環匯 (GPN) 2015 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Global Payments FY15 first quarter conference call.

(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, Executive Vice President and Chief of Staff, Jane Elliott. Please go ahead.

Thank you. Good morning and welcome to Global Payments' FY15 first quarter conference call. Our call today is scheduled for one hour, and joining me on the call are Jeff Sloan, CEO; David Mangum, President and COO; and Cameron Bready, 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 which are subject to risks and uncertainties discussed in our SEC filings, including our most recent 10K. These risks and uncertainties could cause actual results to differ materially. We caution you not to place undue reliance on these statements. Forward-looking statements made during this call speak only as of the date of this call, and we undertake no obligation to update them.

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 filed this morning. The press release is also available in the investor relations area of our new website at www.globalpaymentsinc.com. Now I'd like to introduce Jeff Sloan. Jeff?

Thank you, Jane, and thanks to everyone for joining us this morning. We are delighted with our performance for the first quarter, which represents a terrific start to our FY15 and further demonstrates the continued success of our focus on solid business execution and disciplined capital deployment. For the quarter, we delivered strong revenue growth of 12% to $705 million, cash earnings per share growth of 22% to $1.22, and operating margin expansion of 10 basis points.

Our North American business contributed better than expected results for the quarter, both in the United States and Canada. US results were driven by consistent execution across our direct channels, including the addition of PayPros. Canada also reported strong performance in local currency with 8% revenue growth and stable business fundamentals.

Our international business performance reflects solid results across most of our markets with particularly strong revenue growth in Spain and our eCommerce channel. These results also include favorable currency rate trends in the quarter for the British pound sterling and the Euro as anticipated.

Importantly, we have also made tremendous progress transforming Global Payments into a unified worldwide operating company with an emphasis on direct sales and product innovation while continuing to enhance our core technology platform. Recognizing that today's merchant is increasingly connected in an OmniChannel environment, we are dedicated to providing our merchants an edge in terms of technology and value-added payment solutions.

Our efforts to combine APT and PayPros into a single integrated solutions business which we have rebranded as OpenEdge are further evidence of this commitment. OpenEdge helps software developers and merchants by delivering secure and personalized payment solutions. Aligned with our overall strategy, OpenEdge is driving payments innovation, adapting, scaling and simplifying how payments are processed across platforms and points of interaction in an increasingly complex landscape.

Consistent with my comments over the past year, we have also remained focused on expanding our worldwide footprint and adding direct distribution in key strategic markets. To that end, I am delighted with our agreement to acquire Ezidebit that we announced last month. Ezidebit is a leading integrated payments company focused on recurring payments verticals in Australia and New Zealand.

Much like our OpenEdge business in the United States, Ezidebit markets its products through a network of integrated software vendors and direct channels to numerous vertical markets. This acquisition will expand our worldwide footprint and provide us with technology enabled direct distribution in Australia, one of the largest economies and payments markets in the Asia Pacific region. In addition, similar to our expansion of OpenEdge technology into Canada, we intend to offer Ezidebit services to other Asia Pacific regions where these types of solutions do not presently exist.

We are also very pleased to have entered into a strategic agreement to acquire Fidelity National Information Services' gaming business that we expect will significantly expand our direct distribution in the North American gaming vertical. This transaction is complementary to our existing gaming business and will expand our suite of innovative products and services.

By combining our gaming businesses, we can cross-sell our full suite of products to their more than 250 flagship locations and enhance our value proposition while leveraging their industry leading scale and capabilities in risk management. We expect significant operational synergies when the transaction closes toward the end of our FY. Both of these transactions represent an attractive use of our capital and are expected to contribute meaningfully to our ability to deliver on our financial expectations over the coming years.

I am confident that we have the financial flexibility and capacity to continue to pursue a well-disciplined Corporate Development road map, reinvest in the business, and officially return capital to shareholders. These are not mutually exclusive initiatives and combined will continue to drive attractive shareholder returns. Now, I will turn the call over to Cameron.

Thanks, Jeff and good morning, everyone. It is a pleasure to be speaking with you today and to be a part of the Global Payments team. As Jeff noted, our FY15 is off to a strong start with better than expected business performance and the positive effect of our recently executed share repurchases driving earnings growth for the quarter.

Before I summarize our segment details, I would first like to remind you that we operate payment solutions businesses in multiple geographies in various stages of payments evolution. Each of these markets has its own dynamic economic and competitive environment which allows us to achieve certain portfolio diversification benefits while also driving some variability in our results. As such, I would like to begin my commentary by providing a brief overview of the key drivers of performance for the first quarter relative to our expectations.

In the United States, all of our direct businesses performed better than anticipated, and we experienced continued business stability in Canada, while also benefiting from successful selective pricing initiatives. In Europe, our eCommerce channel and Spain also performed better than expected. This was partially offset by Russia, which underperformed our expectations.

In addition, our effective tax rate was slightly lower than our forecast for the quarter, largely due to our geographic earnings mix and tax planning strategies. Further, subsequent to our last earnings call, we completed $75 million of share repurchases that resulted in a lower average share count for the quarter. Lastly, overall foreign currency translation impacts for the quarter were slightly better than expected and contributed positively to our results.

Now for the quarterly details. As Jeff noted, total Company revenues for the first quarter of FY15 grew to $705 million, reflecting 12% growth over FY14, and cash operating margins expanded by 10 basis points to 19.8%. Diluted cash earnings per share increased 22% over the prior year's quarter to $1.22.

Our underlying business demonstrated strength during the quarter even after normalizing our revenue growth for the addition of PayPros. Assuming we own the PayPros business in our current and prior year first quarters, or normalizing its effect, total Company revenue growth would have been 8%, above our long-term core organic growth expectations.

North America segment revenue grew 12% for the first quarter with US growth of 14% and transaction growth of 11% over the prior year. US revenue and transaction growth includes the addition of the PayPros acquisition, and normalizing for this, our organic US revenue growth would have been 7% on transaction growth of 4%.

Canada revenue growth for the quarter was 4% in US dollars with relatively stable spreads and low single digit credit transaction growth, partially offset by an expected unfavorable exchange rate. North America cash operating income grew 13% to $89.3 million, and cash operating margins were 17.7%, better than we expected for the first quarter.

International revenue grew 12% for the quarter in US dollars. Europe delivered strong revenue growth of nearly 14% fueled by performance in Spain and from our eCommerce channel. Asia Pacific revenue grew 6%, in line with our expectations for the quarter.

International cash operating income grew 12% to $77 million, and cash operating margins remain steady at 38.4%. Our effective tax rate for the quarter on a cash basis was 27.4%.

We generated approximately $87 million of Free Cash Flow this quarter which we define as net operating cash flows excluding the impact of settlement assets and obligations, less Capital Expenditures and distributions to non-controlling interest. Capital Expenditures totaled $18 million for the quarter, and our total available cash including working capital at the end of the quarter was approximately $265 million. Lastly, we repurchased a total of approximately 1.8 million shares during the quarter.

Based on our results for the quarter as well as the anticipated closing of the Ezidebit transaction during our fiscal second quarter, we are increasing our expectations for FY15. We now expect reported revenue to grow 7% to 9% and range from $2.74 billion to $2.79 billion.

Additionally we are raising our cash earnings per share expectations to a range of $4.65 to $4.75 reflecting growth of 13% to 15%. We also now expect core cash operating margins to expand by as much as 40 basis points in FY15.

We are forecasting that North America revenue will grow at a high single digit rate with high single digit revenue growth in the United States and Canadian revenue growth remaining in the low single digits in local currency. We continue to expect North America cash operating income to increase in the low double digits compared to last year with cash operating margin expansion. We also now anticipate high single to low double digit international revenue growth in US dollars.

For our Asia Pacific business, we have raised our expectations for revenue growth to the high teens which includes the impact of the Ezidebit acquisition. In Europe, we still expect mid single digit revenue growth in US dollars with slightly stronger performance in Spain and consistent performances from the UK and our eCommerce channel, all on a local currency basis. Additionally, we have a slightly more tempered view of growth expectations for Russia which, as a reminder, represents less than 3% of total Company revenue.

We now expect international cash operating income to grow in the low double digits and cash operating margins to remain relatively stable compared to last year, partially due to the Ezidebit acquisition. Importantly, we now expect foreign currency translation to represent a more meaningful headwind to overall cash earnings per share for the full year, and this is also incorporated into our expectations. Since providing our outlook for FY15 in July, we have seen an increased weakness in most of the foreign currencies to which we have exposure.

As a reminder, our FY15 outlook reflects only the impacts of share repurchases that we have executed to date. We now have approximately $245 million of total authorization remaining for potential further share repurchases. In addition, upon closing the Ezidebit transaction, we expect to have approximately $850 million of capacity to fund future initiatives, including approximately $650 million of availability on our corporate credit facility.

Lastly, given that we expect the FIS transaction to close towards the end of our FY15, we intend to fund this acquisition with operating cash flows and do not expect it to have an impact on our near term capital allocation plans or facility availability. I will now turn the call back over to Jeff.

Thank you, Cameron. For the past five quarters, we have delivered strong and consistent performance resulting from the ongoing successful execution of our strategic initiatives.

We remain committed to driving sustainable growth in each of our markets and dedicated to creating value for our shareholders, partners, customers, and employees. As the first quarter demonstrates and our increased FY15 expectations suggest, we continue to anticipate another strong year. Now I will turn the call over to Jane.

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

(Operator Instructions)

Our first question comes from Ashwin Shirvaikar with Citibank.

Thank you, good morning and congratulations on a solid quarter. My first question, normally you go through a break out of your -- more of a flavor of what's going into your underlying assumptions with regards to specific geographies and stuff like that, in a detail in Europe and such like.

Could you do that workup again, because when I look at how you raised your guidance, like you said roughly half through the acquisition of Ezidebit, I'm assuming and the other half is basically the beat minus the impact of currency. So seems like there's possibly some elements of conservatism and how you're looking at your outlook.

So Ashwin, it's Jeff. I will start. I think as we've said before, we're sitting here at the end of the first quarter. So we're very, very pleased with where we are currently.

We're very pleased to raise revenue, margin and cash earnings guidance for the year, but we are at the start of the first quarter. And I think as you've seen us do historically, we would like to be in a position where we expect that as the year goes on, that we increase our confidence level around the continuing performance of the business.

And I think that's something you probably have heard consistently from us over time. And with that though, I will turn it over to Cameron and perhaps Cameron you can take us a little bit around the globe and just walk through some of the trending in terms of what we see that ties into the guidance.

Sure, Ashwin, I will start by just noting that as you look at the outlook for the revenue guidance for FY15, we are obviously incorporating the first quarter performance and the Ezidebit acquisition, but the FX impacts that we have for the full year are fairly meaningful. For example, the Canadian dollar has weakened roughly 3% relative to what we had in our July expectations. And as you know, that's a particularly impactful currency given our revenues are in obviously Canadian dollar and much of our expenses are in US dollars given how we managed that business.

But as you go around the globe and I think I covered some of this in my prepared remarks, we continue to expect good fundamentals in the US market. We've seen strong growth in our direct businesses on a revenue basis, and we expect that momentum to carry through for the full year, recognizing again, however, that we are in the first quarter.

As you flip over to Canada, again we expect a relatively stable environment in Canada which is what we experienced in the first quarter. And we think that sets up reasonably well for the full year as well.

In Europe, the UK business is generally performing in line with our expectations. Our eCommerce business again is a little bit above expectations, and we continue to expect good performance out of Spain.

But that's somewhat tempered again by what we're seeing in Russia. Russia continues to be a fairly meaningful headwind for Europe just particularly in light of the overall macro environment in Russia.

You've got the market there down 20% year-to-date, ruble is off 18% year to date at an all-time low against the Euro and certainly near an all-time low against the US dollar. And GDP estimates are not good, so that clearly creates a little bit of a headwind for our European business. And generally in Asia ex the Ezidebit acquisition, we're generally expecting fairly much consistent performance in line with our expectations, and Ezidebit is obviously additive to that.

The last thing I would note just from a revenue perspective is we continue to accommodate our view of the ISO market. And our revenue growth continues to I think reflect what we have seen in that business, which is obviously low single digit growth. And we've accommodated the potential that that could degrade even a little bit further in the back half of the year or the back three quarters of the year.

So when you roll all that together, we've guided up at a mid point basis about $40 million. We think that obviously given where we are, we're one quarter into the year, is a reasonable outlook for the full year.

That's quite understandable. Thank you for doing that. I guess a quick follow-up on Canada.

Obviously good to see it has a stable business here, but as you rollout the APT offerings in Canada, first of all what reception are you getting? And is that a good solid enough potential that down the road you can maybe call Canada better than stable?

Yes, Ashwin, this is David. The initial reception has been quite good for the rollout of integrated solutions, which we've now as you know rebranded OpenEdge on a worldwide basis, particularly in North America, and initial reception is quite good. And you've put your finger on an important thing to watch for Canada over the coming years really.

Initially this the initial rollout of integrated solutions into one of our largest markets. So you won't see a big change in Canadian trends, but certainly our hope is we can drive greater organic growth at high profit levels to the integrated channel, and the initial signs are quite positive.

Thank you.

Our next question comes from David Koning with Robert W. Baird.

Great job again.

Thanks, Dave.

And I guess just one other thing. Canada got quite a bit better sequentially.

It was 5% constant currency growth I think in Q4 and up to 8%, and you mentioned a little bit of pricing benefit. Is there something incremental, because I know we thought it would start to decelerate with some of the MasterCard and Visa interchange adjustments and some of the things anniversaried, but it seemed to pick up a little bit. So was there new pricing benefits?

Dave, it's Jeff. I think it's just continued good execution. We have a newer Management team up in Canada in the last year. I think you're starting to see the fruits of that reinvigoration of the sales channel.

We're very pleased with the new initiatives that we have in Canada, and I would say financially for the quarter and outlook for the year, Dave, that Cameron expressed that we have seen a higher retention rate on some of those actions that we had taken through I think good management up in Canada we had seen historically. So I would say more stickiness, Dave, is probably one thing I would point to and better sales execution.

Okay, great. And then just my follow-up, the FIS gaming acquisition, it sounds like a lot of revenue synergies so we should see growth. But maybe you could just give us the baseline annualized revenue and margin profile just so we can start thinking about how that impacts FY16?

Dave, this is David. I don't think we're going to walk into a lot of detail, but the base business we're buying is on the order of about a $50 million business with margins that are accretive to Global Payments margins. We obviously expect the combination will drive even better margin expansion over time,, and maybe it's worth doing a little bit of a reset for everyone on what the gaming business is and isn't within Global Payments.

We don't spend a lot of time talking about it but just as a reminder, its been a consistent mid to high single digit grower operating at margins higher than the Company's margins. And it's a very consistent business when you think of the theme of technology enabled distribution. This is a series of products, innovative products by the way, that are focused on a very specific vertical gaming and cash access on the floor in casinos.

Our technology there helps casinos manage credit exposure, get cash onto the floor, and really delight their most important customers. Fidelity does exactly the same thing, so we really love the idea of putting these two together, the ability to cross-sell and geographic expansion that comes with it. We're very excited about this transaction.

Dave, it's Cameron. I'd just note in addition to what David mentioned, the complimentary nature of the business is very attractive to us, and then today the price that we're paying from our perspective is also very attractive.

We view the effective purchase price of the transaction to be in the neighborhood of $180 million after taking in consideration the tax benefits that were realized through the transaction structure. So we think that price relative to what we're getting in the complimentary nature of their business to our business what we do with that going forward is a very attractive use of our capital.

That sounds great. Thank you, good job.

Thanks, Dave.

Our next question comes from Glenn Greene with Oppenheimer.

Good morning, nice results.

Thank you.

A couple questions maybe just drilling down a little bit on the US revenue trend. Can you just help us understand a little bit more on the direct side components, how well integrated payments did.

And I guess my read through is integrated payments did better than expectations or the ISO drag has been not as bad as expected. And the follow-up related to that would be given the strong Canada results and North America revenue growth, US revenue growth, I'm actually surprised margins weren't a little bit better in North America.

Well, it's Cameron. I will start with just the revenue side of the equation. I would say for the US business all of our direct businesses really performed better than our expectations in the first quarter. And that's really what's driving from our perspective the overall performance.

I would say ISOs generally performed in line with what we had anticipated for the quarter, and that's largely why you're seeing such strong US revenue growth. In particular, integrated, the integrated channel which we now as you probably saw rebranded as OpenEdge. OpenEdge performs again slightly better than our expectations, we're continuing to make very good progress I think integrating APT and PayPros, and that has generated I think positive performance and momentum as we look to the back three quarters of the year as well.

As it relates to the overall margin, we did see margin expansion year-over-year, which again I think is very much a good story for the US business. As we look to the balance of the year, we continue to expect to see strong margin improvement across the US business.

And we do expect margin expansion for the US business as well, consistent with the outlook that we gave in July. Obviously our confidence around that is a little bit bolstered by the results we saw in the first quarter.

Okay and then just a quick follow-up on maybe the growth in the margin profile for the Ezidebit business?

Sure. Ezidebit as we mentioned before is a business that will be additive, again and accretive to the overall corporate margin. It's generally in line with what we see across our international businesses, so we look to the back three quarters of the year as well, we expect to see Ezidebit contributing a little bit to the margin improvement that we're currently anticipating for the overall business.

I'd say Glenn, it's Jeff, that the revenue growth we expect that business is slightly higher in line but slightly higher than our OpenEdge business here in North America.

Okay, great, thank you.

Thanks.

The next question comes from Jason Kupferberg with Jefferies.

Thanks guys, just a couple sizing questions if we could. First off on OpenEdge, now that you've put PayPros together, can you give us a sense of what percent of your total Company revenue is OpenEdge.

And I think the growth rate there is still low double digits or so, if you can verify that and maybe we can just start there. And then just an update on the percent of North American revenue and op income from the ISOs?

It's Cameron. I will jump in there. I don't think we're in a position today to give an absolute sort of sizing of the integrated business relative to our overall North American channel or the entirety of Global Payments.

As you think about obviously the combination of those businesses going forward, we look at the revenue growth for that business more in the midteen range. We think it has very positive momentum as we look again to the back three quarters of the year and going forward beyond that. So we view that as a midteen growing business and are very confident in that expectation. Remind me of the second part of the question?

Yes, just the update on the percent of North America revs and operating income coming from the ISOs?

We gave that number a few quarters ago, I believe. I don't think we will provide a specific update to that today, but I think it's easy to assume that given the growth of the direct business and the intervening period that those numbers are less than probably what we quoted to you previously and continuing to decline. So I think that's a trend that we would expect as we move forward in time, but we don't have a specific update to that today.

And just lastly, integration of the actual technology platforms for PayPros and APT? I know it's an ongoing process. Should we be thinking of that as a material source of cost savings once that's completed, and should we be thinking of roughly end of FY15 for when that might be done?

Yes, Jason, it's David. We think that it's quite important to the integrated business to bring those technology platforms together. We're not in a rush, we want to do it very well and serve our 2000 partners around the US and Canada very well.

It is fair to think around the end of FY15 we will be well on our way to completing that integration which will create very nice margin expansion opportunities for the integrated business. Now that will be within the greater context of the US business and North American business than Global Payments, so you won't necessarily see it on the face of the Income Statement. But it's a part of running business very efficiently and well and it will be great for the integrated chain.

Very good. Thank you.

Thanks, Jason.

The next question comes from George Mihalos from Credit Suisse.

Good morning guys, thanks for taking my questions and congrats on the quarter. Maybe to start off on the US side again.

You spoke in the past about targeting midteens growth for the (inaudible) solutions, and it sounds like you did a little bit better in the first quarter. Is that fair to say the growth rate accelerated a little bit in the first quarter?

George, it's Cameron, I do think that it's a relatively fair statement to say. We did see some acceleration of that growth in the first quarter, and again I think that does set us up well for us to meet our overall expectations for that business for the year. But I think that is a fair characterization of the results thus far.

Okay, and you're affirming the long term growth of the channel as midteens?

Yes, I think that's right.

Okay. Also curious, we're hearing a lot about tokenization opportunities from a number of different payment providers. How significant could that be or will it be significant to Global Payments as you look out maybe a year or so? Is that something that could be meaningful to the US operation?

George, it's Jeff. I will start. I think you probably have seen our announcement last night with Apple Pay that will fully supporting Apple Pay here in the United States across all of our channels but in particular through OpenEdge, which is our integrated business.

As you know, based on your question, tokens of course are a part of the solution as it relates to that mobile construct. And we're pleased to be I think an early user of the tokens that are used in that solution.

I would say more generally on the strategy side of what you said, we tend to view it as a combination of EMV, tokenization as well as encryption. And we think all three parts of that, George, are going to be important for the ultimate solution.

So I do think over a period of time that we will incrementally do better in the United States market with all three of those as a package. Whether that will meaningfully influence our results, time will tell, and you will have to see.

I do think that the market will evolve toward a place where for the right merchant set -- and of course you saw us in OpenEdge and Apple as you saw with us last night -- it will be a meaningful point of distinction I believe for us. And I would also say though in the case of tokens, while Apple is a very good example of an innovator and leading partner and a Company who has done very well with what they've done to date, I think it's important to realize that there still is a lack of uniformity on what the right baseline for tokenization should be.

So for example, we here on our side are using at least in the United States currently the EMV tokenization specs, but there are a variety as you probably know, George, of alternative specifications for tokens, some are at the issuer level, some are at the acquirer level, et cetera. I think it's important for us as an industry to see some kind of rationalization and uniformity of specification, George, for tokens really to have a meaningful impact on payments across all of us in the marketplace.

Okay, so it sounds like a bit of a wait and see on that. Last question for me, should we be thinking any differently about the tax rate for FY15? Any changes there?

George, it's Cameron, generally no. I think we're still guiding towards a tax rate approaching 28%. It was 27.4% for the first quarter, so I think that's generally in the ballpark of the overall guidance we provided for the full year. We may come in a little light of that, but we're still guiding towards approaching the 28% level.

Okay, thank you.

Our next question comes from Bryan Keane with Deutsche Bank.

Guys, good morning. I wanted to ask about the guidance coming from a slightly different angle. If I just look at the first quarter and you did about 12% revenue growth.

How do we get down to 7% to 9% growth for the full year? What's going to deteriorate in the business even given the Ezidebit acquisition is in there as well?

Bryan, it's Cameron. I don't know that I'd say anything is going to really deteriorate in the business but for perhaps FX. And also I think it's important to remember that PayPros annualizes in Q4, so that's going to obviously have an impact on the overall annual revenue growth as well.

So as I described earlier, I think when you look at the revenue guidance, we've obviously factored in the first quarter performance. We are including our expectations for Ezidebit. We are being conscious I think of the momentum we have going into the back three quarters of the year, but also recognize that it's very early despite the fact we're pleased with our overall performance thus far.

And I think when you layer in FX on top of that and accommodate again for the ISO channel, which again we view as growth being relatively light in the low single digit range and potentially worse, I think that gets you to an overall 7% to 9% level. Frankly I'm less focused on the 7% to 9%; that's really just math.

I think ultimately what I'm focused on is the actual revenue numbers and [tells], and we guided the mid point up $40 million. And we think that's a good place for us to be right now given we're one quarter into the year.

How much was FX a headwind going in I guess on the original guidance how many points and then how much is it now into when I look at this guidance, how many points of headwind is FX?

Yes, we didn't give a specific sort of estimate as to the FX impact coming into the year. We described it as a modest headwind, so you can use your own judgement as to what modest means. I think as we look to the balance of the year, we think it is a more meaningful headwind to the business.

And I will just note that if you look at all the major currencies to which we are exposed, all but one, we have a more negative outlook for those currencies for the balance of the year than we did in the July time frame, and I would say relatively meaningfully more negative outlook. So I think that's really what's driving a lot of what you're saying from a top line revenue perspective is just that impact of FX.

But you aren't quantifying the FX impact in the guidance?

No, we aren't quantifying it specifically, no.

Last question for me. Just on Russia now. What's in the expectations? I guess it was short of what you were expecting originally, but how much Russia revenue, what's the baseline for the guidance now?

Yes, as we commented earlier, Russia represents about 3% of our total revenue for the Company. So I wouldn't want to characterize performance as dramatically negative relative to our expectations, but it did fall a little bit short.

I think we're pleased with the job our colleagues are doing in Russia given the overall environment and some of the highlights I provided earlier as to where the ruble stands and overall macro and economic situation is, particularly where GDP growth is, but again, we have a slightly more tempered view. We came into the year with a tempered view, and I'd say our view is slightly more tempered than in July for that business for the full year. Particularly when you layer on the impact of the ruble which has again continued to degrade significantly, performance expectations for that business are not particularly great right now.

Okay, thanks so much and congrats.

Thanks, Brian.

Our next question comes from Kevin McVeigh with Macquarie.

Thanks. Just another follow-up. Seems like nice increase to margins despite the FX. What's driving the boost in what's obviously a tougher environment overall?

So I will start, Kevin, and then Cameron will add in too. I think the key thing from our point of view is that we've had very good execution in our direct channel.

So if you start with the United States business, I think we are really firing on all cylinders on a direct basis in the US business. And of course the direct business is at a higher margin naturally than some of our third party businesses, anywhere in the world especially here in the United States.

So I think having you start with good core direct sales execution coupled with investments in things like PayPros and while Fidelity Gaming will not tie into FY15 because it closes at the end of the year. We also have announced there Kevin as a higher margin business with better than industry rates over organic revenue growth similar to our own business.

So I would say having good execution and that those things that we're adding into our markets or more direct sales resources and more businesses with better than corporate average corporate operating margins. So I think a conscience effort to have better execution when we add something better products and services that drive additional margin.

And then just Jeff, without getting too granular, any sense of what does the target become over course of time for direct versus indirect?

Well I think, Kevin, as a strategy matter without giving a more granular answer to your point, what we like to do is just let those businesses grow as much north of the market as we can. Every month here we look at our rates of organic revenue and transaction growth in all of our markets versus what you see from the networks and what you see from our publicly reporting peers. Those are our bogeys, and we try to exceed what we think those market-rates of growth are.

So if you go back to what Cameron said, if you look at the first quarter with our third party ISO business growing in the low single digits as Cameron mentioned, we view the organic rate of the market to be mid single digits or better in the United States markets. So if we're trying to exceed that, Kevin, you can imagine what that might do to that mix over time.

Understood, thank you. Nice job.

Thanks.

Thank you, Kevin.

Our next question comes from Dan Perlin with RBC Capital Markets.

Thanks, I just want to go back and look at Europe a bit. I know you're talking about FX headwinds being meaningful but not quantifying it, so when we lock at Spain historically that's more of a market share play I think. I'm wondering to the extent where do you guys stand in terms of that penetration, and do you think that that can continue even in the face of what is going to be some I think much more difficult purchasing power within that region?

And then secondly, within the eCommerce channel, I think your major partner had a pretty significant announcement yesterday. I'm wondering Jeff if you can just think about and tell us what you're thinking there?

And then the last question I have, and then I will be quiet. Some of the networks have suggested they are going to put on these digital enablement fees which are fees they charge to you guys. I'm wondering what extent you think you will be able to absorb those and/or pass them through in the future, thanks.

Dan it's Jeff. I want to congratulate you first for getting three questions in there. Usually, I think usually we're managed to limit you to two, so my congratulations on that. But certainly those are good questions and certainly happy to address those.

So let me start off first with the global solutions business which as you rightly said, we are very lucky and fortunate to have PayPal as one of our good partners in that business. I think as Cameron had alluded to in his prepared comments, we continue to see consistently very good performance in that business.

What I would say is as I've said with other parties -- third parties over time that we are only as successful in our businesses as our partners are successful. So if you think about it that way, Dan, presumably rationale for eBay and PayPal is to enable additional success at both eBay as well as at PayPal. And of course you'd have to ask them, but that is my sense having read about it and having lived through this stuff before.

As I said a minute ago, the more success they have we believe the more success that we as a good partner will have. So from that point of view, Dan, I feel like that's nothing but good news for them but also for our business, and that is certainly my expectation.

On the question about Spain, I think we continue to have very good execution and market share gains in that business. I would add that as you've seen around the EU, and certainly from one of the networks, we also believe that we will benefit from continued regulatory change in the European marketplace.

Spain was in effect this quarter because it was effective I believe September 1. Spain early adopted their equivalent, Dan, of some of the step up pricing actions for credit and debit, so we have a lot of confidence in our colleagues in Spain.

I think you can see that through the years of consistent performance. And we would expect that to be enhanced not just through additional market share gains as we've done continuously but also through some of the benefits that we experienced here in the context of Durbin that you will see some of that flow through in the context of step-up.

And then lastly, getting to your third question about some of the announcements by the networks, I think in our business the real key for us is the ability to provide additional value. So whether it's Apple Pay which we announced last night particularly through OpenEdge, whether it's additional kiosk or announcement in our gaming business or announcement with our partnership with Fidelity in their businesses, the key for us is to be able to offer more value-added products and services and we and our customers will be the beneficiary to that.

So to the extent for example, tokens become more readily accepted, as you've seen with some of the announcements we've made, if that provides more value and if there's a way as part of that for us to share in that value participation, terrific. If they don't provide more value then I think that's something we and everybody else will have to think about.

But sitting here today, Dan, I view a lot of the announcements that have come out about newer technologies and newer initiatives and the brand is being additive to the quality by reducing consumer concerns, about [prorates] by reducing actual and perceived fraud. All of that is very good news for us and for our customers.

And just a little follow on to that and to the previous question. We have the ability to do tokenizatin today, point to point as well and for customers with the right terminals the ability to do an EMV as well. If you go forward over calendar 2015 and think of that as the opportunity for bundle solutions for more secure processing, absolutely that's adding more value to the transactions which should provide the ability to price appropriately around that as well.

Great, thanks guys.

Thanks, Dan.

Our next question comes from Steven Kwok of KBW.

Just have one quick follow-up. In terms of from an M&A pipeline, just wondering what are the healthy pipeline going, and then in terms of what are some of the areas that you're focused on that you feel like can enhance your operations even more? Thanks.

Thanks, Steven. It's Jeff. So I would say we still have a good pipeline. I think you have to realize that I'd say that in the context of just having announced two acquisitions in the last two or three weeks.

So as with all type pipelines, they build and then hopefully over time you execute on some of those transactions and then you rebuild them. So I like what our pipeline is today, but of course two of the transactions, Ezidebit and Fidelity we have now announced. So clearly those two are no longer in the pipeline; you have to keep that in perspective.

Second in terms of areas of focus, Ezidebit with Australia and New Zealand was an area of focus we talked quite a bit about on the last number of conference calls. So we had said key strategic objective for us, Steven, is to expand our business in the Asia Pacific region. Australia, South Korea and Japan probably in that order were three markets that we're not in that we really have wanted to be in, and now we are very pleased to be in the Australian marketplace with the announcement of the Ezidebit acquisition.

So I would say if we could find additional opportunities in that market or in South Korea and Japan as new markets we would be very interested and we continue to look at those. But the markets we're currently in in Asia Pacific we've said before that we want to be bigger in, that's still true.

So for example, we are looking fairly closely at India, China and the Philippines, three markets we're currently in that we like that we would rather be bigger in, if we have a choice. So I think those are still on the horizon.

I would say in the North American marketplace, US and Canada we just announced Fidelity a day or two ago. So I think it's fair to assume there's not a lot more Company of any size in the North American marketplace imminently.

And then in Europe we continue to look. Most of the things we've seen in Europe we have passed on, we are very pleased with the current construct of our European business.

But if we can find additional transactions especially in Continental Europe to expand our GPE business, in Prague, we would be very interested in those, but that's nothing new. We've been saying that for some time.

And of course we're also pleased to be in Brazil with our partners at Caixa. We would look to expand our Brazilian business if we can find the right opportunity as we had said for awhile, and we would like to do the same in the rest of Latin America in particular in Mexico if we found the right opportunity.

So it's t really new Steven. I would say what is new post Ezidebit is we are now going to be upon closing in Australia and New Zealand. So that was a key focal point of ours.

Great, thanks for taking my question.

Sure.

Our next question comes from James Schneider with Goldman Sachs.

One question and one clarification if I could. Relative to the 40 bips of operating margin expansion you're expecting for the year, how much of that is being driven by the pure mix of business with OpenEdge and Ezidebit versus how much is being driven by operational leverage?

Yes, Jim, it's Cameron. I wouldn't give a specific estimate as to how much is being driven by any particular aspect of the business. I think what it reflects overall is just a continuing improvement in the overall margin profile for the aggregate Company.

So some of that's being driven by initiatives that we have as Jeff mentioned in his prepared remarks to move towards a single operating Company platform. Some of that's driven by the improvements we've made in terms of adding businesses to the mix that obviously come in at higher than our corporate average margin.

And some of it I think is just outright execution in a lot of our businesses around the world. So not going to splice it more specifically than that, but I think it's a combination of those factors.

That's helpful and then just a clarification on the follow-up. With respect to the ISO channel, it sounds like you are saying that in the August quarter, the ISO channel didn't decelerate in fact maybe it was the same or a little better than it was back in the May quarter, is that accurate?

I think it was probably a little slower than it was in the May quarter. I don't think the deceleration was dramatic. We still view it in the low single digit from a growth perspective.

But as I mentioned before, our revenue guidance does contemplate the potential of that could deteriorate a little bit more as we look to the back three quarters of the year. But it was probably a little weaker than we saw in the May quarter, but it wasn't dramatic.

Thank you.

Our next question comes from Tien-tsin Huang with JPMorgan.

Great, thanks, good results here. Just wanted to ask about Ezidebit and the revenue opportunity. I don't know that asset well, looks like recurring payments business plus a gateway business. So what's the mix and which piece are you more excited about?

Tien-tsin, it's Jeff. I think we're excited about first the opportunity to get into an additional market in Asia Pacific. So we've been looking for quite some time as I said a minute ago and reaction and response to Steven's question about how we enter additional Markets in Asia Pacific in particular in Australia which is the fourth largest economy in Asia Pacific and is about the same size a little bigger than the economy in Spain.

So I think the first answer to your question is new markets is an important thing that we're focused on. I would think second in terms of your question about the construct of Ezidebit, I would think of it really as very similar to what we call OpenEdge, APT and Pay Pros. So think you should think about it that way in terms of your understanding of the business.

The market in Australia is a little bit different than the market in the United States. There are a decent number -- two main alternative payment schemes outside of the card brands in Australia. So that has a meaningful part of the business over at Ezidebit.

So other than that construct which is local schemes, I think it's very similar same types of channels. I think there's 60 enterprise software and integrators who they're partnering with to get at the customer base. So the model you should be thinking about is one that's very similar to OpenEdge, albeit in the Australian market.

Okay, good to know. I appreciate that. Just for my follow-up for Cameron is the quarterly cadence throughout the year for EPS, I think last quarter you said would mirror last year. Any update to that?

No, I think that expectation is still largely consistent based on our current outlook for the full year.

Okay, great thank you all.

Thank you.

Our next question comes from Andrew Jeffrey with SunTrust.

Hi, good morning. Thanks for taking the question. Nice quarter.

Good morning.

Cameron, just at the risk of beating a dead horse on the ISOs, can you just talk a little bit about causality and what's behind the modest weakness relative to your initial thoughts in that channel? Is that a Global Payments consummated initiative or is there something external taking place in the market?

I don't know that there's anything more significant external taking place in the marketplace. I think it's more of a commentary I think largely from our perspective as to where our focus has been here over the last few quarters.

It's clearly on growing our direct business. It's clearly on growing OpenEdge, our integrated business, and focusing on again putting our efforts behind what we view as more the long term future of our Company which is the direct distribution model through those businesses that we have.

So I don't know that I would read too much further into it than that. I think it's just a fairly consistent commentary with what we've seen over the last few quarters around where our focus is and results of that as they flow through our overall financial performance.

I would just say it's a continuation in addition to what Cameron said financially -- at a high level it's a continuation of the trending we probably have talked about the last eight quarters or so, which is at the end of the day, the third party business has really come through a period post-Durbin -- a period of very high revenue growth in particular which of course has an impact on our GAAP reported revenues. And that is well now annualized.

So I think what you're seeing is those unusual one-time events which caused that channel to grow very, very quickly for a period of a couple years. This is probably the eighth consecutive quarter where we've seen a continuation of the same trend of lower growth in that channel. So I wouldn't say it's anything other than an extension of what you've been seeing for the last two years or so.

Got it, that's helpful, and where is the pro forma operating leverage in the business or sorry financial leverage in the business today, and what are you comfortable with long term recognizing that you generate a lot of free cash?

Yes, Andrew, it's Jeff. So at a high level from a strategy point of view, we expect to see over the cycle as we let out in July continuing operating margin expansion.

We've made significant investments in our direct business. We believe those are growing at market-rates or better. We just got through talking about our third party business and whether there's not a lot new there over the last two years, the truth is it's not growing at a revenue point of view at the rate of where market growth is.

So the natural mix over time and continued good execution and new products and services and leveraging the technology platform globally as we're doing generates our expectation we talked about in July that we will continue to see over the cycle additional operating margin expansion. That is supplemented by some of the deals we've announced.

So we're very focused on adding product services companies, distribution and technology that are additive to our margin. So the last two transactions we've announce Ezidebit and now Fidelity Gaming are not only growing better than the rates of organic market growth, which we've described, but come in as David mentioned at margins that are better than our corporate margins.

So I think from a strategy point of view, Andrew, going back to the July cycle based guidance, it's a combination of good consistent direct execution and all channels globally augmented by when we do do partnerships and acquisitions, those are assets that are good technologies, products and services good distribution but that have us doing a lot initially have better margins in the first place. And I think it all adds up together and you should continue to see our expectation is continued expansion over the cycle and our operating margins.

Thanks.

Our last question comes from Jason Deleeuw with Piper Jaffrey.

Hi, good morning and thanks. I want to dig into the integrated payments channel some more. I want to get a feel for the channel partners that you're working with. What percentage of their merchants already have integrated payments?

I'm just trying to get a sense for the long term growth opportunity there. And then also if you could just give us some color on now that you guys have been in this channel for some time now especially with APT, what's going on from a competitive front, a pricing front? Are there any changes in this dynamics in that channel that you noticed over the last year, year and a half?

Jason, it's David. I will start and let the other guys chime in as well. We have over 2000 partners across our integrated channel, servicing numerous verticals with meaningful presence in 50-60 vertical channels.

When you think about the pieces of that solution, it's proprietary payment, technology and highly secure solution as well. So if you look at the pieces of that, we've been very successful with the midteens growth that Cameron's describing. And then when you roll the rest of your question in thinking about pricing pressure, we have seen very little incremental pricing pressure.

Obviously merchant acquiring is highly competitive to link your first two questions together, but for us fortunately from a growth perspective, we have not quoted this number in some time. When we first announced these transactions, we told you these channels are maybe 25% penetrated.

In other words, the merchant solutions being integrated with our software and our technology and the vendor's software and technology, maybe 25% of those merchants actually were processing through integrated solution. So we think we've got a long runway ahead for growth particularly given that pricing trends are quite stable across the industry.

Just last one. Do you think EMV helps accelerate the penetration rate or to get more merchants to integrate the payments?

There's no question. In fact if you link it to apple pay and the marriage of tokenization, point to point encryption and EMV, we think we will drive faster adoption and get the merchant the end merchant as well as the ISV, the software vendor more excited about driving these integrated solutions throughout the base.

Thank you.

Well thank you very much for joining us this morning.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.