環匯 (GPN) 2015 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by. And welcome to Global Payments' FY15 second quarter conference call.

(Operator Instructions)

And as a reminder, today's conference will be recorded. At this time, I would like to turn the conference over to your host, the Executive Vice President and Chief of Staff, Jane Elliott. Please go ahead.

Thank you. Good morning, and welcome to Global Payments' FY15 second 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, the 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 10-K and Form 10-Q. 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 measures more clearly reflect comparative operating performance. For a full reconciliation of cash earnings and other non-GAAP financial measures 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, and our trended financial highlights, both of which are available in the Investor Relations area of our website at www.globalpaymentsinc.com.

Now, I'd like to introduce Jeff Sloan. Jeff?

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

We are delighted to deliver another quarter of strong performance, and to again raise our FY15 revenue, margin, and cash earnings-per-share guidance. By remaining intensely focused on execution, we achieved revenue growth for our fiscal second quarter of 10%, cash earnings-per-share growth of 19%, and operating margin expansion of 100 basis points.

Our performance for this quarter resulted in the largest core operating margin expansion of any quarter over the past several years. Additionally, this is the first time in our history that we have achieved an annual free cash flow run rate of over $400 million. These milestones are driven by the strong momentum we have achieved worldwide across our direct distribution businesses, and are particular noteworthy given significant foreign currency headwinds.

Consistent with recent trends, our US business delivered impressive results led by our direct channels, which generated double-digit organic revenue growth for the second consecutive quarter. Canada also maintained stable performance in local currency, with consistent business fundamentals.

Our international results reflect solid business performance across most of our markets, with particularly strong revenue growth in Asia, Spain, and our e-commerce channel. Additionally, we experienced markedly better than expected margins in our international business, largely from outstanding execution, augmented by market-based pricing changes in Spain.

We also continued to make progress on our strategic goal to expand our worldwide footprint. During our fiscal second quarter, we completed the acquisition of Ezidebit, which provides us with distinctive distribution in Australia and New Zealand, new direct markets for Global Payments.

We also recently announced an agreement to establish a merchant acquiring joint venture with bank of the Philippine Islands, one of the country's largest banks. With this new partnership, we will increase our existing distribution in the highly attractive Philippines market, and bring our innovative products and services to a significant additional merchant base.

These transactions will enhance our position in some of the fastest growing payment's markets in Asia-Pacific and demonstrate that we are making significant progress on our strategy in that region. Executing on our vision that we set forth in 2012 with the purchase of HSBC's remaining interest in our then Asia-Pacific joint venture.

Our performance in the first half of FY15 reflects the consistent and sound execution of our strategy to expand technology-enabled direct distribution in our markets augmented with disciplined capital deployment. We continue to reinvest in our businesses, pursue our global corporate development road map, and efficiently return capital to shareholders.

Now I will turn the call over to Cameron.

Thanks, Jeff, and good morning, everyone. Before reviewing segment results for the quarter, I would like to first provide an overview of the key drivers of our performance for the second quarter relative to our expectations.

In the United States, all of our direct businesses continue to perform quite well, generating year-over-year organic growth rates that have trended above our expectations. Our business in Canada remains stable, although our local currency performance was more than offset by FX for the quarter.

In Europe, Spain performed exceptionally well driven by double-digit transaction and volume growth, as well as market-based pricing impacts. Our e-commerce channel also continues to perform better than we expected, which has contributed to our European top line growth.

Similar to Q1, this strong European performance was partially offset by our Russian business, which continues to be impacted by the overall economic environment and the effect of FX, which were an even greater headwind than we anticipated.

Our Asia-Pacific business generated organic revenue growth in the high single digits, accelerating from previous quarters, and outperforming our expectations. Of course, reported Asia results were further bolstered by the addition of Ezidebit, which performed in line with expectations.

Now for the quarterly segment details. Total Company revenue for the second quarter of FY15 grew to $697 million, reflecting 10% growth over FY14. And cash operating margins expanded 100 basis points to 20.4%. Diluted cash earnings-per-share increased 19% over the prior year's quarter to $1.27.

Our underlying business demonstrated strength during the quarter, even after normalizing our revenue growth for the addition of PayPros and Ezidebit. Assuming we own the PayPros and Ezidebit businesses in our current and prior year second quarters, or normalizing for their effect, total Company revenue growth would have been 5%, in line with our long-term core organic growth expectations, despite the impact of significant FX headwinds. On a constant currency basis, total Company revenue growth was approximately 8% for the quarter.

North America's segment revenue grew 9% for the second quarter, with US growth of 12% over the prior year. On a normalized basis, organic US revenue growth was 5%, which was comprised of growth in our direct channels of 12% and growth in our ISO channel of less than 1% during the quarter.

As anticipated, growth in our ISO business continues to decelerate, and this channel is becoming an increasingly smaller portion of our business. Our ISOs now contribute approximately 15% of our North America operating income, and approximately 8% of total Company operating income, which compares to approximately 20% and low double digits, respectively, as of Q3 of FY14.

Despite local currency performance of 6% revenue growth, Canada revenue growth in US dollars declined 2%, resulting from an unfavorable exchange rate. North America cash operating income grew 10% to $85.4 million, and cash operating margins were 17.5%, up from last year, driven by growth in our direct channel, partially offset by unfavorable Canadian FX trend on a year-over-year basis.

International revenue grew 11% for the quarter in US dollars. Europe delivered strong revenue growth of 9%, fueled by performance in Spain and our e-commerce channel, offset by continued under performance in our Russia business in light of the general economic environment and ruble devaluation. As a result of strength in the rest of our business, Russia now represents approximately 2% of total Company revenues, down from approximately 3% last quarter.

Asia-Pacific revenue grew 21%, driven by strong organic revenue growth and the Ezidebit acquisition, which contributed approximately 12 percentage points to the growth rate. Our organic growth in the region was primarily a result of a combination of increased volumes, growth in dynamic currency conversion, and selective pricing initiatives. International cash operating income grew 20% to $83.5 million, and cash operating margins increased to 40.1%.

Our effective tax rate for the quarter on a cash basis was 26.7%. We generated approximately $105 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 interests.

Capital expenditures totaled $15 million for the quarter, and our total available cash including working capital at the end of the quarter was approximately $225 million. Lastly, we repurchased a total of approximately 700,000 shares during the quarter for approximately $47 million.

Now I'd like to turn to our expectations for FY15. Based on our results for the first half of FY15, we are increasing our outlook for the full fiscal year.

We now expect reported revenue to grow 8% to 10%, and range from $2.75 billion to $2.8 billion. Similarly, we are raising our cash earnings-per-share expectations to a range of $4.75 to $4.83, reflecting growth of 15% to 17%. We also now expect core cash operating margins to expand by as much as 50 basis points in FY15, with margin expansion in both our North America and international segments.

It is important to note that these expectations also reflect further strengthening of the US dollar against most of the foreign currencies to which we have exposure, which represents a more meaningful headwind to our financial results for the remainder of the year.

Additionally, our expectation for our Russia business is further tempered from our last quarterly update as a result of the challenging economic environment there. As usual, these cash earnings-per-share expectations only reflect share repurchases that we have completed prior to this call.

By way of update, during our Q4 FY14 earnings call, we made reference to the June 2014 acquisition of one of our largest US sales partners. At that time, we noted that our FY15 expectations assumed no change in the nature of our relationship with this customer resulting from the transaction.

We have recently amended our agreements with this partner, and can confirm that this transaction will not have any impact on our FY15 expectations for GAAP revenue, operating income, or total Company cash earnings-per-share. In addition, we do not expect any meaningful migration associated with this partner during calendar 2015.

We currently have approximately $875 million of capacity to fund future initiatives, including approximately $650 million of availability on our corporate credit facility. As a reminder, we expect the FIS transaction to close toward the end of our FY15. And we intend to fund this acquisition from operating cash flows, and do not expect it to have an impact on our near term capital allocation plans or facility availability.

Lastly, our Board has approved an increase in our share repurchase authorization to $300 million in the aggregate. Further demonstrating our ongoing commitment to prudent capital management on behalf of our shareholders.

I will now turn the call back over to Jeff.

Thanks, Cameron.

This is yet another quarter of transparent, consistent execution of our strategy to grow and control direct distribution, deliver innovative products and services, and leverage our worldwide technological and operational advantages. We are delighted to again raise guidance.

Finally, we remain committed to driving sustainable growth in our markets, and are dedicated to creating value for our shareholders, partners, customers, and employees.

Now I'll turn the call over to Jane.

Thanks. 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 accommodate everyone in the queue.

Thank you. And operator, we will now go to questions.

Thank you.

(Operator Instructions)

Our first question is from Dave Koning of Robert W. Baird and Company. You may begin.

Can you hear me?

Yes, Dave, we can.

All right. Great. So, I guess, first question, just on Spain, is there any way to isolate either the revenue or EBIT impact or -- in rough terms -- because international was so strong, and just wondering how much of that beat really was isolated to the Spain pricing movement?

Hey, Dave, it's Jeff. I'll start, and Cameron will add to this.

I would say, and we tried to say in our prepared remarks is, while we're not going to break out the changes from growth in the core business versus interchange, we did say in our prepared remarks that we had 13% transactional growth in Spain in the quarter. So, I think it's fair to assume, at a minimum, that we would have had double-digit local currency growth in Spain, notwithstanding any changes to interchange. I think that's how we think about it, Dave.

Okay. That's great.

And then, I guess, just the follow-up then: International EBIT, $83 million to $84 million this quarter, is that generally sustainable? I know there's a little bit of seasonality to that, that comes down off in the back half, but is that largely sustainable, given all the things that are going on?

Well, you're right, Dave -- it's Cameron -- in that Ezidebit is included in there, but only for a partial quarter. So, I would caution you to bear that in mind as you think about the going run rate.

The only other thing I would comment on is FX. Obviously, the performance in the quarter was good despite the FX headwinds, but we are forecasting incremental headwinds for the balance of the year as well. So, I think, by and large, it's generally going to be a good number going forward, after you normalize for a full quarter of Ezidebit. But you'll have to take into consideration FX as well.

Got you. Great. Thanks. Great job.

Thanks, Dave.

Thanks, Dave.

Thank you. Our next question is from Ashwin Shirvaikar of Citibank. You may begin.

Thank you. Morning, Jeff. Morning, Cameron.

Good morning.

Congratulations on the quarter. Happy new year.

I guess a couple of questions -- one is -- I may have missed this with regards to the full impact of the FX headwind. What are you overcoming in dollar terms for the year?

For the year, Ashwin, we have not provided a specific estimate as to how much of the FX headwind is impacting our numbers. What we can tell you is: Obviously, when we provided our guidance back in October, we thought that FX was going to be a more meaningful headwind than we did at the beginning of the year.

As we sit here today, we expect it to be an increased headwind relative to where we were three months ago with the expectations for the full year as well. So I can tell you, sitting here today, we've been able to overcome a fairly meaningful amount of FX headwind on a both revenue, operating income and cash earnings-per-share basis, but haven't given a specific estimate as just how much is embedded in the numbers.

Okay. And Ezidebit seems to be tracking to the $25 million full-year revenue impact that you had guided to earlier. I want to ask also about the Philippines impact with regards to full year -- how much is that going to be?

And then if I could sneak in an extra question? Oil prices going down -- are you actually seeing consumer spending rising on the back of that -- consumer transactions?

I'll start with the first two, Ashwin, and I'll maybe ask Jeff to chime in on the third.

Certainly on Ez, that remains our expectation for the full year. As we noted in our prepared remarks, the Company is performing in line with our expectations thus far. And the outlook would suggest that they're going to be on target for the full-year expectations as well.

I will note: The Australian dollar is a little weaker. But again, we still feel the Business is going to perform in line with our expectations for the year.

On the Philippines, there is nothing in our guidance currently reflected for the Philippines joint venture that we recently announced. Although, I would note: At the time that we made that announcement, we did indicate whatever impact there will be in FY15 will be relatively immaterial.

Lastly, I'll ask Jeff to jump in on your question regarding consumer spending.

Yes, I think you're right in what you said, Ashwin, on consumer spending. As you've heard from us before, we generally view our Business as a GDP-plus growth type of business. A lot of that depends, of course, on consumer spending.

To the extent that oil prices either stay where they are or come down further, we view that as a positive to our Business because it has the effect of a tax cut effectively for consumers. So, we view that, in general, as really nothing but upside for the health of the consumers on whose businesses we depend for our financials.

Okay. Thanks. Congratulations. Keep up the good work. Thank you.

Thank you.

Thanks, Ashwin.

Thank you. Our next question is from Bryan Keane of Deutsche Bank. You may begin.

Hi, guys. Can you hear me all right?

Yes.

Yes.

Just wanted to follow up on that international margin growth, because that was the real surprise in the quarter. I'm just trying to figure out: Was that all mostly due to Spain? And then, when you get pricing like that -- like you're getting in Spain -- how sustainable is that when we look into next year, or does that get competed away?

Bryan, it's Cameron, I'll jump in and I'll ask Jeff to add any additional color. Let me just step back for a second, and note some of the drivers for the international performance that we touched on in our prepared remarks.

First of all, Spain obviously is an important driver. But, again, recognize, a good portion of that is execution, as Jeff mentioned, with double-digit transaction and volume growth. Notwithstanding the nice tailwind we're seeing from the lower interchange, we're clearly pleased with the execution in the Spanish market. The rest of the international businesses in Europe continue to perform well also, but for Russia, which we talked about, which continues to be a bit of a headwind for that business.

In Asia, you had organic revenue growth of 9%, which accelerated quarter over quarter, year over year, which is obviously contributing to the margin performance for the international segment as well. You couple that with the addition of Ezidebit, which contributed 12 percentage points to growth on a revenue basis, you're obviously driving operating income and margin expansion as well, given that Ezidebit's coming in at a higher margin than our average.

So, when you roll all those pieces together, I would say a lot of it is execution and performance -- the addition of Ezidebit. And naturally the regulatory changes in Spain are helpful, but I think a lot more about it is the execution we're seeing in the Business.

Brian, this is David.

In terms of the tail on something like the interchange reductions, what we typically see and what we assume certainly now in the case of Spain is that that will dissipate over time. If you think back to the Durbin days here in the United States, which is just going back a couple years ago, you had a year, maybe a little less than a year, of a benefit from changes in the regs, as well as the interchange. Remember though that was a steadily decreasing benefit as time went on. So, it's a really nice benefit right now; it will decrease over time.

I would say this, though: I think what's really tell-tale about Spain, setting aside the interchange for a moment, is the volume growth and the transaction growth that Jeff mentioned a little while ago -- 13% transaction growth this quarter, double-digit volume growth implied or implicit in that double-digit revenue growth as well. Similar metrics in Q1; similar metrics we expect for the rest of the year. It's when you combine that with this interchange benefit that you really get the outstanding performance. And then it feeds the list of items that Cameron just went through, in terms of overall international margins.

Okay. And I assume you're taking share in Spain to get those kind of transaction growth rates.

And then, finally, just, Cameron, on operating margins international, what does the back-half guidance then imply for that? What should we put in our models or expect?

Bryan, we absolutely are taking share in Spain. Remember this though, what's really interesting about that: We are the largest provider in Spain. We have the largest market share, 25%, 28%, depending on who's counting. But certainly, with growth rates like that, we are absolutely taking share. And we're very happy with performance in Spain.

Yes, and, Bryan, on your last question, I think we would expect a little bit of a margin degradation relative to what we saw in Q2 for the international business in the back half of the year, as David highlighted. With some of the benefit from the interchange reduction in Spain beginning to dissipate, you'll see a little pressure on that relative to what we just reported. But obviously, we're still -- for the full year -- guiding towards margin expansion for the international segments, as well as the North American segment and the total Company in totality.

Okay, congrats on the results.

Thanks, Bryan.

Thanks, Bryan.

Thank you. Our next question comes from Tien-tsin Huang from JPMorgan. You may begin.

Great. Thanks. Good results here.

I just wanted to get some clarity on what's driving the guidance raise. I caught the JV, the Comerica push-out and migration; obviously you had some upside here, but can you be more specific?

Sure, I'll just add something, Tien-tsin; and Cameron can comment on the financial modeling around the guidance.

There's no impact in the guidance, as we said back in July, as it relates to Comerica, which is immaterial. I think you might be asking about Comerica, which is the Spanish joint venture -- the name of our Spanish joint venture that David and Cameron just described in terms of its performance. So, obviously, double-digit organic transaction and volume growth is going to substantially enhance the revenue, but also increase the minority interest line because that's the primary source of our minority interest, the 49% share, that CaixaBank has in that joint venture.

Cameron, you want to go through any more specifics on the modeling?

Yes, I'll be happy to; just a few comments. We're obviously reflecting in our guidance the performance we've seen for the year-to-date period, coupled with our changed expectations for the balance of the year. We're continuing to expect trends in the US direct business to be strong, as they have been in the front half of the year. We had US direct growth of 12% in the second quarter, which we expect that to continue to be strong in the balance of the year.

We remain bullish on the prospects for Spain for all the reasons that David highlighted a moment ago. That's somewhat offset by, again, tempered expectations for our Russian business, as well as increased headwinds associated with FX for most of the major currencies to which we have exposure. When you roll all that together, again, we're upping our revenue op margin and cash EPS guidance for the full year.

That's good. So, just as my follow-up, just on Canada with the interchange there coming down, I know there's been some debate on the MDRs and how that might get reflected. Any thoughts on that as an opportunity and your ability to reprice in Canada? Thanks. That's all I had.

Tien-tsin, it's Jeff. What I would say is: That's expected to occur in the spring -- in April of 2015. Our assumption is that all of that is going to be passed through, based on our current understanding of the regulations related to the change reduction in Canada. But as we've said before to you over time that, at the end of the day, any reduction in the cost to our merchants of acceptance is good news for our Business. And the reason it's good news for our Business is, it should increase the number of merchants who want to take cards because it lowers the cost; that should help.

And in addition, to the extent that we take any other pricing actions over time, not related to the interchange reduction, that takes, Tien-tsin, some of the pressure off from other actions that we may take. So, even in environments where everything is passed through, we've seen good growth implications to our Business as a tell-tale sign of those changes. So, really, at the end of the day, it's nothing but good news for our merchants, and we think the same for us.

I want to add, even though it's not in Canada, that there have been changes to the EU legislation since we last talked on our last call. And it does look like the EU this month is going to be approving, Tien-tsin, changes to affect what we used to know as SEPA by way of interchange, both cross-border as well as domestic. And as those rates come down in the EU, we do expect to see benefits from that, which we expect to start really in the summer. So, really start early in our FY16. I think, in addition to the Canadian changes that you just asked about, I would say that we would anticipate positive effects from the EU changes starting this summer.

Thanks for that, Jeff; a lot of positives there. Thanks.

Thank you.

Thank you. Our next question is from Dan Perlin of RBC Capital Markets. You may begin.

Thanks. I want to just go back to, I guess, Europe broadly for a moment, if I could. So, I don't know, I think this was the first time that you gave the Spain actual transactions. I know in the past you've talked about double digits.

So, I don't know if that's actually an acceleration materially, or if it's just continued good execution there. But when I think about the margin argument, and I hate to harp on it, but if Spain's been doing double digits and eCommerce has been strong, which is typically pretty much lower margins, let's just say. Is the combination of Ezidebit coming on and then pricing? Because Ezidebit I thought had lower margins than what you actually produced this quarter, even in international.

Dan, it's Jeff. So, what I would say is: When we announced the acquisition and the closing of Ezidebit, what we had said at the time is it's above our international margins, Dan, before we even brought it into Global Payments. So, Ezidebit, really from the initial acquisition, is accretive to our international margins. So, as Cameron referenced, it's obviously helpful to the economic model, number one.

Number two, I would say that our objective as a Company, as you know, is to grow overall margins. So, we run a portfolio of diverse businesses. But we don't see -- as changes come down the pike in Spain or elsewhere, we don't see a reason why we wouldn't be continuing to grow, in the totality, our international margins over time. So, I wouldn't view it as a temporal move in margins; I would view it as this is the plan that we're executing against.

Yep. My follow-up is really in relation to the OpenEdge go-to-market strategy and rebranding. I'm wondering: Is there any updates that you can give us in terms of cross-selling new products -- what kind of uptake you're seeing? And then to what extent have you made that push geographically, north of the border? Thanks.

Dan, it's David. Thanks for asking that question.

OpenEdge, first off, is hitting its numbers. It's growing just as we expected. The initial cross-sales are moving well. Remember, what we started with was integrating the entire sales force, and then effecting the rebranding.

Where we really expect to begin seeing momentum, as you recall from a quarter ago, maybe two quarters ago, as we get to the second half of this year and into early 2016, we'll see that momentum on two sides. One is the actual expense benefits from platform integration; some of the usual integration stuff you see, but the other is the cross-selling. So, early days; the early signs are good.

What you'll see from that business, particularly, is a consolidated roll out of a security solution that includes EMV tokenization, as well as point-to-point encryption into one bundled security solution, which really is the way to think about security, particularly as you're dealing with small- to medium-size merchants around the country.

And, yes, we're focused very discreetly on taking that business into Canada. We already have a small Canadian presence there. We have a dedicated sales staff, which is one of the counter-synergies -- the negative synergies we're affording this year on the way to hopefully improved performance in 2016, and growth in 2016. But everything at OpenEdge is right on track.

We're also executing the technology and platform integration plans as well. We're boarding new customers to Global Payments platforms as we speak. So, everything going very well at OpenEdge; and it's delivering its income numbers just as we expected.

Excellent. Thank you, guys.

Thanks, Dan.

Thanks, Dan.

Thank you. Our next question is from George Mihalos of Credit Suisse. You may begin.

Great, thanks, guys, and congrats on the quarter -- wanted to start off on the US side. It looks like you mentioned the 12% growth in your direct business; ISO slowing a little bit. It sounds almost like OpenEdge is continuing to grow in the high-teens, as opposed to the mid-teens that I think you had originally baked into the model. Can you confirm that? And then, related to that, as we go through 2015, and the EMV migration really starts to accelerate, do you think you would be able to maintain this current rate of growth in the high-teens?

Hey, George, it's Cameron. I'll jump in on that, and I may ask David to comment on the EMV rollout specifically.

As it relates to the growth expectations for the OpenEdge platform, I think you're correct in that we have been seeing obviously growth trends that are higher or slightly higher than I think our expectations were for the business. As David noted, it continues to perform very much in line with our expectations from both a revenue and operating income perspective.

But on a top-line basis, I think the growth has been strong. And it's certainly contributing to the 12% growth that we've seen in our direct business for the quarter, which is a fairly consistent trend from the first quarter of FY15 as well. As far as momentum, certainly, I think we see opportunities to continue to expand and grow the business in the back half of the year, and as we look to FY16 as well.

I'll let David maybe jump in on some of the specifics that you referenced around EMV and whatnot.

George, we expect to be selling an integrated security solution with a very easy path to get live for our partners. We expect to deliver American Express through OpenEdge, which is really in the early stages there of delivering that. They're a series of verticals though, there isn't necessarily a lot of American Express penetration to date.

So, we are teeing up that, combined with a question Dan asked a moment ago, which is cross-selling the products like Decline Minimizer into the APT base -- the legacy APT base. We think we set ourselves up for another strong growth year in 2016, and more to come as we talk going forward.

Okay, great. And just final question from me -- just want to ask: Are there any additional pricing initiatives assumed in your guidance for 2015 -- anything new? And it sort of sounds, Jeff, from your comments that you expect any significant upside or any real upside coming from additional pricing to hit the P&L more in 2016 than 2015. I just want to make sure I'm thinking about that correctly.

Yes, George, I would say that we continually look at pricing. We're in very competitive markets all over the world. What I was really referring to was the April change in interchange in Canada that's been announced. I was also referring to the EU changes, which we expect to be adopted this week by the EU Parliament -- this month -- but to be implemented over the summer.

I would say, in general, most of the industry, including Global Payments, looks at pricing twice a year as a systemic matter, George. And that's tied to, or generally is around the MasterCard and Visa announced changes, which are typically done in October and April.

It so happens that the Canadian change is around the same time, in April. But in general, most of the industry looks at that because those are clear notice periods where we have to go back to merchants anyway.

So, what I would say, George, is: Those are regulatory changes that don't happen all the time, which is why we call them out. But we continually look at pricing in all of our markets to make sure that we're striking the appropriate balance.

Great. Thank you.

Thank you. Our next question is from Jason Kupferberg of Jefferies. You may begin.

Thanks, guys. I just wanted to pick up on one of the comments that David made a little while ago around the platform consolidation in the US in the OpenEdge business. So, with PayPros and APT coming together, can you just give us a little more detail on the timing of when you think that platform consolidation will be done, and will that be a noticeable margin tailwind as we get into FY16?

I think, to take your question in reverse, Jason, I don't think it will be noticeable in the face of the income statement because of the sheer size of Global Payments, much less our North America business as well. Instead, what you have is one of the tactics that will help us continue to deliver operating income growth and margin expansion over time in the United States, North America, and then, by extension, globally.

The way we're thinking about migration now is the first, and maybe the most important, step is we're boarding new customers to Global Payments. Probably the best thing I can tell you right now is: We have a good, long-term [frosting] relationship with a third party that provides processing now. We're happy with the pace of our integration; more to come that will feed in those integration benefits over time over the next year, or year or two.

So, we can keep chatting about it, but we like the idea of having that as another tactic to help us with 2016 and beyond from a margin expansions perspective.

Okay. So, just more incremental, it sounds like.

Yes.

Just as a follow-up on the Philippines joint venture, can you give us a little bit more detail on the size and growth of that market, maybe competitive landscape, and just how many merchants did Global Payments, as well as Bank of Philippines, have prior to the JV, just to help us with some sizing?

Jason, it's Jeff. So, we're very pleased with the partnership with Bank of the Philippines. It's one of the largest banks, as I said in our prepared remarks, around the country.

We're already in the Philippines market in two significant ways. One, we have a direct acquiring business in the Philippines market already. And number two, we have our global service center in the Philippines with about 600 employees. So, we think we're very well positioned alone, and even better positioned in combination with our partners at Bank of the Philippines.

We're adding 34,000 additional merchants, Jason, through the joint venture. I think, as we said publicly, Bank of the Philippines has 800 branches, so we're picking up an additional 800 branches in market.

In terms of the growth rate, while we don't break out the financials separately for our submarkets of our 13 markets in Asia, what I would say is: If you go back to one of the earlier questions about -- from Ashwin as to what drives our Business, we're generally a GDP-plus derivative type of Company. And if you look at GDP, Jason, in the Philippines, it's growing really in the high-single digits. It has, in the last number of years, and expecting to do that today. So, I would say high-single digits-plus on an organic basis in that business is a good estimate, Jason.

And then, when you combine the two, I think each one of us is probably in the top handful of folks as a share point of view in the Philippines already. So, I think on a combined basis, we would expect to be the second largest player in the Philippines.

Very helpful. Thank you.

You're welcome.

Thank you. Our next question is from Glenn Greene of Oppenheimer. You may begin.

Thank you. Good morning. A couple questions: I just wanted to go back to the US growth, the 12%. And I know it's early, but you've sort of been embarked on participating in the OptBlue program. I wonder if you could quantify how meaningful a benefit that might have been to the US growth, and maybe just talk about strategically how important that is to you?

Glenn, it's Jeff. I'll start, and then Cameron can add some additional color.

I think, as a tactical matter, it's very important to us. As I said before, we believe that we are the first large transaction processor in the United States to enter the market with OptBlue. We started in the market in May of 2014. So, you saw this, of course, really fully in our first quarter.

If you go back to the first-quarter prepared remarks that I think were in Cameron's section, what you would have seen for the first time, for a number of reasons, but OptBlue being a primary reason, is a substantially higher revenue growth rate relative to transaction growth rate. And at least some of that is attributable to the fact that we're getting better traction, capturing share. We get better marginal economics on OptBlue versus some of our traditional programs.

And I think that's probably one of the ways to think about what the benefit is to Global Payments is a better yield per transaction. As we move away from just a pure switch fee, which is what we used to get through American Express and programs like it, into more of a traditional acquiring mode where we get basis points on volume. And I think that's probably as much as we can say about the economics to us from American Express.

Okay, understood. On Canada, I think what you said it was 6% constant-currency growth, and I think last quarter you did have some pricing benefits. And I'm not talking about interchange-related. How much of the 6% constant-currency growth this quarter was transaction-based versus pricing?

Last quarter, you'll note we did make reference to some pricing initiatives that we did have in Canada. And that was a contributor to the growth that we were seeing on a local-currency basis. Obviously, that continues to be a component of it.

But I'd say, more importantly, what we're seeing in Canada is stable business fundamentals. When you look at transaction growth and spread, we're seeing a relatively stable fundamental basis for the Canadian business, which is really contributing to the local-currency performance we're seeing. Naturally, we saw a 7%, roughly, decline in the Canadian dollar, and that's why you're seeing the US dollar results that we're seeing.

And then, if I could just slip in one more: The 50 basis points of margin expansion for the year -- could you just delineate North America versus international expectations?

We haven't provided specific guidance for either of the two segments, in terms of what we expect, other than to say we expect margin expansion for both of those segments, which is going to contribute to the overall, roughly, 50-basis-point expansion we're anticipating for the total Company.

Okay. Great. Thank you.

Thanks, Glenn.

Thanks, Glenn.

Thank you. Our next question is from Darrin Peller of Barclays. You may begin.

Thanks, guys. Nice job on the quarter. I just want to start off on capital structure, if you can give us a quick update on your strategy? You've obviously been much more (inaudible) buybacks. But I know, Jeff, you've mentioned looking for more deal opportunities, internationally especially. So, where do we stand now on that?

I'll start, Darrin, with the strategy question. And I think Cameron will put in a lot of the financial details.

So, we've announced three transactions in the last four months really. Two of the three of which were outside of North America. Those being Ezidebit and the JV with Bank of the Philippine Islands. So, I would say, Darrin, as it relates to corporate development and pipeline, we're now in the mode, having just announced three deals in the last number of months, of really rebuilding the pipeline.

In terms of location of the pipeline, we're opportunistic. So, as we've said before, we've got to find something that's for sale with a good partner with attractive returns to our shareholders, and we do measure that relative to repurchase. So, we're very focused on the IRR, as well as the cash earnings accretion from the repurchases relative to the acquisitions to the extent that we can risk weight them. And that's how we think about the balance between the two.

Cameron, you want to comment on the capacity and repurchase [levels]?

Sure, I'll be happy to. As you'll know and I'll just remind you of the comments I made in my prepared remarks, which is: We did increase our share repurchase authorization to $300 million. We did execute some repurchases in Q2, although relatively minimal compared to the things we've done historically.

As you look at our capacity today, we have roughly $875 million of available capacity to pursue strategic initiatives. That's a combination of, roughly, $250 million of cash on hand, and the balance being capacity under our existing revolving credit facility.

So, as we sit here today, we have roughly gross debt of $1.6 billion; net debt of something south of $1.4 billion. We're sort of 2.5 times levered, right in the sweet spot as we see it for continuing to move forward and execute on the capital allocation plan that we've been discussing now for several quarters. Ample capacity to pursue both strategic acquisitions that meet our criteria, as well as continuing to be a relatively consistent buyer of our stock in the market.

All right. That's very helpful. Just one quick follow-up: One thing that I didn't hear mentioned much on the call around pricing potential is the Visa and MasterCard price changes going into effect in the US market -- the increases in their assessment fees, although mild. I know there's been some opportunities for you guys in the past, not just to pass it through. So, is that also something that might perhaps go into effect in January, April, and give you guys a little bit of a lift in the US market going forward?

Darrin, it's David. The answer is yes, although I would point you back to Jeff's comments earlier. Those are the kinds of compliance releases that happen a couple of times a year. They're almost always baked into how we think about the Business as the year starts. But you're absolutely right, that's a little bit of help or a little bit of air cover as we think about any operational things we might want to do in the second half of the year.

Got it. All right, guys. Thank you.

Thank you. Our next question is from Andrew Jeffrey of SunTrust. You may begin.

Good morning. Happy new year, guys. Thanks for taking the question.

Sure.

Morning.

Could you generally discuss the -- a couple I guess competitive questions. One, in terms of the North American OpenEdge competitive environment, US: Any changes that are notable in terms of competition within the channel or from other providers?

And then, as a follow-up, eCommerce -- we're hearing about a lot of companies being funded in the eCommerce space, especially in Europe. Any competitive thoughts on that front?

Andrew, I'll start with the US or the North America view around OpenEdge and integrated. I think there are a couple ways to think about competition. First off, it's not notably different from maybe six months ago, if we'd had this same conversation. There are more folks using the words integrated payments as they describe their offerings. Often, those are ISOs without fully integrated payment solutions that really do embed themselves into the software that runs small businesses around the country.

So, when you get down to brass tacks from a solution perspective, there really is no change. But you see a little more marketing, a little bit more noise. Obviously, given the success, and the fairly public success of integrated solutions, particularly the solutions that we've been selling for the last year and a half when we finished off the APT transaction.

But again, if you reset yourself and say: Okay, is the list of competitors different from what it was six or nine months ago? No. Is there a noticeable change in the economics of the market from six months ago or nine months ago? The answer is no.

And, in fact, hopefully we're driving the opposite, which is rolling out more solutions, making us more and more the partner of choice obviously, but also driving more sustainable competitive advantage for us and our partners. As we work with the merchants themselves, we're doing more and more to solidify those relationships. So, we feel very good about our competitive position in integrated in the United States, and feel very good about the prospects of rolling it out over time internationally, broader than just Ezidebit, with its Australia, New Zealand and Asia presence.

I'd say, Andrew -- it's Jeff. On the question about eCommerce, we tend to think about it, especially in Europe, as really an omnichannel offering. So, we tend to think going forward it's going to be less about how the transaction really came into the merchant, and more about our ability to service people on both a card not present environment, as well as a card present environment.

That's particularly true, as I mentioned before to Tien-tsin, as we move into a post-SEPA environment. So, as you think about the implications of domestic and cross-border rates being lower across the EU, it really shouldn't matter where a merchant is based and how a transaction comes in. So, we're actively positioning our Business, and repositioning our business in the case of Global Solutions, to really deal with omnichannel customers, to provide better value-added analytics and services in an environment where we think merchants will be more inclined to accept a transaction however it comes in, as rates are reduced. So, I think we think a little bit less along the lines of eCommerce, and more along the lines of: Can we capture share by offering value-added solutions that are almost channel-agnostic?

Very helpful. Thanks a lot.

You bet.

Thank you. Our next question is from Brett Huff of Stephens, Inc. You may begin.

Can you guys hear me okay?

Yes.

Yes, we can hear you, Brett.

Good morning, and congrats on a nice quarter.

Thank you.

I had a quick question -- two quick questions. One is: Can you give us -- apprise for us the pro forma or the cash EBIT dollars, percentage-wise, that Canada contributes now? And then, can you talk a little bit about what the DCC offering there might help? That's one question.

Then the other is a little bit bigger picture, looking into FY16. Can you just go over generally what kind of the pros and cons or puts and takes are as we think about more sustainable margin expansion for you all? I know it's going to be about 50 basis points this year, as we think about the interchange changes, [SEPA] changes, APT and PayPros integration and things like that. So, those are the two questions. Thanks.

I'll jump in. And I'll ask either Jeff or David to provide any additional color commentary if they'd like to. First, as it relates to Canada, we're really not going to provide any more disaggregated data relative to its total contribution on a cash EBIT or operating income basis for North America.

I would note on the second part of your question around DCC, it's a relatively small opportunity for us. It's obviously something we are prepared to offer to merchants in that marketplace, but we just don't really see that as being a significant driver for the Business as we look to either the balance of FY15 or the years beyond.

As we talk about the second part of your question, as it relates to margins for 2016, let me just start first at a high level. I think what we've traditionally said is: We anticipate organic margin expansion in this Business of 30 to 50 basis points annually. And that's going to be driven by a variety of factors, and it's going to ebb and flow a little bit depending on the year, and depending on what some of the headwinds and tailwinds may be.

We're obviously not in a position to provide 2016 guidance as we sit here today. But we certainly are pretty pleased with the performance we've been able to generate thus far for the year, and we're guiding up 50 basis points for the full FY15.

As we look forward to 2016, we expect some of the tailwinds that we're seeing in 2015 to continue. And certainly, the pricing initiatives that you referenced, the lower interchange, are going to be positives. But we also expect to see continued headwinds for FX. We're going to continue to have to endure those, at least till we get to the middle part of next year, given that a lot of the deterioration we've seen, or strength in the US dollar we've seen, has been in the recent months, not so much in the first half of FY15.

So, I think we do expect certainly the business fundamentals to remain strong as we roll into 2016, which I think will present a nice tailwind for margins. We expect the pricing initiatives to be positive. But I think we also expect FX to be a continued headwind, certainly at least for the first half of the year.

Okay. Great. That's what I needed. Appreciate your time.

Thanks, Brett.

Thank you. Our next question is from Tim Willi of Wells Fargo. You may begin.

Thanks, and good morning. I just had one question for Jeff, David. Obviously, you're off to a strong start. You've let some of the upside come to the bottom line in terms of revised guidance.

But I'm just curious, Jeff or David, when you think about areas of the Business that you would have liked to have had more dollars to spend on, when you originally set out on this year, where are you going to spend extra money or where are you most encouraged about allocating some of this extra earnings power that's emerging? Is it geographic? Is it product? Just sort of curious if there's anything that really highlight that's going to get a bit more focus than maybe it otherwise would have.

Yes, Tim, it's Jeff. I'll start at answering your question. It's a very good one.

What I would say, and I take it more in the corporate development area versus the product area, and David may augment that with his thoughts, too. But on the corporate development side, we always start with: What types of partners are really available, and are they partners that we're comfortable with?

So, one area of the Company that I've mentioned before that, if I had all my wishes kind of come true, would be an expanding presence in Latin America. So, as you know, we have our business that we started De Novo about a year and a half ago in July of 2013 in Brazil. We're currently up to 6,500 merchants, and our partners [at Caixa] -- we are pretty pleased with where we are.

But I think we've also acknowledged that, in the context of a business of our size, it's not enough to make a meaningful increase in our revenue or our EBITDA or our cash earnings in the immediate term. So, sitting here today, I would love to be in a position, Tim, over the next 6 or 12 months to be able to say that we've significantly increased the size of our Business in Latin and South America. Part of that, of course, is Brazil, which we're in already today.

But we've talked a lot about other Latin American markets like Mexico, given its size and its prominence, that we're not in directly, that we really wish we could be. So, if I could snap my fingers and find a place to substantially expand the footprint of the Business, I would certainly say that additional investments in Latin America, in those markets in particular, would be most welcome.

Dave, do you have any comments on the other?

Yes. I think, Tim, you asked a great question. And I think -- I'm glad you did, because it allows us to say: We are repurposing some of this solid year into other, more tactical things, even beyond what Jeff said at the strategic level in terms of entering new markets.

We are putting some of the money actually back into new product, into new solutions. We're accelerating some solutions that were already on the drawing board. We also are taking some things that we've been discussing, at least in this room in which I'm sitting now, as long-term initiatives, bringing them forward a little bit as well.

Things like reengineering the way we interact with customers themselves to drive both a better customer experience, as well as drive improved opportunities for compliance, and also improved economies over some period of time. Renewed focus on organic growth to the extent we can with better tooling and better product drive more and more organic growth. These are all sort of examples of investments that we have brought forward or initiated in the last few months that we had on the drawing board for the future that will help us drive long-term growth and help sustain the model development the way Cameron has described it to you this morning.

Great. Thanks very much for the thoughts, guys.

Thanks, Tim.

Thanks, Tim.

Thank you. Our last question is from Tom McCrohan of Sterne Agee. You may begin.

Hi, guys, and an apology if this question was already asked. But could you just give us a feel for the impact this quarter on the lower oil prices, and how we should be thinking about that going forward in certain markets such as Canada? Thanks.

Hey, Tom, it's Jeff. So, we answered that a little bit, but not probably as head-on as you just asked it. I would say: In all of our markets, we are a GD-plus derivative business, meaning we should grow north of GDP. And we look really at the Visa and MasterCard and local statistics on a transactional basis is what the target is for our rate of growth.

To the extent that consumers, for example, or businesses, but especially consumers are paying less for some of their costs like oil, that has the effect of a tax cut, and should increase their ability to spend on a volume basis in those markets. So, it's really nothing but good news.

I would say, as a corollary, we really don't have, really in any of our markets, a very large fuel presence. So, there really is no offset, because we're not really present at the pump in any substantial way in most of our markets. So, to go back to one of the previous questions, Tom, it's really nothing but good news for our markets as it gets reflected in better organic GDP rates.

Great. Thanks.

Thanks a lot, Tom.

On behalf of Global Payments, thank you very much for joining us this morning on our second-quarter FY15 earnings call.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation, and have a wonderful day.