環匯 (GPN) 2015 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to Global Payments FY15 third 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 fiscal 2015 third quarter conference call. Our call today is scheduled for one hour. Joining me on the call are Jeff Sloan, CEO, David Magnum, 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 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 to 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 report another quarter of strong financial performance while growing right through significant unfavorable currency movements. Reported revenue growth for the quarter was 8%, 13% on a constant currency basis. In addition, cash earnings per share grew 19% and margins expanded 80 basis points. Solid performance by any measure.

Our US business again delivered robust results lead by our direct channels which generated double digit organic revenue growth for the third consecutive quarter. Importantly, US organic revenue growth accelerated from the prior two sequential quarters. Canada also continued to achieve steady performance in local currency resulting from the consistent business fundamentals and good execution.

Our international results exceeded our expectations in local currency across our markets with the exception of Russia. Asia produced another quarter of consistent revenue growth with particular strength in the Philippines and Singapore. In Europe, we continue to benefit from solid transaction growth and market based pricing changes in our Spanish business.

In addition, Global Solutions continues to see strong eCommerce revenue growth. We believe that our eCommerce and omni-channel payment solutions provide us with a differentiated value proposition in an increasingly dynamic international [image] market. In that context, we are especially pleased with the acquisition of Realex Payments announced in March.

Realex Payments is a leading eCommerce and payment gateway technology provider in Europe delivering a wide range of payment solutions to merchants. This is a favorable time to invest in our European businesses as the region moves to a single European payment area. Merchants are increasingly seeking more comprehensive regional and worldwide payment solutions.

The Realex Payments transaction represents a strategic investment in our international eCommerce capabilities immediately enhancing our products targeted to the digital space. It also strengthens the foundation of our international omni-channel solutions by allowing us to combine Realex Payments gateway and payment service provision technologies with our worldwide merchant acquiring expertise and footprint.

Over the last 2.5 years we have invested approximately $1.2 billion in technology driven payment services through the acquisitions of APT, PayPros, Ezidebit and now Realex Payments. These transactions advance our strategies to expand differentiated distribution and further develop market leading, innovative products and services.

Realex Payments is a logical next step in expanding and controlling our technological edge. We believe the successful execution of our strategies will continue to set us apart from our competitors. We are particularly pleased to continue to return capital to shareholders while also significantly increasing our growth potential for the future. Now I will turn over the call to Cameron.

Thanks, Jeff and good morning, everyone. I am also very pleased with our financial performance for the quarter particularly in light of the significant foreign currency translation headwinds we experienced. Total Company revenues for the third quarter of FY15 grew to $667 million reflecting 8% growth over FY14 and cash operating margins expanded 80 basis points to 19%. Diluted cash earnings per share increased 19% over the prior year to $1.14.

On a constant currency basis, total company cash operating margins expanded by 140 basis points. Importantly, foreign currency impact for the quarter were more significant than we forecasted at the time of our last earnings call in January. Relative to our foreign currency expectations at that time, revenues for the third quarter would have been $680 million and cash earnings per share would have been $0.04 higher.

Our core business again demonstrated strength during the quarter even after normalizing for the additions of PayPros and Ezidebit. Assuming we own the PayPros and Ezidebit businesses in our current and prior year third quarters, we're normalizing for their effect, total company revenue growth on a constant currency basis was 7% for the quarter.

North America segment results were impressive with revenue growth for the quarter of 10% and margin expansion of 40 basis points. On a constant currency basis, North American margins expanded by 90 basis points. These results were driven by US revenue growth of 14% which continues to benefit from strong organic performance in our direct channels. On a normalized basis organic US revenue growth was 5% for the quarter consisting of 15% growth in our direct channel and no growth in our ISO channel.

Local currency revenue growth in Canada was 4% for the third quarter ahead of our expectations. However, Canada revenue in US dollars declined 6% as a result of an unfavorable currency exchange rate. International segment revenue growth was 4% for the quarter in US dollars with margin expansion of 310 basis points. On a constant currency basis, Europe revenue growth for the quarter in US dollars was 12%, while reported results declined 3% as a result of exceptionally unfavorable currency exchange rates, particularly for the Euro. This performance continues to be fueled by strength in Spain and our eCommerce channel offset by underperformance in our Russian business.

Asia Pacific revenue grew 24% driven by stable organic growth trends in line with our expectations and the Ezidebit acquisition. International cash operating income grew 13% for the quarter including the impact of significant foreign currency headwinds. These results continue to reflect strong local currency revenue growth, prudent expense management across the regions and the addition of Ezidebit.

We generated approximately $107 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 $23 million for the quarter and our total available cash, including working capital, was approximately $232 million at the end of the quarter.

Lastly, we repurchased a total of approximately 640,000 shares during the quarter for approximately $57 million. Since the end of the quarter we have repurchased an additional 445,000 shares for approximately $41 million bringing our total fiscal year to date share repurchases to $270 million. We now have $202 million remaining under our current share repurchase authorization. As noted in our release this morning, we intend to enter into an accelerated share repurchase program this month to purchase an additional up to $100 million of our common stock.

Now I'd like to turn to our expectations for FY15. Notwithstanding the significant incremental impact of unfavorable foreign currency translation, we are reaffirming our revenue outlook for the full fiscal year and expect reported revenue to grow 8% to 10% and range from $2.75 billion to $2.8 billion. Based on current rate assumptions, we would expect full-year revenue to trend towards the lower end of this range solely due to foreign currency translation as revenue continues to exceed our expectations in local currency.

We are particularly pleased to be raising our cash earnings per share expectations yet again to a range of $4.77 to $4.84 reflecting growth of 16% to 18%. We also now expect core cash operating margins to expand by as much as 60 basis points in FY15 with margin expansion in both our North America and international segments. These expectations reflect current rate assumptions which suggests some modest further strengthening of the US dollar.

As usual, our cash earnings per share expectations only reflect share repurchases that have been completed prior to this call and do not include any impact from the anticipated accelerated share repurchase program that we announced today. We expect this program to add approximately $0.01 per share to our cash earnings per share estimates for the full-year.

We currently have approximately $750 million of capacity to fund future initiatives including approximately $500 million of availability on our corporate credit facility after taking into account the Realex Payments transaction that closed late last month. As a reminder, we expect the FIS and BPI transactions to close towards the end of our FY15 and we intend to fund these acquisitions from operating cash flows and do not expect them to have a significant impact on our near term capital allocation plans or facility availability. I will now turn the call back over to Jeff.

Thank you, Cameron. We are delighted to yet again raise guidance for the remainder of our FY15 reflecting our relentless focus on financial execution and a successful implementation of our growth strategies. As we look to FY16, we see positive momentum in our businesses as we span technology enabled distribution and reposition Global Payments into a unified worldwide operating company. Now I'll turn the call over to Jane.

Thanks. Before we go to 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 Bryan Keane of Deutsche Bank.

Hi guys, good morning. My question is just around the international margins. They continued to impress. They're better than what we expected.

It sounds like it's more of the same eCommerce and Spain. How do we think about the margins going forward and as we carry over to FY16, obviously there's been some regulatory changes, just like to get your latest thoughts on how much the increase or the upside in international margins can continue as we go forward here?

Hi, Bryan. Good morning. It's Cameron. I'll start and then ask Jeff to provide anymore color that he would like to on the topic. So, I think international margins, as you look at them for the quarter, they were up 310 basis points. The first thing to take into account is FX.

So bear in mind from an international point of view, given the weakness we've seen in foreign currencies, it actually increases to some degree the margin for the quarter. So on a constant currency basis, margins were still up handsomely roughly 240 basis points but not quite the 310 that we printed.

As it relates to looking forward, I think our expectations remain of a view that frankly, international margins should remain relatively stable at these levels going forward. We have seen some benefit in this year as it relates to the reduction of interchange in Spain. But obviously, as we sit here today we anticipate incremental benefits in FY16 with the changes in EU legislation around interchange rates that will be a positive benefit for the international margins as well even as we annualize the impacts in Spain.

So I think our general view is we would expect the margin profile for international to remain relatively consistent with what we've seen over the course of FY15 because of some of the benefits we expect to see in Europe as well as the increment that'll be provided by the transactions we've executed this year, Ezidebit, Realex Payments, et cetera that'll be beneficial to margins long term.

I would just add to that, Bryan, by saying that since our last call, the EU has adopted in March the cost that are domestic regulations that we've been talking about. While they're not in effect yet, we would expect a benefit in FY16 in our European business. In particular, Bryan, in our United Kingdom business. So I think we have two tailwinds as it relates to our European business in particular heading into 2016.

One is, as Cameron said, that Spain won't annualize until the second fiscal quarter for us. I'll come back to that in a second. And the second benefit is probably in the back half of the year, when EU rules are fully implemented we'll see a benefit as well primarily from our UK related business prior to Realex from a similar lowering of interchange across borders while as domestically. I would say, as you've said before, that in the case of Durbin, we'd assume by way of analogy with the Durbin pricing changes in the United States that those diminish, as all pricing actions do, over time.

I think as we've said to you Bryan and others, that we were positively surprised by the duration of the pricing benefit coming out of interchange reductions here in the United States. Around half the volume as those persisted for longer than we would have expected.

So while we will of course annualize in September sort of our second quarter benefits in Spain, I would say if it follows the Durbin-like trend to extrapolate that we don't expect a full attrition of that spread action to begin in September. Instead, it's more of an annualization rather than a devolution in the spread benefit.

Okay, that's helpful. And then, my follow-up question just looking at the guidance for revenue. You guys are still reiterating guidance but it's a wide range given we only have one quarter left. I've got it at about 1% to 8% revenue growth. You're saying probably towards the lower end of that range.

My math says there's probably about 6 points of FX headwinds in there and then I know PayPros, the acquisition, has anniversaried. So just trying to think about some of the puts and takes between FX and acquisitions. I guess Ezidebit is still there and does Realex ramp up and what's the latest on the FIS gaming business on when that ramps up? Thanks.

Bryan, it's Cameron. I'll start. I think the simplest way to think about guidance for the remainder of the year as it relates to revenue is to look at some of the color we provided in the script. If you go back to our expectations for FX in January and utilize those same FX rates for Q3, we would have reported revenue at around $680 million.

So roughly $13 million higher than what we reported actually for Q3. And that reflected probably about half a quarter of impact from the weaker foreign currency rates relative to the US dollar.

So if you assume a full quarter of that in Q4, just doing simple math, that would bring the total FX headwind in the back half of the year to roughly $40 million. So if you take that off of the high end of our guidance of 2.8, it kind of puts you at 2.76, which again, is towards the lower end of our guidance range. So I would think all else being equal but for FX, we would've been at the high end of our guidance range roughly the $2.8 billion. But FX is really driving us down and it is still a fairly wide range but still driving us down towards the lower end of that range as we've seen here today.

You are correct that PayPros does annualize in Q4. We do have the addition of Ezidebit that is helpful. As we've said at the time we did the Realex transaction we expected to be in material to really Q4 and full FY15 results. So it's really a function of PayPros annualizing in Q4 and incremental FX headwinds that we anticipate that's going to bring us towards the lower end of our guidance range as we sit here today that being our expectation.

Okay, and just any timing on when you expect the FIS gaming business start to ramp?

We expect it to close towards the end of the fiscal year. So we are not really anticipating any benefit in FY15 for that transaction. But we would expect to have essentially a full year of impact in FY16.

Okay, super. Solid results. Thanks.

Thanks, Bryan.

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

Yes, good morning. It's actually Matt Roswell sitting in for Dan. Question on the Realex acquisition. What percentage of their transactions do you currently process and is there an opportunity to move those transactions on to your system going forward?

Matt, it's Jeff. So on Realex we have been a large partner of theirs since 2012 where we were selling their gateway services with our acquiring under the label of Global Iris which is what we were calling it. We represented about 20% of Realex's business at the time that we purchased Realex in the last week or so in March.

I can give you that detail because we were already doing the acquiring for the business that we were referring in Matt, to Realex. So I don't think that there's a substantial additional benefit on that acquiring piece that I just described because we're already doing it. So in other words, we were using their gateway and doing our acquiring.

I think the benefit and the reasons we thought Realex to be a very attractive strategic investment were number one, for us to be able to offer that bundled service in a way that we owned economics not just of the acquiring but also of the gateway on a bundled basis, we felt was a very attractive and believe it's a very attractive investment to make number one.

Number two, increasingly innovation is occurring at the gateway layer. So for us to make sure that we preserve the point of interaction with our customer, when customers are making choices they're making choices on the front end about innovation products and services and it's part of a bundled package. Our ability to control the point of distribution, much like we've done here in our other markets through our integrated channel, our ability to innovate and control the point of distribution is a key competitive sales edge. We thought over time it's more important to own that more than anything else.

And then lastly, as we've said in our releases, as the world moves and we move to a more of an omni-channel solution set, which is to say both a card not present, which is Realex's focus, as well as a card present solution. Our ability to provide our distribution with their technology we think also is a point of competitive differentiation in an omni-channel environment. So Matt, that's really how we thought about the strategy around Realex.

Okay, if I could ask a follow-up? Can you give us an update on moving the integrated businesses up to Canada?

Sure, I'll start and then I'll ask David to provide a little bit more detail. So I think one of the competitive advantages that we have globally at Global Payments is our multi-national footprint and our ability to take successful models from one market into another market. Given the scope of worldwide acceptance that we have really does set us apart. Just ask about Realex, one of the rationales behind Realex was to continue to expand it into other markets in Europe that Realex was not present with our distribution. And we have a very similar thesis on integrated.

David, do you want to comment on that?

Yes, Matt, happy to. You put your finger on an important growth initiative for us for 2016 and beyond. In particular, we are starting with Canada for expansion of integrated out of the US. We'll also be expanding the integrated business we have in Australia across Asia over the course of time, as well, where it applies.

Specifically in Canada we have a dedicated sales force. We've signed a number of partners and are certifying a number of partners. Although we're a bit in the infancy in terms of the stage of the business, we're very excited about the opportunity in being the first folks to bring integrated payments at scale to market with our unique global footprint.

So we will be starting with Canada. Look for more news on this as we head into 2016 and beyond. But dedicated sales force, real partners now out selling as we speak and this same unique bundled ecosystem of partners generating leads, us generating close and then driving that mid-teens growth you're used to seeing in the United States from the open edge business.

Excellent, thank you very much.

Thank you. Our next question comes from Dave Koning of Robert W. Baird.

Hi guys, nice job.

Thanks, Dave.

My first question, just North American margins were up pretty nicely. I think 40 basis points year-over-year and that's one of the better of the past many years.

And I'm wondering you talked about ISO being flat and direct growing nicely. Is that mostly just a mix shift function or are the margins actually within direct business going up year-over-year as well and that contributing to the lift? And if so, is that pretty sustainable? Do you expect that business to keep expanding margins?

It's Jeff. I'll start and Cameron will add some more color on the financial aspects of what you asked. I would say in my opinion it is sustainable. This is part of the strategic shift that we've been making over the last 2.5 years.

I referenced in my comments the $1.2 billion of investment we've made. The first two pieces of that, about $800 million, were in APT and PayPros.

So if you think about, Dave, what we've been trying to accomplish here strategically and you're seeing in the results is having the right people in the right places with the right distribution model. So if you look at the rate of organic revenue growth really throughout the whole fiscal year and accelerating, Dave, into this quarter, as I said in my remarks, what you would see is our direct book.

Which includes OpenEdge but is not limited it, really accelerating its organic revenue growth to mid double digits as Cameron described in his remarks this quarter. Which importantly, Dave, is an acceleration over the previous two quarters whereas in the low double digits, number one.

Number two, while OpenEdge is obviously a big part of that and very good margins, I don't want to short change our direct business outside of OpenEdge. We've had very good performance this fiscal year and excellent performance this quarter, Dave, in our direct book, our direct channels, in our gaming related businesses and our bank related businesses all well in excess of market rates of growth. And Dave, as you know, those generally come in at much higher margins than our overall corporate margin and then certainly then our ISO margin.

So I would say looking at this strategically Dave, this is really the culmination of 2.5 years of investment and very good and consistent execution this fiscal year. But really an acceleration this quarter of the trends that we saw in our direct business, not only OpenEdge but our direct book more generally versus what we've seen earlier in the year.

Cameron do you want to comment on some of the specific margin numbers?

Sure, I'll just give a little more color commentary around it Dave. You correctly highlighted margins in North America were up 40 basis points for the quarter. I would also note that was 90 on a constant currency basis. So even that 40 was weighed down by fairly significant FX headwinds from Canada. As you know, many of the expenses associated with that business are in US dollars.

The revenue's all reported in Canadian dollars so we absorbed roughly 50 basis points of impact from FX from Canada in that North America reported number. So I would say it's particularly impressive results when you factor in that aspect as well.

There are obviously is going to be a little bit of mix shift in there also as you correctly highlighted. But I think fundamentally what's really driving that is our success in executing on our direct distribution strategy, the contributions at OpenEdge, the combined platform of APT and PPI are bringing to the business as well as I'd say improvement in the overall momentum around just the core direct sales business that we have in the US market.

Maybe Dave, this is David. I'd like to add a little more color. Same things these guys are saying but in a slightly different way. Remember the way the model works. We need a stable Canada, regardless of FX, and we need execution in the US businesses. They're executing very, very well.

When we term this in mix shift just note this is a conscience mix shift we've been working on driving for the last 2.5 years, as Jeff pointed out. Quite frankly, what's going beautifully is the slowdown in the ISO channels demonstrating to you what the rest of the business can do.

Great and just my brief follow-up. Your guidance kind of implies sequential EPS of flattish to up $0.07 I think. And historically you've grown $0.10 or more sequentially in Q4. And maybe you can tell us just a little bit what's different this year than the last few years?

Yes, I think the primary difference Dave is going to be FX. So if you look at the impact that we bore in Q3, as I mentioned earlier, it was about half a quarter of impact. The significant decline, particularly in the Euro and the Canadian dollar, were in that January February time frame. So we absorb mainly half a quarter of those in Q3.

We expect, sitting here today based on our rate assumptions for Q4, to have a full quarter of impact of certainly a stronger dollar relative to the Canadian dollar, the Euro and the pound primarily. And that's driving incremental FX headwinds in Q4 that we have to absorb relative to Q3. So I'd say on a constant currency basis you would have seen growth or would expect growth in the same sort of magnitude that we traditionally produced between Q3 and Q4 but the impacts of FX are weighing that down slightly in Q4 relative to Q3.

Great. Thank you.

Thanks, Dave.

Thank you. Our next question is from Tien-Tsin Huang of JPMorgan.

Hi, thanks. Good results. I have one last question on the US ISO business. Just how that came in verses plan and any change from your large ISO partners in general?

Yes, it's Jeff. The ISO business was pretty much on plan. I think as we laid out in July of 2014 looking at FY15, we thought it was going to be a low to no growth business was our guide for the year.

And its been pretty much, Tien-Tsin, low single digits to just about flat through the first couple quarters of this year. So if you look at the year in the entirety, Tien-Tsin, there's really no difference.

And as it relates to the rest of our partners also no difference on the ISO side. So really, Tien-Tsin, nothing there has changed.

Actually, Tien-Tsin, we're within almost dollars of the full year budget as we sit here today.

Good. Just wanted to make sure. And on Realex, it sounds like a good acquisition given everything you've said. Can you give us some idea on growth and revenue margin? I know they do about $28 billion in volume or so and I'm curious, I guess why now?

I get the strategic side of it but why now? I know the EU regulation was coming through. Did that motivate the timing on this deal? Just trying to understand a little bit better, thank you.

Yes, Tien-Tsin, it's Jeff. I'll start and then Cameron I think will comment on the financials around Realex.

So I think you're right in what you said. As we said at the time of the deal and also in my prepared remarks this morning, we think now is a very favorable time to invest in our European businesses. First, the regulatory changes that you alluded to.

As we've said a number of times it's really nothing but good news when costs come down for our customers and our potential customers. Where we benefit directly at Global Payments or not that really is good news for us number one.

Number two, if you think about what the EU was trying to accomplish in a single European payment area, put aside interchange for a second, I think the thesis is this is a common market. And our ability to offer acceptance in an omni-channel environment regardless of how the transaction comes into us and all those markets, really leverages the breadth of the distribution that we have in card not present as well as card present along with the technologies that Realex has particularly in a card not present environment.

Of course last I'd tell you, as we look at deals around the world there's a lot of things that go into the calculus but it's not lost on us the reverse of what Cameron had said about the impact in our results. It's not lost on us that the pound and the Euro and other currencies are at relative low versus the dollar. So as we look at making investing decisions, the idea that we can look at our various markets on the acquisition side and take advantage of what we believe to be dislocations in exchange rates we are making long term investments, is something that we also take into consideration from a timing point of view and place into notion that it's a favorable time to be investing in those businesses.

Cameron do you want to talk about the financials?

Sure. So Realex comes into our business at margins that are better than our total company average today. Its revenue is roughly half the size of that of Ezidebit or a little less than half the size of Ezidebit. Maybe the important thing to recognize about Realex going back to Jeff's comments is this is a perfect time to be buying that business because it's fantastic technology that needs distribution.

And what we bring to the equation is leveraging our distribution so as we grow and expand and utilize that technology and our business is going forward, margins for that business will scale very nicely over the course of time as we're able to leverage their technology through our distribution network without significant incremental investment to do it. So you're going to see a margin profile for that business on a standalone basis that really scales nicely as we continue to leverage this technology through our sales and distribution network in Europe on both the UK, domestic market as well as our omni channel, omni-solutions business that's based in the UK as well.

Got it. That's great, thank you.

Thank you.

Our next question is from George Mihalos of Credit Suisse.

Hi, guys. Congrats on the quarter. Jeff, you mentioned several times how this is a great time to be investing in Europe and I'm just curious what the outlook is there for more banks, joint ventures going forward versus straight up acquisitions? And as you think of all of the different regions you're investing in, would you say that Europe, the opportunity in Europe, is now sort of at the top of the heap compared to Asia and in the US?

Yes, George let me start with that second question first. As I've said before, we're opportunistic but the most important thing in our corporate development pipeline is that something actually be actionable and be for sale. So to a certain extent George, we have a view on the market which I'll go through again in a minute but it needs to be actionable and attractive for us to move ahead. We're thankful we've been able to close four transactions in the last six months and hopefully more to come.

As it relates to the bank JV part, the first part of what you said, we do see a lot of activity in Europe coming through these SEPA-like regulations and the lowering of interchange on the JV side with financial institutions in Europe in particular. We don't see as much movement around the rest of the world and we are engaged in discussions like that in a number of markets in continental Europe. But it does require that we find the right partner, it does require, George, those returns look favorable compared to our benchmark returns which is really investing in ourselves by buying back our stock.

If you include the ASR that we announced this morning we have either bought back or committed to buyback or are going to commit to buyback almost $370 million this year. So it's a balance between the two of them. I certainly hope that we'll be able to announce additional JVs as we deal with Bank of the Philippines, particularly in Europe, in the coming months. That is very dependent on the facts of the returns and who the partners really are.

I don't expect as a quantum matter those transactions to be sizeable uses of capital. I think they're important to us strategically. I think they fit the thesis of what we've been describing but those transactions in general are not things that are going to materially move our leverage numbers.

Okay, great. Appreciate that color. And then maybe just to shift gears on the US side. I think you mentioned that direct and aggregate has grown 15%. I think it was plus 12% last quarter so a nice acceleration there.

Within there, can you call out the growth in OpenEdge specifically? I think that was growing high teens. Has that accelerated even further?

George, it's David. Although we don't call out the pieces specifically, you do recall correctly. That is growing mid to high teens. It has continued at that pace. The integration is going very well and we are very happy with the progress there, with the leadership there.

I would also point out something Jeff mentioned earlier just because I feel the need to do it. The rest of the US channel is executing very well. We're seeing double digit growth in gaming. We're seeing strong growth in the core direct card channel. All the pieces are really executing quite well right now.

Okay, great. Just last thing. Did you guys call out the transaction growth in Spain this quarter? I think you have in the past. I'm not sure if I caught it this time around.

We did not call it out specifically in our prepared remarks but it was high single digit, low double digit range again. I think it was 13[%] last quarter and it was probably 9[%] or 10[%] this quarter. So again, very good organic execution in Spain coupled with again, the continuing benefit of the lower interchange is really driving the performance in that market.

Okay, great.

Thank you. Our next question is from David Togut of Evercore ISI.

Hi, this is Michael Landau. First a question. I was just wondering if you could call out the transaction growth and revenue per transaction growth for this quarter for the US and Canada?

Transaction growth in Canada again, has been relatively consistent throughout the year. And this quarter again, it's going to be in that low single digit range which is fairly much in line with what we saw in Q2 as well as Q1. In the US, I think we had transaction growth of roughly 2%. It's 10% again for the direct business weighed down by the ISO business. So overall growth was roughly 2% which again, consistent with our earlier comments around revenue growth, driven by strong growth in our direct channels of roughly 10% weighed down by the ISO channel that was actually zero.

Got it and can you quantify just overall unit pricing trends in each of the sales channels and ISO direct and OpenEdge in the US and as well as just general unit pricing trends in Canada?

This is David. We can take a little trip but the core answer is they're very stable. There's very little change in unit pricing trends within OpenEdge, very little change in the direct channels in the United States, almost no change in Canada and as we keep going around the world, you'd find very little change absent obviously the interchange driven spread changes that you find in Spain.

What we find right now really around the world is very stable conditions whether you are talking about unit pricing, average tickets themselves that drive the volume and obviously, Cameron just quoted you some of the transaction trends. So again, stable conditions to really positive conditions underlying the business itself as we go market by market which again, has enabled the level of execution you're seeing around the world.

Got it, and the 26% tax rate was a bit lower than previous. Is that a sustainable rate going forward?

No, I think we still expect the tax rate to be roughly 27% or approaching 27% for the full year. So a little bit lower in Q3 but I think our full year expectations around tax rates remain relatively consistent with our commentary from last quarter which is in the 27% range.

Great, thank you.

Thank you.

Our next question is from Ashwin Shirvaikar of Citi.

Thank you, guys and good quarter again. So I guess my first question is with regards to Europe.

Can you share what sort of assumptions you have with regards to transaction volume, repurchase volume, lift that you might assume because of SEPA? And this speaks to several of the comments that you had with regards to more JVs, with regards to the Realex acquisition and so on and so forth. In terms of just breaking out how you might look geographically say one to two years down the road, I just want to try to understand the break out of the business that you're aiming for.

Sure, Ashwin, it's Jeff and I'll start. The way I think about Realex for example, in terms of the opportunity across Europe before I get to the SEPA question is that we think that the card not present market is growing across Western Europe in particular. Which is where we're primarily focused in that business in the mid double digit to high double digit rate. And we think that's a $2 billion to $3 billion market today.

So we think about the size of that business relative to the size of our business and why we're making that kind of investment. We think the ability to capture share in a $3 billion market growing at 15% plus organically is a good investment to make.

I think as it relates to SEPA, I think it's a little bit less on SEPA in the context of accelerating the $3 billion and the 15% and a little bit more analogous to what we saw in Spain with their interchange reductions that were put into place by the banks in the Spanish government on September 1, 2014. There are puts and takes between the two markets.

The rest of the EU, primarily for us the United Kingdom and Spain. So they aren't completely analogous. For example, we have a higher SME book, small to mid size book in Spain than we do in the United Kingdom where we have some more large retailers who are pass through.

On the other hand, we're not splitting some of the interchange benefit with a JV partner in the UK as we are in Spain. So there's puts and takes. But I think in the next couple of years as that rolls through, Ashwin, the back half of FY16 going into FY17, I would certainly look to the benefits that we saw in Durbin when we had them here in the United States a number of years ago. The benefits that we're seeing this fiscal continuing in Spain as you think about the immediate, meaning the next year or two, worth of benefit to our European business through SEPA. Realex is a slightly different thesis as I mentioned before which is attacking a $3 billion revenue business growing at 15% is a good idea regardless of the rate reduction environment.

And Ashwin, it's Cameron. I'll just add one other comment which is if you think about SEPA more on a long term basis, one of the things it starts to do is help level the playing field. So as we think about opportunities for us and other parts of continental Europe in particularly, for a situation where we can expand our card presence business, we do think SEPA's going to create opportunities and lead to hopefully potential situations where we'll be able to augment our existing portfolio. Expand our portfolio through other ventures in Western Europe by creating more of a level playing field, enforcing some of our competitors in those markets to be more rational about the merchant acquiring business.

Understood, that's very helpful. And then with regards to Asia-Pac, I may have missed this, but could you specify what the contributions and revenues and margins were from Ezidebit?

We didn't specifically call out the contributions from Ezidebit, Ashwin. What we have guided to previously is that we expected Ezidebit to contribute roughly $25 million of US revenue for the entire FY15 so for roughly the seven months that we will own it in FY15.

I would note however the Australian dollar has substantially weakened as have most of the foreign currencies to which we have exposure against the US dollars. I would say that $25 million number now is a little high. We would probably guide you to something in the $22 million to $23 million range just largely as a result of FX headwind.

From a margin profile perspective, we've always said that Ezidebit comes in at a margin that's higher than our international margin so it is impactful to the overall international margin slightly for FY15 but more importantly for FY16 and beyond.

Great. Thank you guys good quarter again.

Thanks.

Our next question is from Glenn Greene of Oppenheimer.

Thank you, good morning. Just a few follow-ups on some of the prior questions. Just on Spain, it's helpful to get the high single digit low double digit volume growth. But could you give us a little bit of color on the pricing? Did it stick similar order of magnitude as last quarter or did some of that attrite is first question?

Glenn, it's David. Actually it's tracking very similar to the way Jeff was describing it earlier. It is attriting away but at a fairly slow rate.

Most important thing is, was I think what Jeff pointed out, is that as of September 1, 2015 we'll annualize. It won't be gone at that point but as with all markets around the world whether you go all the way back to Australia, gosh what is that, eight or nine years ago now, or our Durbin experience more recently three years ago, it will attrite away at the highly competitive industry. It's just a matter of rate and at pace at which it attrites away. But right now, it is moving in a way that we're predicting pretty accurately and you raised a core point which is that's happening on top of our businesses executing very well which is why I get the happy outcome in our European results.

Okay and then on Canada it's helpful to get low single digit transaction growth and we know the FX. Can you just clarify for us what the strengths look like and the specific benefit you got from the pricing actions you took earlier in the year?

Yes, happy to Glenn. It's David again. I would say, while we don't quote the spreads, they remain stable. And you'll recall, what we're managing in Canada from a sort of a metrics perspective is the two curves of spread in transactions. To the extent they remain stable and somewhat similar to each other. We have something perfectly manageable and stable that generates a lot of cash and allows us to deploy it elsewhere around the world and we have a nice solid market that performs very well for us at very high margins. Setting aside entirely anything about currency for the moment so just staying within Canada itself. That's exactly what we saw again in Q3. Without quoting any specific metrics spreads consistent, any pricing actions we've taken in this market have stuck very well. We provide what we think still excellent service to the customers in Canada. The pieces in Canada are hanging together very nicely for us right now.

Just finally, the benefit you got in the US from OptBlue and where we are in terms of are we middle innings and how much more benefit can we get from a growth perspective there?

Actually, I do think middle innings is an accurate characterization Glenn. We're not incredibly early. Obviously we're almost a year into the initial process of sales and rolling it out.

We have other channels where it has not yet rolled out. I won't specify them but we do have some other channels with some opportunity that we hope will help carry more of the organic growth for us in 2016.

So middle end is probably good description. Fourth inning is about the right place to think about it. It's a very nice piece of organic growth. As you might imagine now that we've established a consistent reperforming distribution channels across our direct channels the next thing is to pump product through that. And OptBlue has been a great additional product this year. It will be a nice product again next year.

Thanks a lot.

Thanks, Glenn.

Thank you. Our next question is from Steven Kwok of KBW.

Great, thanks. Most of my questions have been answered already. I guess just wanted touch upon the North America, the revenue growth specifically in the US. That accelerated quite nicely.

Can you talk about how sustainable that trend is and how we should think about that going forward in the domestic direct segment? Thanks.

Yes, Steven it's Jeff. So we are very pleased with the growth in North America revenue. Let me just step back for a second.

The way we generally think about our business and what our targets are is we start with GDP. We generally chase GDP growth across a couple hundred basis points to represent the conversion of paper to electronic. And then of course, we also look at the network statistics on a transactional level in the markets that we're in as really the bogey for growth.

If you think about what that means in United States in particular, Steven, to get at the number of your question, that's generally mid single digits as the bogey for keeping pace with the market. But we just posted our third consecutive quarter of low to mid now 12% to 15% double digit organic growth in the US market.

While it's hard to say in the future that we'll continue to double and triple the rate of growth organically of the US market, I certainly would expect and believe that sustainably, we should operate well in excess of the rate of market, the rate of market growth. So if that target in the future remains 5% we should be operating at multiples of that rate.

Now is that going to be 2.5 to 3 times? That's hard to say in perpetuity. But certainly sitting here today Steven, I would say we certainly will expect to be gaining share and growing substantially in excess of the rate of market growth which we've been doing all year in our business.

Great. Thanks for taking my question.

Thank you.

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

Thanks. Just a quick one as a follow-up on Canada. Typically when there's a price change coming, I think the Code of Conduct requires an advanced notification. It looked like the 4% growth, I think it was about 4% constant currency, is closer to transaction growth rates now. Its narrowed, the spreads are narrowing back to the transaction levels again which is kind of what you'd expect.

I think people are hoping for at least starting in April with the interchange cuts coming, as you alluded to earlier, there to be an opportunity there. So just timing wise, are we going to be able to see some sort of a benefit off that pretty quickly? Just that there's usually a time sort of advanced notification. Can you just give us a sense of what we can expect?

Yes, Darrin. It's David again. I would not expect to see anything visible in Q4. The interchange reductions are coming effective May 1 in Canada.

I would point out they're not incredibly enormous interchange reductions. It's just a mathematical matter. And as I understand the way the markets going to work, going forward, you'll find that being largely if not exclusively passed through entirely.

Now that doesn't mean we and others won't be running our businesses at the same time but that's a good benefit coming to merchants. And whenever the cost of acceptance goes down that's a good thing for Global Payments. Obviously for the rest of the acquirers as well.

But given the size of what's happening, I wouldn't expect to see much of a change in Canada trends in Q4 certainly as we come around to report them again to you in July. What I would say is that position just well to have a nice stable Canada going into 2016 which is probably the most important part of the fact set here.

We just had another stable quarter, another manageable and predictable quarter. We expect another one in Q4 and that would be a nice platform from which to enter 2016 from a merchant relationship perspective.

I would just add to that, Darrin, and to build on to what David said. In addition to what he mentioned, if you think about what we've been doing in Canada, and one of the other analysts asked this question as well, our ability now to supplement what we've been describing with our integrated business and bringing that into Canada, which we obviously already done and David had described before. The Sales and Marketing changes around that to drive additional growth, our ability to bring other products and services like OptBlue and other things into Canada as we head into FY16, I think gives us a lot of confidence around the stability of that business.

So I don't want to be lost in that conversation of I guess rate changes and the growing macroeconomic environment. I think as we are in the rest of the North American business, I think we're executing very well in Canada and as I think as we head into FY16, we'll be able to leverage our infrastructure and bring those products and services into Canada. Gives us a lot of confidence as we look at that business in the coming months.

I appreciate that. Just one follow-up. You mentioned before, I think it came up around potential JV opportunities. Obviously the strengthening of the dollar helps in Europe.

What kind of interest are you seeing from banks there? Obviously they're probably worried about interchange cuts coming and lost revenue streams. Trying to find other sources of really good business generation maybe JVs maybe a good way to do so?

Yes, I think you're exactly right, Darrin, in what you said. I would say that as it became clear in the last year or so that SEPA was effectively upon us culminating in the early March EU adoption of those rules. We've seen a fair amount of interest among banks and continental Europe who generally combine issuing and acquiring.

As they see the issuing P&L get reduced because interchange is coming down they're still looking at partnerships on the acquiring side to say help me grow more quickly than I otherwise could. Because I know that there's lost income coming out of the issuing side of the business.

We see no shortage of opportunities in continental Europe. They still to make the hurdles that I described before but we're very well engaged down in those conversations currently.

That's great to hear. Thanks guys.

Thank you.

We'll take our last question from Jason Kupferberg of Jefferies. You may begin.

Thanks guys. Just a follow-up question on margins. I think I've heard you guys say from time to time that over the long term, there is the potential for this business on a consolidated basis to get to cash operating margins maybe in the low to mid 20%s range and obviously we're moving in the right direction right now. Is that still an aspirational target over the long term that's realistic?

Jason, it's Cameron. I think it very much is and I think you've seen the performance over the course of this year demonstrate that we're clearly moving in the right direction as you correctly highlighted. Obviously this year, we have seen I think very good margin growth and currently are anticipating, as I mentioned in my prepared comments, roughly 60 basis points of margin expansion over FY14.

What we've traditionally said is something in the 30 to 50 basis points annually is a reasonable expectation for margin expansion driving towards that overall target that we have of something in the mid 20% range. Which will be augmented by transactions that we do over the course of time that are going to be hopefully additive and do that overall 30 to 50 basis point target that we have.

So as we sit here today, we're looking at a total company margin expansion for the quarter that was 140 basis points on a constant currency basis. That's fairly impressive and certainly above our expectations of what we think we can do on a run rate basis. But as you correctly highlighted clearly moving us in the right direction towards our overall target.

Great to hear. And just a last follow-up. So with the addition of Realex now and their payment volume, if we now think about your total eCommerce business as a percent of overall volume, where does that sit now? And are there any longer term targets we could think about that you'd be aspiring to achieve there?

Yes, Jason it's Jeff. We don't really break it out that way because increasingly, and this is part of the thesis of Realex, increasingly it's really an omni-channel environment. Customers aren't particularly desirous of talking to us just talking to us just on one basis or the other. They want us to solve all their acceptance things.

It's not just through their website and work online. It's provide every type of acceptance whether it's mobile, whether it's online, whether it's in the physical store environment.

And as you think about part of rationale for Realex which is to expand into the omni-channel, further into the omni-channel business, that really does merge the card not present world with the card present world and leverages our footprint not just in Europe but globally. So we don't really think about it as what share of the market do we have other than to say that we want more of it and to capture more shares is a key strategy of ours.

Okay, understood thanks guys.

Thank you. Well, thank you very much for joining us this morning on Global Payments third quarter FY15 call.

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