forward, continue to drive operating income growth. We also see Russia and are continuing to drive real substantial leverage, double-digit growth, growth well into the double-digits on the revenue side, obviously translating into really nice income growth as well, and a very solid central Europe business. But what happens in the opposite direction is Asia. So in Asia, though we are expecting some solid revenue growth, or at least a return to growth, in the mid single-digits, we really are not slowing down, what I guess I might describe as investment in Asia for the long term.

When you hear Paul describe the long-term opportunity of Asia, the opportunity for more partners, the opportunity to bring more partners in, what that says to us is we should keep investigating in a circumspect and appropriate manner, but keep investing in Asia, not starve it of investment and keep an eye on the long-term growth opportunities. So we are investing in infrastructure improvements there for scalability. We are migrating India, a huge growth opportunity market for us we think long-term off of a legacy platform operated by HSBC under our own front end and back end platforms, and we are looking to invest in other partnerships across the region. So what you end up with is then operating income and hence growing much slower than revenue, and as a result, a pretty good sized drag on margins overall for international that then are sort of offset by Europe and then to the extent you feel a little bit of FX here and there, that would be the reconciling item probably to anything you have in your model.

If you then pop that up to the total company between those two regions, you have got something where we are expecting margins to be slightly down, including security. That again is the ISO, the APT, the Europe, then the Asia with security then you can do your own math obviously off the prepared comments but security obviously is taking that margin backward on the order of 70 basis points. So you have some slight to modest margin expansion were it not for the security in total on a total company revenue.

That's helpful. And then Paul, your buy back authorization, maybe help us think to the timing of the potential timing on that? Is that going to be a balance between what you are what seeing in Asia and other parts of the pipeline? Any color in the potential timing on that buyback will be helpful. Thanks.

Okay, Roman. I can't be specific as to timing other than I think we have a long track record of saying that we have authorizations and then executing on them and I would just ask you to rely on our past behaviors. However, our first use for our cash and our leverage is to do deals. Accretive deals in important areas. But we feel that we can carry out both of those objectives or we wouldn't have asked the Board to authorize what we did.

This is Dave. I'll add a little more color to that. Let us finish the previous authorization over the course of this quarter and we'll come back based on judgment as to the pipeline and timing as to what pace to embark on the next authorization. But as Paul said quite rightly, I think we have a track record of executing them when we announce them, and we do believe we have the resources to both execute -- really to execute the entire strategy we described to you going back to January of the first priority of supporting long-term growth and business expansion with ongoing routine share repurchases complimenting that.

And your next question will come from the line of Dave Koning, Baird.

First of all, I just wondered international cash EBIT was down I think 7% year-over-year and I don't remember you really addressing that in the prepared remarks but that is down a little more than usual because it usually grows pretty well, if you could just talk through that for just a minute.

Yes, David. It's David. I'm happy to add more color. For the quarter, it is really two big drivers. It is Asia, which is down. As you might imagine given the color a little earlier on Asia. So revenue growth as you can see on the face of the income statement is down. We have not arrested spending in Asia so operating income is down. In fact, operating income would be down sort of proportionately with a greater effect than on revenue given what we are still spending on the infrastructure and on some of the migrations over there in Asia. At the same time then, we have very solid performance across the board in Europe that gets clipped by currency. So between Asia and currency, there is really your delta between what you may have expected or what we may have hoped to report for international overall versus what we did report.

Okay, and then just secondly, did the elevated security costs going into next year that are going to run through the normalized earnings, is that going to be nonrecurring as we look out or is that something that you expect to be on going?

I would describe that is a new run rate for a revised security posture for the Company. So to be painfully clear, we do not expect another increase of $17 million in 2015. $17 million represents the new base -- $17 million added to whatever other security we already had, represents a new baseline that we would hope to actually scale. We've implemented a ton of tools. Lots of new managed services. We worked hard on perimeter defenses, internal monitoring, reporting, all the things you can imagine, leveraging partners, increasing headcount where appropriate. All of that again, I would say is a new baseline from which we then hopefully scale over the course of '15 and beyond.

And David, this is Paul. That is quite frankly why we called it out because it is a step up.

Okay. Great. Thank you.

Our next question will come from the line of Jason Kupferberg, Jefferies & Company.

Just wanted to see if we could get more granular on the margins. I know we're talking about quote-unquote slight year-over-year decline but should we be thinking of that as more on the order of 20 bps or 40 or 50 bps?

Jason, it is David. I think in that range. For us slight is -- I hate to parse the word slight, but it is certainly not 100 bps. It's less than 50 bps, it's in that kind of range.

Okay, understand. And what are you modeling for Canadian spread in fiscal '14 as well as transaction growth?

So in '14, and again we do not parse forward-looking metric expectations, but what we are expecting is transactional growth and what I would call core spread declines, very similar to what you saw in the second half of this fiscal year which we reported to you. We just did a quarter with 3% transaction growth and about 4% core credit spread decline. So that is the underlying metric for the outlook for Canada for '14.

So just to make sure I'm clear on that. So 4% with the spare compression in Q4 but presumably you exited the quarter a bit better than that after the price increase, right?

That is correct. So I'm going to parse for it and I'm going to apologize for it in advance. That's why I call it the core credit spread.

I got it.

That is the underlying assumption the base would do before you brought into that what is the pricing impact going to be.

I got it.

And Jason, it is Jeff. I would just add to that, that without trying to parse it even further, when we separate it out that way there is the core spread, as David described, and then we also assume there is pricing attrition. So we don't assume any pricing change as continuing in perpetuity.

That is helpful. Thanks, guys.

Your next question will come from the line of Greg Smith with Sterne, Agee.

Just to be clear, David, how much is remaining on the $300 million buyback, the amount you said you would complete this quarter?

Sure, Greg. Let me reconcile that for you. Appreciate you asking. I'll go all the way back to the beginning to be -- to hopefully be painfully clear. The original authorizations we started last fiscal year was $300 million. We did some open market repurchases of about $13 million around the second quarter. We did our accelerated share repurchase which we announced in January and closed in the fourth quarter to the tune of $125 million. And then we did some more open market repurchases to the tune of $38 million in the fourth quarter. So as of May 31, as we exited the quarter, we had about $125 million left and as you might imagine, we're on our way to completing that piece of the authorization over the course of the first quarter of 2014.

Okay. And then obviously that is in the guidance but none of the incremental $250 million buyback?

That is exactly right, Greg.

Okay. Thanks. I guess Paul, do you want to just -- can we get your view on European interchange, potential regulation and how you see that maybe playing out for Global Payments?

Sure. So you know, Greg, first of all, it is good to play out over a long period of time. I think we all know this is years. But at the end of the day, and not to boil this down too simplistically. But at the end of the day, complications are not bad. Downward pressure in interchange is typically good, for all players, quite frankly. And I'm not saying that would give us an opportunity to raise prices or anything necessarily, it simply takes some pressure off of us because the merchant's total discount rate is reduced rather dramatically, the pressure in our spread, quite frankly. There is some discussions about transparency. Quite frankly, our deals are incredibly transparent today. So we're not worried about any of that. So the short answer is it is a good thing for us. There is a lot more chapters to be played out on this. The only kind of fair case you could make would be would you get interchange to a level that banks would be discouraged from issuing cards. I would just to tell you from our personal experience and in some markets that we're not involved in like Australia, if you look at where interchange levels were and how many cards are in the market and then a significant reduction in interchange and how many cards in the market, I will tell you in Spain, there is actually more cards. Our partner has actually issued more cards. So there is still a case that they could make a quite nice living.

And the last thing I would say is that it doesn't mean that the consumer doesn't pick up some piece of this, in Australia, for example. I think Mastercard is trying to hit the EU maybe too -- a little too heavily, so says someone in the Journal today. But I kind of get where you are coming from, sentiment wise. This is the balloon. If you push on it one end, it's going to pop out somewhere else. Long and short of it, it is good for us.

Great. Thank you.

And your next question will come from the line of Glenn Greene, Oppenheimer.

Dave, maybe you could help me. You had a lot of prepared comments. You talked about North America, specifically US growth at 6% which we all know slowed and you talked about a few dynamics there. Can you kind of walk through that again? And more importantly, is this sort of a one quarter phenomenon and do we kind of bounce back? And then I have a follow-up?

Yes, I think Glenn, the way to think about that is all these fees -- the new fees have all annualized by the time we get to the fourth quarter. And then the biggest play in any given quarter in our revenue is what do the ISOs do with their own fees. We do not control it. Quite honestly, other than reporting revenue growth, we really don't care about it. It doesn't provide any profit so that is always a swing. I think Q4 was lower than you should expect in any given Q4 as a general rule with the big swing obviously always being those fees from the ISOs. As we look forward, what we're saying for the full year for the US is mid to high single-digit revenue growth which reflects the law of large numbers and the ISOs in general and then really nice growth in APT and gaming and solid performance in our direct channels.

So as we sit here at a $1 billion-plus of revenue in the US overall, mid to high single-digit revenue, it's a pretty nice number. Do I expect to do better than six? Yes, in a lot of quarters I do and then the ISO fees at any time could swing that back toward six or five, obviously mid allows an awful lot of room in that range. But we want to make sure we talk about Q4 here because Q4 is usually a big seasonal revenue growth quarter for the Company. I think Q4 '14 we should see decency in the growth again but again those fee swings could cause it to drop a few points at any given time.

Okay, and then it probably relates to the North America margins as well which actually were better than what we were looking for despite the revenue miss and relative to our numbers in US and Canada. Is it the same phenomenon on the ISOs driving somewhat better margins there and the other question related to North America margins is how much of a contribution was APT to the margins?

Yes. It's a great question. And yes, it is a part of it. It's always a mix of a number of things but each margin conversation in a quarter, particularly in North America, starts with how much ISO pressure are you feeling and anything that slightly reduces that makes it a little bit easier for us to operate. Then APT is more than doing the job we expected of it when we closed it in October which is obviously quite helpful in the underlying numbers as well.

Okay. Thank you.

Your next question comes from the line of Bryan Keane, Deutsche Bank.

Just following up on the North America margins, I think you said, David, that they will be up year-over-year. And I don't think we've seen that in a long, long time so I guess I'm just struggling. It sounds aggressive to me. Can you just help me feel better about that in fiscal year '14?

I would be happy to, Bryan. I think that for North America to parse it into its pieces again, we will get a full year benefit and very nice growth from APT inside the United States. We should see, again the law of large numbers, ISO revenue growth slow down a bit so the headwind that starts every quarter for us should be a little less challenging. That is on top of a US business where EBIT grew in 2013 to begin with because this is part two of the explanation. Canada, by definition, was going backward in 2013. It goes forward in 2014. So flipping Canada around makes as big a difference as any thing in North America in 2014. And to your point, it has been sometime since we've seen it. It's been some time since Canada is headed in this forward direction.

Bryan, it's Jeff. I would just go back to what we said in January at our investor day. Stabilizing Canada is an important part of what we are trying to achieve toward the end of fiscal '13 going into '14. That coupled with the investment in APT and the actions that David described are big parts of the reason why we expect the margin to do what David described in '14.

So Bryan, then to finish the pieces, you have got the US, the Canada, and then remember the technology investment that increased in 2013 and that increase doesn't reocccur. The cost obviously is still inside the run rate but that elevated level of increase doesn't reoccur. So all in with North America then those are the pieces of where we expect to see the opportunity for flat to maybe increasing margins for the first time in a while. And then the final piece of this is that the security investment is going to appear in the corporate segment because it is an investment for the total company. So hence those are the moving parts of North America and then the one piece that you may have been wondering about from reconciling item perspective.

What about FX? Because I would think that the Canadian dollar is going to weigh on you and weigh on that margin in the quarter or in the year.

That's incorporated. Great question, Bryan. In our prepared comments we talked about the opportunity for a neutral to a slight headwind overall given FX for the full year for the Company. Our outlook for that given the various sources we try to use is for the dollar to strengthen against the Canadian dollar a little bit and then weaken a hair against some of the European currencies so that all in and then be neutral against some other European currencies so that all in you have got this opportunity in total for neutral to slightly -- a slight headwind from FX. But the idea of an FX headwind in Canada is incorporated in the North America outlook.

Okay. That is helpful. Just lastly, Paul, just to follow-up on some of the EC regs that are out. I guess I was under the understanding you guys bundled some of the merchant acquiring in Europe, so an unbundling kind of what they are pushing at I think would have an impact on you guys.

I'm not going to agree with you, quite frankly. I think if we're talking about that level of reduction -- by the way, that is correct. For smaller guys we do, indeed. So let me just say that. You are accurate. For larger guys, not necessarily. In fact, I would say most usually not at all. They have a discrete pricing. It is typically over interchange and assessments and it's explained as basis points or euro sense per transactions or pence per transactions. Now, for the smaller guys, it would be transparent. It's already highly competitive. Those rates are pretty good but once again, the overall rate goes down. So if you are a small merchant, you know all the aspects of that. I think you are going to look at the end result of a much lower rate. I think that is good. I really do. But you know, I think we check back with each other in two years and we'll see. Maybe three.

Exactly. Okay. Thanks so much.

Your next question comes from the line of Craig Maurer, CLSA.

I was curious, I had two questions. What -- first, what will Caixo bring to your Brazil effort that has been stalled. As best I can tell they do not really have a presence in Brazil or infrastructure there. So considering the branch level selling that goes on there, I'm not quite sure what they bring to the equation other than money. Secondly, if China continues down the road of a more open situation for outside players and the payments infrastructure, does that help or hurt you if say, someone like First Data with huge resources -- resources could go in there unencumbered?

Okay. This is Paul. Let me start with the Brazil question and I'm going to ask Jeff to pick up a piece of that and then throw it back to me for China. On Brazil with CaixoBank. They have a number of significant and, in many cases, these are direct investments and possibly even board positions with a number of significant players also in Brazil that could be potential customers for us. Secondly, they have a bunch of technology that makes up a lot of sense that will help accelerate some of our product delivery. Thirdly, and I think I'd be a little disingenuous, Craig, if I didn't say the money doesn't matter. It does. They bring a partner that will help us make appropriate investments without being as consumed with the impact from quarter-to-quarter to really get the real benefit. This is clearly one plus one equals three.

And in terms of the distribution, I will tell you, we are up and live. We are bringing in a fair number of merchants per day right now. A fair number. And we're building this thing much faster than we thought we would. And it does not preclude us, and this is very important, it does not preclude us doing more with other financial institutions in terms of added distribution. In fact, you could argue that CaixoBank is not encumbered because of what you just said. So they will also help us in that regard. So I think this is nothing but good news. Jeff?

Craig, it's Jeff. I would just add to what Paul said on that topic. CaixoBank has relationships with other financial institutions, with multinational merchants, in markets not just in Brazil but around the rest of Latin America. So if you go back to Paul's prepared comments, it is important that this is focused in Brazil but we are also looking at the picture in the rest of Latin and South America where CaixoBank has many relationships both on the customer as well as on the financial institution side.

Before you move on to China. Is the privatization of RedeCard giving you an opportunity to go after some of the banks that were or still are affiliating through them?

Craig, it's Jeff. The answer is absolutely. We've seen a sea change in the Brazilian marketplace in the last year or so coming out of the Itau purchase of RedeCard. I think other large banks in market recognize that they are after the same book of business from a banking point of view that Itau is after. The receptiveness that we've gotten since that deal was announced and certainly closed has gone up quite a bit versus where it was when we first started in the market two and a half years ago and I think we'll see more of that down the road.

So let me talk about China, Craig. So the question was, if China, and we think by the way they will, if China makes it easier for other players, non-Chinese players, to be involved in their markets, is that good or bad for us. I think that anything that reduces the level of regulation and opens up the gates a little more fully is good for us. We clearly have first mover advantage but we do have some encumbrances. We are to our knowledge, the only non-Chinese company that can acquire renminbi today but we haven't enjoyed the full measure of that and part of it is some of the regulations that we are burdened with. Now we are also uniquely positioned with CUP. We are the member of the larger board of their international organization in North America. We're the only member in fact. And that's a big deal. So we have unique relationships. We have first mover advantage and clearly others are going to get in and attempting to get in. But I think there is more good for us than bad for us in that.

Your next question comes from the line of Brett Huff, Stephens.

I just have one question. You talked a lot about India last quarter and a little bit more this quarter as an interesting target market where your penetration is fairly low. Can you just sort of paint a picture of how -- what would a JV there with a bank look like or just kind of give us a sense of how that would work and is it expensive, is there a lot of competition for those JVs. Just give us a sense of how that looks.

Okay. So I'll speak kind of notionally. A JV -- typically it's a -- we have a 51 and they have a 49, although we're open to different structures, us having more potentially, even a 50/50. It depends though on what we are trying to accomplish. In terms of is it expensive. I think anything that is attractive in India, it's going to be fully valued, plus some. I think they are very smart operators and understand the value of what they have and understand the opportunity a JV with a significant player would provide. So, yes, I think you would pay up for that. It doesn't mean it is not going to be cash accretive. I think all deals we do are cash accretive. But so that's all I can say on that.

Okay. That was the only question I had. Thank you very much.

Your next question comes from the line of Steven Kwok, Keefe, Bruyette & Woods

I was just wondering around -- I know you've given guidance around how we should think about EPS for next quarter, but I was just wondering are there seasonality with regard to the operating margin for each of the different segments?

Yes, Steven. This is David. There are and typically what you'd see is stronger margins really for each of the two segments in Q2 and Q4, with the lower margins being reported in Q1 and Q3. In Q3, in particular, our February quarter kind of crosses over the year end in a number of markets, usually being the weakest both from an EPS as well as from a margin perspective.

Got it. And then finally, with regards to the additional charge I was taking on the processing preach, I was -- are there other charges that's going to occur in 2014? I was just wondering, will see the end of that.

Right. We expect a little bit of modest spillover into Q1 and then that is the end of it.

Great. Thanks for taking my question.

Your next question comes from the line of George Mihalos with Credit Suisse.

Just wanted to go back to Brazil for a second. Has anything changed in terms of how you think about that region from the perspective of strategic importance has kind of maybe gone down a little bit on your list of things to do?

George. It's Jeff. No, it hasn't. I actually think the CaixaBank announcement should highlight that we expect to increase our strategic focus in Brazil. As Paul mentioned, we started operating in that region. As we said previously in the fourth quarter of fiscal '13, so we're live with customers now, which obviously, is a key milestone for what we're doing. We think that the rationale behind the CaixaBank deal will allow us to accelerate the growth of that business, make additional investment, as Paul described, and bring many of the leading-edge products and technologies that CaixaBank has in Spain, in many cases, with us in partnership into the Brazilian marketplace. So I actually see it as quite the opposite. It also adds, George, the ability to look at additional markets in Latin and South America beyond Brazil through their relationships. I view that as additive to our investment in Brazil, but I think it means that we feel very good about where we are there, and we're very pleased to expand our partnership with CaixaBank into that market.

Okay, and can you just remind us what the expense drag from Brazil was from an investment standpoint in '13? And now with Caixa coming in for 50% of it, those expenses will no longer hit the operating line, right? They'll be -- they'll go below the line. Am I thinking about that correct?

Yes, you're on it right, George. So we really didn't parse it out fully. It is about $0.04 for the year is the way to think about it of pure expense. What's interesting about that is as we go into '14, what we're looking to do with our partners at CaixaBank is actually amp up that investment. As you get live, you might imagine, you have expense in front of revenue. So you're hiring salespeople, you're getting product out, and then you're bringing the revenue in through the distribution channels. So what you should really expect is you'll see -- we closed it probably at the end of Q1, so maybe some business as usual kind of Q1, and then we'll be back to when we close as to whether there's any effect. But it's quite possible you'll never notice it in the face of the P&L and we really won't chat much about it other than your core second point, which is what's going to change from a geography standpoint. Well, Brazil likely by that time will no longer be in the North America segment. It will roll through, will deconsolidate, and you'll see it in income, but you won't see it in the pieces above the operating line.

Okay, thank you.

And that concludes the question-and-answer portion of today's conference call. I would like to turn the conference call back over to Mr. Garcia for closing remarks.

Thank you, operator, and thank you, ladies and gentlemen for your interest in Global Payments and for joining us today.

Thank you for your participation on today's conference call. You may now disconnect.