環匯 (GPN) 2016 Q1 法說會逐字稿

Welcome to Global Payments' first-quarter FY16 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. Welcome to Global Payments' FY16 first-quarter conference call. Our call today is scheduled for one hour. Joining me on the call are: Jeff Sloan, CEO; David Mangum, President and COO; and Cameron Bready, Executive Vice President and CFO.

Before we begin, I'd like to remind you that some of the comments made by management during the conference call contain forward-looking statements which are subject to risks and uncertainties discussed in our SEC filings, including our most recent 10-K and any subsequent filings. 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. 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, adjusted net revenue and free cash flow which are non-GAAP measures. For a full reconciliation of cash earnings, adjusted net revenue 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. Thanks everyone for joining us this morning. We are delighted to report an exceptional start to FY16, with strong first-quarter performance that exceeded our expectations across our markets. We are now raising our expectations for this fiscal year. For the quarter, we delivered net revenue growth of 8%, expanded margins by 150 basis points and grew cash earnings per share by 25%.

Notably, each of our regions reported margin expansion, notwithstanding the impact of foreign exchange headwinds. This performance reflects the continued progression of our long-term strategic vision, coupled with relentless focus on everyday execution. We believe that we have the right people in the right positions, executing the right business model around the world.

Now for more detailed highlights. We are very pleased with the performance in our North American businesses, which was driven by our fifth consecutive quarter of double-digit organic revenue growth in our US direct channels. In Europe, we delivered substantial organic revenue growth in the UK, fueled by solid execution. Our e-commerce business performed ahead of our expectations. In September, Realex released a new bundled offering in the UK, further demonstrating our commitment to investing in areas of exceptional future opportunity.

We also saw double-digit volume and transaction growth in Spain, meaningfully outpacing the market and highlighting the strength of our partnership with CaixaBank. We look forward to expanding this partnership when the Erste Bank joint venture closes later in FY16. Asia produced stable organic revenue growth for the quarter. We also closed the BPI transaction in early August, which will help drive stronger organic revenue growth over the long term, given the attractive secular trends in the Philippines market. Finally, Ezidebit continued to perform well in Australia and New Zealand.

As you know, the US market adopted the EMV protocol effective October 1. We have years of expertise bringing EMV to our markets. We, therefore, bring substantial advantages to our domestic and multinational customers in the United States. For example, we recently partnered with Visa in Canada to enable the first mobile contact list solution for not-for-profits, using EMV and point-to-point encryption in that country. We look forward to expanding this type of technology to other EMV markets.

In the United States, we have developed EMV solutions for our integrated, direct, mobile and gaming lines of businesses. As we have discussed previously, our EdgeShield and GlobalShield products combine EMV with encryption, tokenization and NFC. We believe these and our other value-added products and services will allow us to capture share across our businesses.

EMV adoption in the United States has and will continue to catalyze the rate of technological change in our businesses. To that end, we announced in September that we are offering Android Pay and Samsung Pay to our customers in the United States. We also support Apple Pay in both the United States and the United Kingdom.

The rapidly changing nature of payments' technology underscores the advantages of our model, as we are capable of enabling new products and services in short order across markets globally. Global Payments stands at the crossroads of a rapidly changing worldwide payments' market that is increasingly defined by technological differentiation and global breadth.

We target markets with higher rates of growth and margins, leveraging our scalable technologies and unified operational structure to create superior returns. Over the last few years, we invested $1.75 billion across our businesses to accelerate growth and efficiently returned $1 billion to our shareholders; yet, we retained substantial capital flexibility to achieve our goals. Of course, more to come on these topics in a couple of weeks. Now, I will turn the call over to Cameron.

Thanks, Jeff. Good morning, everyone. I'm also very pleased with our strong first-quarter performance which meaningfully exceeded our own expectations. Despite the significant negative impacts of foreign currency translation, we produced impressive revenue growth, margin expansion and cash earnings per share increases over FY15. Total Company adjusted net revenue for the first quarter of FY16 was $537 million, reflecting growth of 8% over the prior year.

Assuming we owned Ezidebit, FIS Gaming, Realex and BPI in our current and prior first quarters or normalizing for their effect, constant currency net revenue growth was 11% for the quarter. Operating margins for the quarter expanded 150 basis points to 30.5%. Cash earnings per share increased 25% to $1.57.

North American net revenue growth was 8% for the quarter, with operating income growth of 9%, including the effects of significantly unfavorable currency trends in Canada. Despite these impacts, North American margins expanded by 20 basis points. US net revenue growth was 16%, reflecting strong organic growth of 10% from our direct channels coupled with the addition of the FIS Gaming business that contributed 6 percentage points to our US growth rate.

Canada's local currency revenue grew in line with expectations for the quarter, but the weak Canadian dollar unfavorably impacted North America net revenue growth by several hundred basis points. Net revenue growth in Europe was 4% in US dollars, with margin expansion of 280 basis points. Adjusting for unfavorable currency exchange rates, European constant currency net revenue growth was 22%. This was primarily driven by accelerated organic revenue growth in the UK and continued strong fundamental growth from our business in Spain. The addition of Realex also contributed to the strong local currency net revenue growth in Europe.

Asia-Pacific revenue grew 30%, driven by mid single-digit organic revenue growth trends, in line with our expectations, the Ezidebit acquisition and the BPI transaction, which closed in August. Operating margins in our Asia-Pacific segment meaningfully expanded largely due to the acquisition of Ezidebit, which will annualize in October.

We generated free cash flow of approximately $86 million this quarter. We define free cash flow as net operating cash flows excluding the impact of settlement, assets and obligations, less capital expenditures and distributions to non-controlling interests. Capital expenditures totaled $17 million for the quarter.

Since the date of our last call, we repurchased an additional 550,000 shares for $16 million. Our current share repurchase authorization capacity is $342 million. Our total available cash, including working capital, at the end of the quarter was approximately $200 million. In late July, we successfully completed a refinancing of our debt facilities to further expand our capacity to $3 billion, which represents an increase of $750 million from our prior capacity. Our new facilities are comprised of a $1.75 billion term loan and a $1.25 billion revolving credit facility.

In addition to being more cost effective, this refinancing provides incremental capacity to ensure we are well-capitalized to pursue our growth initiatives and capital allocation strategies. Further, in August, we entered into an additional $250 million notional amount interest rate swap to hedge a portion of our variable interest rate exposure. Cumulatively, we have now hedged a notional $750 million of our outstanding variable rate debt portfolio.

Turning now to guidance, we are raising our FY16 expectations despite the incremental negative impacts of foreign currency translation. Relative to our previous outlook, our current foreign currency assumptions anticipate stronger FX headwinds for the year, largely due to further weakening of the Canadian and Aussie dollars as well as the ruble.

As a result, we continue to expect our FY16 net revenue to grow 6% to 8% from FY15 and range from $2.06 billion to $2.1 billion. Absent the impacts of incremental foreign currency headwinds, we would have expected net revenues to trend toward the higher end of this range. Nonetheless, we are increasing our cash earnings per share and operating margin expectations for the full year.

Cash earnings per share are now expected to grow 14% to 17% over FY15 and range from $5.77 to $5.92. We also now believe cash operating margins will expand by as much as 50 basis points in FY16 on a constant currency basis. Lastly, I'm pleased to announce that for the first time in 10 years, our Board has approved a two for one common stock split payable on November 2 to shareholders of record as of October 21. I will now turn the call back over to Jeff.

Thank you, Cameron. I want to remind everyone that we will be hosting an investor conference in Atlanta on October 20. We look forward to providing further detail in our sessions regarding our vision to accelerate transformative growth across our markets. We hope to see you there. Jane?

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. Operator, we will now go to questions.

(Operator Instructions)

George Mihalos, Cowen and Company.

Congrats on another nice start to the year. Was hoping we could dig in a little bit on the strength in North America. I know you've now combined the US and Canada. But Jeff, I think you said you had another quarter of double-digit direct growth. I think you guys were looking for 9% to 11% growth coming into the year. Seems like you did better than that. How are you feeling about that going forward? Any sort of pricing initiatives that may have been put in place in Canada recently?

Sure, George. It's Jeff. I'll start and I'll ask Cameron to add some more detailed color on your question. First, I feel very good about where our North American businesses are today. In the United States, first, we saw a continuation of the trends. You're right on what you said about our prepared remarks, a continuation of the double-digit trends and organic net revenue growth in the United States, George, for the fifth consecutive quarter, that we really saw across last year. We feel very good about the performance in each one of our businesses.

First, in our integrated business, we continue to see mid to high double-digit revenue growth in that business, which has been consistent in terms of our expectations over the last year or so. We also have done very well with a number of our partnerships, including our Fidelity Gaming transaction that closed on June 1. I think as Cameron said in his remarks, we're very pleased with the execution of that acquisition, one quarter into the closing of that transaction.

So, sitting here today, we see a lot of strength in our US businesses consistent with what we described in July and really what we saw most of last fiscal year. As it relates to Canada, really more of the same. Our goal has been a stable and visible Canadian business; we continue to see that. In fact, we've had some of the better transaction growth in the last quarter or so in Canada, we've seen in quite some time. That's against an economic backdrop that's been relatively flat.

Nonetheless, our businesses continue to perform very well in Canada, putting aside the FX impact that Cameron alluded to. So I would say, George, it's really more of the same. I see this as a continuation of momentum that we had towards the back half of 2015, in all of 2015, but the back half of 2015 heading into 2016. Cameron, you want to comment on any more of the detail?

Yes. I'll just -- George, I'll give you a couple specific metrics maybe to focus on. If you look at the North American business, as we've noted in our prepared comments, it grew 8% for the quarter. That was about 12% on a constant currency basis. So Canada was about a 400 basis point headwind as a result of the weak Canadian dollar relative to the US dollar. The US direct channels grew 10%, FIS Gaming added about 600 basis points as I had noted in my comments. That 10% low double-digit organic growth in the US business is consistent with the trends I think we posted over the last probably five or six quarters.

Obviously is -- our expectation going forward kind of high single, low double-digit for organic growth in the US business as we look forward to the balance of the year as well. As Jeff noted, Canada was kind of low single-digits, in line with our expectation on a local currency basis, despite what I think we all know is a weak macroeconomic environment with Canada in recession in the first quarter of our FY16. So I would say all in all very good performance for the North American business.

George, this is David, just one other bit of color. You asked about pricing in Canada. Canada is driven by stable credit metric trans -- actually very nice credit as Jeff pointed out a moment ago, offset by a very manageable spread situation. We're very happy with the start -- actually, we're up to a great new sales start in Canada as well this year; selling OptBlue among other products in Canada. So we're really pleased with the start in Canada this year. As to repricing, there's always a little element of measured pricing in the results in a market like that. But there's nothing new or different going on in Canada at all.

Okay. Great. Really appreciate the color there. Just to follow-up, with the liability shift date now having been reached, will you be taking this opportunity to maybe use a bit of a stick approach for some of the merchants that are not looking to upgrade their point of sale to the chip technologies? Or anything you're thinking about, sort of repricing a portfolio for the laggards? Thank you.

Yes. George, this is David again. Right now, we're focused on industry adoption and migration. As you know, it's early days. We're a few days into this. At this moment, very little migration has happened. You'll see statistics bandied about with different levels. But the reality is, we're at the low single-digit level of penetration from a merchant perspective. The exception to that being the odd big box merchant who may have gone in the last six weeks to three months or so.

So right now, we're really focused on working with our partners on moving through our merchant base, where there's a viable business case to go ahead and move quickly. We've got everything fully certified as you might imagine. The basics are complete for us. All our solutions are compliant. As important as anything, we've bundled EMV with PCI compliance, with point to point encryption and with tokenization to security solutions. We're looking forward to working with our merchants to implement those to drive growth in a more secure ecosystem overall.

To your question about pricing, we're really driving this through thinking about migration adoption right now. Let's fast forward a little while. We'll come back to this a little bit later when we think through an industry that's much further penetrated and what you do about laggards in order to secure the ecosystem. But it's far too early to have that conversation.

George, this is Cameron. The only thing I'll add to that is just, as David highlighted, we're really focused on adoption. As a result, you wouldn't or should not expect to see any sort of pricing elements reflected in our guidance for the balance of the year. So with the focus internally being on migration and supporting our customers, we haven't really reflected anything from a pricing point of view in our expectations.

Great. Thanks.

Thanks, George.

Bryan Keane, Deutsche Bank.

This is Ashish Sabadra calling on behalf of Bryan Keane. Let me add my congratulations as well. So just quickly on Europe, we saw some good acceleration and growth there, moved up from 19% constant currency last quarter to 22%. How should we think about the momentum going forward? If you could just provide some more color on that one?

Sure. It's Jeff. I'll start and I'll ask Cameron to provide some additional detail around your question. So we're very pleased with where we are in Europe. We think this is a very favorable time to be investing in that business. So for example, we acquired Realex in March to expand our omni-channel offerings into Europe. I referenced in my prepared comments our bundling of our Realex gateway solution with our acquiring solution in the UK market, which is part of our initiative toward omni-channel.

So I think the way to think about Europe is just a quarter of very, very good sales execution which both Cameron and I talk about. We couldn't be more pleased with our business in Spain, as we alluded to in our prepared remarks. We saw a continued double-digit volume and transaction growth in Spain. That's also been helped by a heightened expectation of better GDP growth and low unemployment in Spain. So I think we're really firing on all cylinders as it relates to our business in Spain.

We continue to invest in our business. So we think that the adoption of the single European payments area which has been coming for quite some time and is partially here but will be fully rolled out starting the back half of our fiscal year is an opportunity for us to continue to invest in capture share. So what you're seeing now is really the fruits of a number of investments but also the fruits of further investment in our sales channel, primarily in the United Kingdom business, but also in the Spanish business.

That's before we get to the closing of the Erste joint venture, which we expect to be, as I said, in the back half of FY16. So I think we're really right where we want to be in our European business. It's nice that you can see that in the results. Cameron, you want to provide more color?

Yes. I'll just add a couple of things. First of all, the double-digit constant currency revenue growth is our expectation for the year for Europe. So I think we continue to expect to see the similar trends like we've seen over the last few quarters I think in Europe from a top line revenue growth perspective. As Jeff highlighted, that will be augmented in the back of the year with the addition of the Erste transaction.

I will remind you however that's not reflected in our guidance today. So we do anticipate a nice headwind kind of rolling into the back half of the year from Erste, which is not reflected in the guidance, as well as the benefits from pricing changes and regulatory changes in the UK, which is reflected in our guidance.

That's great. My second question was going to be on the international margins. Thanks for providing the details by Asia-Pacific and Europe. So on Asia-Pacific, we saw some pretty good margin expansion there this quarter. But the margins are still lower than the Company average. I was just wondering if you could provide some color on what you think about the sustainable margins in Asia-Pacific going forward? Is there room for further margin expansion there?

I think, first of all, the margin increases you saw year-over-year were driven by a couple things. One is, we obviously the Ezidebit transaction that we closed in the middle of October of last year. So in Q1 of this year that was a meaningful benefit to margins in Asia. I would say last year, Asian margins were weakened a little bit by the Occupy Central activity in Hong Kong, which reflected an environment there that had lower margins than we would typically see for our traditional Asian business before the addition of Ezidebit.

I'd say going forward, we're looking at Asian margins now that are roughly around the corporate average. I would expect that to continue. I still think we do see opportunity for margin expansion, particularly as we grow the Ezidebit business, which is a higher margin business than our traditional Asian business, as well as the additional benefit we expect to see from BPI over the balance of FY16 as well.

The only somewhat minor headwind to that is what we see as a relatively weak macroeconomic environment in Asia driven by sort of the commodity glut in China. The weak China economy is obviously having a dampening effect on the overall macroeconomic environment in Asia. So it will be a bit of a headwind for the performance there. But I do expect to see continued good margin, I think, performance as well as margin expansion, although probably muted by the macroeconomic environment.

Thanks. Thanks for the color.

Thank you.

Ashwin Shirvaikar, Citi.

Let me add my congratulations as well. Could you -- my question is around Realex and the strategy that sort of follows from Realex. Could you elaborate on how you intend to integrate it and potentially use that as a means to penetrate other parts of Europe?

Sure, Ashwin, it's Jeff. I'll start. I think David's going to add some color as well. So the first thing I'd say is that we are very pleased with our new partners over at Realex. Unlike most partnerships, in the case of Realex, we're very fortunate that we had a three-year relationship with Realex to see how they would perform on the ground before we partnered with the Company. So we actually have a fair amount of data on the right way to attack the market before we actually acquired the business last March.

As I mentioned in my prepared comments, we have just, in September, released their new bundled product, which is a combination of the Realex gateway as well as our merchant acquiring business in the United Kingdom and soon to be into Ireland and other parts of Europe. If you step back for a second, I think our thesis in omni-channel is really a couple fold.

First, as we said at the time of the Realex transaction, we think we have a very small share today of the cross-border multinational business, particularly in Europe, as it relates to the card-not-present and e-commerce market. So the first strategy to address your question is, in a market that we think is growing organically mid to low 20%s, double-digits, we should have a bigger share of that market given our capabilities and our positioning. That's kind of point number one.

Point number two, we think increasingly, the market is going to blur lines, especially in Europe with the advent of the single European payment area and the common currencies across Europe. We think that over time the market will as a customer matter blur distinction between card-not-present interactions and face-to-face or card-present interactions. Therefore, we need to own all those capabilities. We think we have a very capable, well suited business in face-to-face in a number of countries around Europe.

But we thought that adding card-not-present functionality would position us very well for our omni-channel business, which is a blurring of lines. If you look at a number of our competitors, which we'll talk about in a couple of weeks, but companies like, Adyen, for example, or a Stripe or a Braintree, if you look at a number of those companies, what you might say is our competition has really shifted toward card-not-present companies in that market who are looking to expand into card-present geographies.

We think we have a very strong card-present business but with the addition of Realex and our existing assets, a very strong card-not-present business. So when you combine those, we actually think we have a pretty significant competitive advantage relative to the people I mentioned in terms of getting more aggressively into the omni-channel market in Europe, where I think we can capture a lot of good growth and additional share. David, you want to add some more color to that?

Yes. Let me drop down a little bit for you, Ashwin and pull apart the pieces a little bit of what Jeff said. First off, as we said, we're very pleased with the business. It's performing, purely financially, as we wanted. The integration's going very well. So let's talk about the bundle because that's where we think we can create incremental value and drive incremental growth, actually on a global basis with this type of product set.

So the bundle itself, it's for enterprise customers. It's available obviously for multi-nationals, as Jeff said. It's also focused though on small to medium enterprises operating within their individual markets or cross borders, which of course is going to be an increasing trend particularly in Europe when we think about this SEPA, as well as just the local nature of the transactions that happen in that area.

So with the bundle, we give our UK customers a single relationship. It covers all their payment needs including e-commerce bundled with face-to-face, merchant services or the gateway just simply bundled with merchant acquiring, along with reporting fraud management, all those kind of things you'd expect in one package solution where that single relationship covers your entire suite of needs, whether it's e-commerce, face-to-face, fraud, et cetera.

So the thing to think about though relative to what Jeff said is, that's targeted at small to medium enterprises, enterprise level customers, but also the developer market. As you well know, that's where Stripe made it hay. As Jeff said, quite correctly, we have the assets to compete with Stripe, with Adyen, all the others, as well as bundling truly integrated face-to-face acquiring in any market around the world. So being able to deliver that out of the box on a global basis is unique. It just begins to roll-out in the UK in September. We announced that a couple of weeks ago. We're really excited about then taking around the world to drive accelerated growth. We'll talk more about that when we see you in a couple weeks.

Absolutely. No, thank you for that color. The follow-on question is with regards to the higher margins. Based on some of your comments so far, it seems as though the bulk of that margin improvement is sustainable and not related to one-off factors. Is that a correct read? If you could go through the elements of margin improvement, that would be helpful.

Ashwin, it's Cameron. I'll start maybe and ask Jeff or David to add any color that they may want to. As it relates to, I'd say, directionally, I think the margin expansion profile remains our expectation for the business. We talked about that I think a lot during the July call. Our current model anticipates margin expansion of up to 50 basis points annually. We obviously saw a very good margin expansion in the first quarter, 150 basis points. In our guide, for the balance of the year now, is up 50 basis points on a constant currency basis. There's always going to be puts and takes to that, Ashwin, in any given quarter.

If you look at the back three quarters of FY16, there's certainly some headwinds, particularly as relates to the annualization of the Spanish regulatory changes that occurred at the beginning of September, as well as we're incurring integration expenses around FIS gaming, continuing to incur some around Realex, developing the bundle package, as David and Jeff were discussing a moment ago. We have integration expenses around BPI as well.

Those are headwinds that I would see in the back half or back three quarters of the year. Then on the tailwind side, we obviously have the anticipated benefit coming from the UK regulatory changes or the European regulatory changes that will impact our UK business most prominently, as well as continued growth and execution of our strategy that we expect to drive obviously improvement in margin over time.

So long story short, any given quarter, there's going to be puts and takes around it but our overall expectation is we still see a long runway for margin expansion of the business. We're not at what we would view as our targeted margin profile for the business over the cycle, which is kind of the low 30%. We still see, again, a lot of runway for expansion up to that 50 basis points annually over the next several years.

Yes. I would just add to that, Ashwin, it's Jeff, that our job is to grow margins. We realize that as a Company. We have track record now, I believe of doing that. We expect margins to grow. I think Cameron's right, in any given quarter related to FX and pluses and minuses, it can vary a bit but our focus is on growing margin. If you think about the $1.750 billion that we talked in our prepared remarks about investing, those investments by and large went to businesses that are in markets that are faster growing than the market in general, than our historical markets and have better margin opportunities.

You combine that with the unified operating structure that we've also talked about in our comments, the investments we've made in our technology platform and the incremental margin on each transaction especially growing at the rate that we're growing at is going to be accretive to the overall margin profile. So we expect to continue to grow margins. That is the strategy of the Company.

That's great to hear. You guys keep on [rocking] That's good. See you in a couple of weeks.

Thanks, Ashwin.

David Togut, Evercore ISI.

This is Michael Landau in for David Togut. For FY16 and FY17, should we expect PSD2 regulations in Europe to have a material impact on Global's European revenue and earnings? Could this regulation impact your Realex strategy?

I think, Michael, it's Cameron, on certainly FY16 as we've noted I think a couple times today, we do expect the implementation of the new regulations in December to be a nice tailwind for us in the back half of the year around the payment service directive initiatives that passed last year or our last fiscal year I should say. So we have reflected that in our guidance. We certainly expect that to continue to be a benefit as we roll into FY17 as well, at least for the first half of FY17.

Like any of these regulatory changes, they are transitory in nature. So as we saw with Durbin in the US several years ago, in Spain here most recently over the past year, they do dissipate over time. The market does revert back over time, as the market prices these benefits into spreads over a 12 to 18 month period, depending on the market. So ultimately the benefit will be transitory. But we do obviously see it as a nice tailwind for us as we look to the back half of FY16 and first half of FY17 as well.

Understood. Then can you provide an update on new European bank partnerships in the M&A deals? Perhaps what stage you'd say you're in with those conversations? Thanks.

Sure, Michael. Of course, we announced in July our partnership with Erste Bank along with CaixaBank, which we expect to close in the back half of 2016. As we've been saying for the last period of time, we expect to do more of those transactions as the regulatory environment encourages financial institutions to think about partnerships. As the economic picture, particularly as relates to rates which we view as an opportunity in Europe allows us to invest more economically in the immediate term for a longer term return.

So we continue to look at and have discussions with a number of banks in Continental Europe about partnerships. I would hope to do more of those. As we've said for a period of time now, the number of requirements we have are: first, that it's the right type of partner for us; the second is, that it provide attractive returns for our shareholders.

So with those two things being said, we hope to do more transactions. We have more discussions under way. Those are hard to peg toward the timing. But we do think that in general, deals beget more deals. So we certainly have seen a pickup in discussions post the Erste Bank announcement a couple of months ago. We hope to bring more of those to market, assuming they meet the criteria I just laid out.

The only thing I would add to that, obviously our appetite remained very high to continue to do these types of transactions. I think our balance sheet supports it. We have ample capacity to do so. Jeff noted in his prepared comments, notwithstanding the amounts that we've invested in acquisition as well as returning capital to shareholders over the last few years. We retain ample capacity to continue to advance our strategy through both organic and inorganic growth. So this is an important element of that and something we're working very diligently to try to bring forward.

Great, thank you.

Thanks, Michael.

Steven Kwok, KBW.

Just want to drill down a little more on the 50 basis points of operating margin improvement. Can you just break out by region around what you expect the improvements to be for this year? Thanks.

Yes. Steven, it's Cameron. I'll maybe start and then I'll ask Jeff or David to jump in if they have any particular added color they'd like to add. Typically, we haven't guided around each individual segment in terms of what our expectation is for margin. We're really focused on expanding margins at the total Company level. As I'll remind you, we're managing a portfolio in now 29, soon to be 30 markets around the world, not every market is going to perform terrifically every quarter. That's certainly not our expectations.

So part of this is managing a portfolio that ultimately results in overall margin expansion for the Company. That's our goal. That's our objective as Management, as Jeff highlighted earlier. As we sit here today, certainly we see North America continuing to drive margin expansion for the overall Company, driven by that double-digit organic growth in our direct channels, particularly the higher margin businesses like our integrated OpenEdge business here in the US market, that continues to grow in line with our expectations in the mid-teens and obviously performs at a level that helps to drive overall margin expansion for the Company.

Europe on a US dollar adjusted basis, we expect to continue to grow for the year as well or potentially be flat, depending on what currencies do. But if we see margin expansion in Europe overall, it will likely be relatively minor as again, FX is going to play a part in tempering that a little bit.

I've discussed Asia a little bit earlier. We do expect to continue to see margin expansion in Asia, largely driven by the growth in the Ezidebit business which is a higher margin business as well as the addition of BPI, which we think obviously improves the scale in that region and helps to drive margin expansion, somewhat tempered by the overall weak macroeconomic environment as I mentioned before. So end of day, we're really managing overall as a corporate margin expansion target. We're managing the individual portfolios within the composition of the Company to achieve that. That's our objective in any given year.

Steven, this is David. Maybe from purely a business perspective, to complement what Cameron said, we're very confident in the manner in which we're executing actually around the world right now. Whether it's Europe, the Asia description Cameron gave or North America. As Cameron said quite rightly, a lot of this is headlined by North America where when you think through a stable Canada with the conditions we were describing earlier when we were answering George's question, we feel very good about that, the level of execution going on with our team there and our sales team in Canada.

The United States, which is of course, is still the largest piece of the business. The headline is of course OpenEdge where we're very confident in our trajectory and the performance there. This is actually our first year with the fully integrated sales force operating with the same tools, the same lead management marketing, CRM and sales automation tools, all driving highly incremental growth as you drive extra new partners and you drive new merchants and then obviously just the organic same-store sales are fantastic in that business.

The gaming integration is going very well. That will obviously support the way Cameron described our North America trajectory quite strongly. Really, the rest of the business, the direct business is growing very well. Even the ISO-indirect pieces are performing just as we expected. So again, from a purely business perspective, we're executing very well around the world particularly in the largest markets that really supports the description Cameron gave you.

The last thing I'll add, Steven, just to round out the conversation entirely is, we continue to invest in our operating environment. We've talked fairly extensively about the evolution of this business towards the unified operating Company structure. We continue to invest in achieving that. That will help drive incremental leverage, scale on a global basis that is supportive to overall corporate margins in the aggregate. That's something we're very focused on and look forward to discussing more specifically in a couple weeks.

Got it. Then as a follow-up, just to drill down a little bit on the quarter. Then given that we do have September that's complete already, were there any differences in terms of the growth rates intra-quarter? Then any preliminary thoughts on how September was? Thanks.

Yes, it's a little early I think to comment on September to be honest with you, Steven. As we see, the biggest thing that I'm looking at day in and day out, the fundamentals of the business I think continue to be very strong. Certainly, I don't see anything in September that would cause me to feel any differently relative to what we saw in Q1.

The thing that I go to bed looking at, at night and wake up looking at every morning is currency. The volatility we continue to see in currency is just staggering. So currency is something we're working very hard to manage. As you noted in our guide for the back half of the year or the back three quarters for the year, we are absorbing incremental currency relative to what we anticipated as recently as July.

We've seen the Canadian dollar weaken by 5%, 6%. We've seen the Aussie dollar weaken by roughly 7%. The ruble's weakened over that same period of time. So if you look at our total revenue guide for the year, we maintained our $2.06 billion to $2.1 billion revenue guide for the full year, up 6% to 8%. If you reflect back to July, we noted that 6% to 8% growth was really 9% to 11% on a constant currency basis. Well, that's now really 10% to 12%.

So we're absorbing another point of FX headwinds in our revenue guide and still maintaining that 6% to 8% FX adjusted growth rate for FY16. I think that's quite an accomplishment. I really think it speaks to just fundamentally how well the business is performing, that we can continue to absorb this FX headwind the way that we have and still produce headline numbers that are very attractive. Ultimately, that's going to turn and work in our favor. But I think we're well-positioned to continue to work through FY16 and absorb it and move on.

Great. Congrats on the quarter. Thanks for taking my questions.

Thanks, Steven.

Jason Kupferberg, Jefferies.

This is Ryan Cary calling in for Jason. Touching on OpenEdge, we've been hearing even more bullishness coming from the industry as it relates to growth prospects for the integrated channel, as there appears to be increased verticalization of software solutions that's opening up additional runway. Sounds like this is consistent with what you've seen in the OpenEdge business in the market. So I was just wondering, was this a principle driver behind the increase in the longer term top line outlook you outlined last quarter? Could we actually see growth above that mid-teens level that we've spoken about for the full year?

Yes, it's Jeff. I'll start and then I'll ask David to comment more specifically on the details around OpenEdge. I think going back to the July guide, heightening our net revenue growth over the cycle, obviously OpenEdge is the largest part as we talked about in July of our US business today. Of course, it's also the largest direct piece of our business. There's no doubt as a mathematical matter that it's a very important contributor to our confidence level in raising our targets.

But I think it's important to note that the overall US direct business still grew at 10% organic in the most recent quarter. The last four quarters prior to that also grew in double-digits. So while the remainder of the businesses in the US on a direct basis are not growing in the mid to high double-digits, I think it's fair to say as we've said in the last couple of quarters that our target for those businesses is well in excess of market growth.

So our non-OpenEdge direct businesses are probably growing in the mid to high single-digit area. OpenEdge, of course, is in the mid to high double-digit area. So I think we're pleased with all those businesses, not just OpenEdge. All those things went into our discussion around where we would like the Company to be on a cycle basis. David, do you want to talk a little more about the OpenEdge strategy?

Yes, I'd be happy to. I think, Ryan, you have put your finger on something that we recognized some time ago when we began the investments in integrated payments, if you go back two or three years ago. The idea of marrying technology to distribution, marrying a payment to a technology solution that creates a more compelling value proposition and at the end of the day a stickier solution is something we've been driving for quite some time.

It's what fuels the growth that Jeff just described both in terms of the sales against compelling value proposition, the leverage of working with partners on integrated solutions, it also fuels lower attrition rates. So combined, you have this amazing growth profile over and above what's a terrific growth profile from our core direct businesses.

I think of that as the tip of the sphere for Global Payments growth going forward and maybe our opportunity to accelerate growth when we go and think beyond the United States, think beyond just OpenEdge into other places we can marry technology, deep vertical expertise and payment functionality into a really compelling solution, really frankly on a global basis over time.

Great. Thanks. Digging on the US side of the business a little more, can you talk about the US transaction growth in the quarter? Maybe just deconstruct it into direct and indirect as well as what part of it was inorganic? Also, what does it assume for transaction growth as part of the US expectations for the full year?

So, I would say the transaction growth trends we saw in the quarter in the US have been pretty consistent with what we've seen over certainly most of FY15, probably mid single-digit transaction growth. I'll remind you our transaction growth numbers don't include our gaming business. So it's not going to pick up the inorganic elements of FIS gaming that we added during the first quarter. But if you look at the growth trends we're seeing, again, it's kind of mid single-digits from a transaction point of view. That's helping to drive an overall growth in revenue on an organic basis of about 10% for the direct channels in the US market.

On the inorganic -- indirect side, the ISO business, it performed pretty much in line with the expectations that we've had for the last several years on a net revenue basis. It grew kind of low to mid single-digits. I'd say transaction growth was similar in that business over the quarter or so. Again, relatively consistent with what we've seen for probably the past couple of years with that business overall.

Ryan -- I'm sorry, Jeff. Just not to put to a fine of point on this, but when we add color to these descriptions, OpenEdge or something else, these are all organic growth numbers with the exception as Cameron said of the gaming FIS, which actually is not in the transaction metrics to which he just gave color. So when we're talking about mid-teens transaction growth, mid-teens volume growth and mid-teens revenue growth to high teens in OpenEdge, all of that's organic.

I would just add that increasingly in our industry and especially in our business, we're looking at additional sales of value-added products and services, that while they may be tied to the transactional rates of growth, I view as points of differentiation. So we've talk a lot including today, but over the last year about OptBlue for example in the United States market and now since June, end of June in the Canadian market. Of course, we've had releases in September and a year ago now for Apple Pay in the US and the United Kingdom.

But also Android Pay and Samsung Pay in the last couple of weeks as EMV has been adopted. Now we've got EdgeShield and GlobalShield as it relates to the US business. So I think the way you have to think about it is obviously transactions are important to how our business is operating, but we exited FY15 as I think we said in our July call was the single largest number that I can recall of new products and services that we've introduced into our ecosystem worldwide but including Europe in particular and the United States.

Of course through September and through the end of June did the same thing with additional products and services since May. So it's important to look at transactional trends for all the obvious reasons. But it's also important to ask of us, how are you doing in additional value-added products and services? Of course in a couple weeks, we'll talk more about that. But that's a meaningful measure as to how we've been able to increase the rate of revenue growth in the United States.

Thanks for taking my questions.

Thank you.

Kevin McVeigh, Macquarie.

Great, great job. Is there any way to think about obviously you were able to maintain the revenue guidance, how -- FX we know, but clearly the macro slowed down and you were able to absorb that. Is there any way to think about how much stronger it would have been, just given trying to underscore how durable the model is given what's been a pretty tough macro environment as well?

Yes. I think the way we try to characterize that, Kevin, is we indicated that absent the incremental FX headwinds, our revenue would have been -- our revenue expectation for FY16 would have been towards the higher end of that range that we had previously provided, that $2.06 billion to $2.1 billion. So that's probably the best metric I could point to, to sort of give you a sense as to what revenue might look like absent the implications of FX.

The other way to look at it as well is what I mentioned previously. If you go back to what we said in July, we expected to deliver that $2.06 billion to $2.1 billion, which reflects 6% to 8% growth over last year. That's 9% to 11% on a constant currency basis at that time. It's now 10% to 12%. So we're absorbing about 400 basis point of FX headwind now for the full year relative to what we thought would be about 300 at the beginning of the year. So that gives you a little bit, I think, of a sense as to what the business would have performed or how the business would have performed absent both the FX we anticipated in July as well as the incremental FX we're now absorbing as well.

Kevin, I would just add to what Cameron said that we're really just finishing -- we just finished up the first quarter. So, I also think you have to realize that as we guide toward the rest of the year, as Cameron mentioned, looking at fairly volatile FX environment. Clearly as Cameron just indicated, the majority of any impact has really been FX, not the macroeconomic environment.

But sitting here in the first quarter, if you look at our track record, I think we'd like to be in a position where we say that we've got the balance just about right, looking out at the remainder of next year. So I wouldn't -- if we were sitting here in the third quarter in FY16, we would probably be having a similar conversation. But be having a conversation with a little bit more pointed detail about the impacts, we've got three quarters to go. In that context, we want to make sure that we continue the trend that you've seen over the last 1.5 years.

Understood. That's helpful. Then just switching gears, in terms of, should Visa Europe change hands? Then ultimately the Chinese market open up in MasterCard and Visa, does that open up incremental opportunities for you folks? Or is it kind of net neutral?

Yes. Kevin, it's Jeff. Listen, those things are nothing but good news for us. So as we've said before, I think the ability of partners in our ecosystem to invest in their businesses, to innovate, to create new products and services, expand into new markets, is an important part of our success. It's not just for us, it's true of the industry, but is an important part of our success. So we're big believers in those kind of technological investments, to be able to show how we've been able to capitalize on that across a number of markets. So I don't know what's going on in Visa Europe beyond what we all see in the press, which you can see as well.

But I would say, if the philosophy is to drive additional acceleration of growth by Visa into Visa Europe, if the philosophy is to drive additional products and innovation and really drive additional card adoption and additional technological innovation, I think that's very good news for Global Payments and probably also good news for our partners. I think a very similar thesis is true in China. If that market opens up the way the Chinese government has described, it's a very good business and relationship in China and mainland China today.

We would expect that to benefit not just Global Payments but a number of the partners in the ecosystem. So if you step back for a second and you ask what are some of the macro trends that are really driving some of the results you've seen across our Company; the collapsing of barriers as it relates to doing business cross-border, the lowering of costs of acceptance, the acceleration of technological investments through people like Apple and Google and Samsung and American Express. Those are all very good things for our business. What you just cited are two additional examples of things that would be very good for us.

Awesome. Thanks.

Thank you.

Jim Schneider, Goldman Sachs.

This is actually Jeff Chen filling in for Jim. I was wondering if you guys could quantify how much attrition rates in the direct customer business has come down over the last two years. How much of that do you attribute to improved business cycle? Or integrated payments? Or other factors perhaps?

Yes, It's Jeff, I'll start and give a little bit of broad color in terms of those trends. I think David's going to drill down into detail particularly in the North American markets. So I would say when we looked at this before, in general two-thirds of attrition for Global Payments -- I'm sure it's true of our peers too, really comes from the business cycle. So the vast majority of folks who don't stay with us over broader periods of time is reflective of the fact that they're no longer in business and that tends to be the principle issue.

The other third is split between price and service and other things. So the vast majority of stuff relates to the economic cycle. You also have the related issue, of -- in a more difficult cycle, you have less and fewer new business, small business formation. So you see both of those issues when there's an economic slowdown. That's generally how the math tends to play out. My guess is it's very similar for our peers. David, do you want to talk about the --

Yes. The core attrition is really consistent around the world. You asked specifically about the United States. It's actually very consistent there the last couple of years. As you might imagine, we track this diligently. What has changed a little bit to your point is our mix. So with more integrated payments businesses overall attrition in the United States has dropped a little bit just based on the weighting of bringing more and more integrated merchants with the less likelihood of them leaving over price, functionality, product, in fact, quite the opposite.

They stay because of price, quality, product and functionality. So other than a macro issue or individually going out of business, we really don't have very much attrition at all in that integrated business. That's obviously brought down the overall US attrition a bit. But if you go through the other channels, whether it's direct or even frankly the pieces within the ISO channel but also obviously our gaming business, attrition is really quite low but also quite consistent.

Thanks. Just returning to the JVs for a bit, given that regulators are beginning to encourage the partnerships like you said, have you guys seen any more incremental competition for these relationships?

Yes. I would say it's always competitive. So smart, global, financial institutions have a bunch of alternatives. I like to see it's only Global Payments but of course in the real world it's not. I know we assume that all of our potential partners; a, have choices; b, it's very competitive. That really hasn't changed at the end of the day.

So I like to think and I think our track record shows that we bring a lot of things to the table from an ability to actually show that we've been able to create value with our partners over broad periods of time, our ability to execute, our ability to cross-sell, ramp up sales and penetrate to new markets. So I think we have some distinctive advantages but I don't think we've ever fool ourselves thinking that it's not competitive or that we want to put our very best foot forward each and every time. That really hasn't changed.

I think we work very hard -- this is Cameron. We work very hard to obviously position ourselves as the partner of choice. Our ability to continue to expand partnerships like we have with Caixa, as we have now partnered with them in Central Europe and Eastern Europe through the Erste transaction I think is indicative of just how well some of those partnerships have gone and how effective we are at actually partnering with some of these financial institutions. Although, they're competitive, we do work very hard to make sure that if it's a situation that we find attractive and the opportunity is compelling to us, that we're doing everything we can to prevail.

Thanks for taking my questions.

Thank you.

Craig Maurer, Autonomous.

Couple questions. Could you be -- first, could you be more specific on the contribution OptBlue is making to top line growth in North America? Potentially, if you've rolled that out not only in Canada but across the Atlantic? Secondly, just I know this is a bit of an abstract question but could you comment on the European courts' decision to eliminate the Safe Harbor Act? If that, if you can envision that having any impact on payments processors or companies that operate out of the US in Europe? Thanks.

Sure. It's Jeff. I'll start with the second question first. I'll ask David to comment on OptBlue, principally in North America. So on your question about the European courts, firstly, they really talked about the Safe Harbor, which came out the other day and it was concerns over the Safe Harbor. Global Payments, we believe today, complies with the directive. We weren't relying on the Safe Harbor, that was the subject at issue the other day.

So we believe we're in compliance with the base directive. So we don't think that directly that will have any significant impact on the way we do business. Now, there's a bunch of third-parties that vary by market that will have to digest the opinion. Those third-parties may or may not be relying on the Safe Harbor. That's something that will have to be worked through. But as it relates to us directly, we don't expect any impact on what the EU court ruled on the other day.

So then relative to OptBlue, really around the world is the focus of your question, we're obviously not going to break out the actual incremental revenue contribution of OptBlue. You should know, though, and I'm sure you realize this, it's a nice piece of the organic growth story. But really it's a piece of an overall story that Jeff touched on earlier, which is we're rolling out new product on a consistent basis. Therefore, it can be difficult to purely model this comp against this transaction times the spread that gets you to revenue.

We're rolling out value-added products in every channel. We already have the value proposition I mentioned earlier in OpenEdge. Now we're going to add OptBlue on top of that to drive a little more growth deeper into the double-digits. That's really what we've been able to do across all of our United States channels. Sales have been terrific. In fact, we're actually seeing volume increase to the ISO channel now through OptBlue. That's really the power of the distribution network we built, the ability to pump out new product on top of existing core transaction volumes. In Canada --

No, I'm sorry. I just wanted to follow-up. Do you, like some of your peers, expect to see significant grow-over of the OptBlue contribution at the end of the calendar year?

You mean grow-over issues? No. We don't at all. In fact, this is now a core part of the transactions we then process from there. So it becomes a part of just same-store sales as we go forward including the opportunity to go and continue to penetrate our base. It's not as if we exit calendar 2015 fully penetrated with AmEx OptBlue in the United States. In fact, far from it. We have a long way to go. We would probably describe it as maybe the fifth inning in the United States. That's not true of all of our channels.

Some of our channels are in the third inning, a couple in the sixth. That's why I mentioned earlier, we're beginning to see an uptick even in the ISO channel, which is incremental net revenue and net profit to Global Payments with each sale. So we feel very good about the trajectory in the United States and the long-term trajectory as a result of that product and the other products we're delivering.

In Canada, just to finish off the part of your first question, it's very early, just launched in June. Now, remember in Canada and with the other markets as you think around the world, you have to start with what's AmEx's penetration overall in the market. Therefore, what can the contribution be. We're very happy to date with the progress. Our sales folks have hit every milestone in Canada that we would expect in the early days. It's available nationally.

So we expect that to be a part of the Canada stability and modest growth story. In fact, it just gives us more confidence about the Canada you've heard us talk about for several quarters now. As you roll-out around the world, what you may find and you'll find this probably in the UK is OptBlue will replace existing programs in some markets. So some of the incremental opportunity may be muted. But there's incremental growth opportunity in each market as we roll this out globally. Again, in our unique global distribution platform and our unique technology platform.

Thank you. Just one additional, if you could comment on where you think Europe is in terms of the progress made across the entire regulated area in cutting interchange levels? We know that some countries have been far more progressive than others. Where you think we are in that process?

I would say we're in the very early innings of that process. Of course, Spain, as Cameron alluded to in his comments, early adopted the interchange changes and that is annualized as of September 1 of this year of 2015. But with that exception, by and large, we're in the very early innings. The way the policy directive has played through in the EU is that while it's country specific, in general, we expect most of that to begin in earnest in the back half of FY16, which for us is starting in December, at the beginning of our back half of 2016. Then we'll see what the pace of change is country by country thereafter. But I would say we're in the fifth or sixth inning, as David said in OptBlue. We're really in the first or second inning in the case of the European rate reductions.

Okay. Thank you very much.

Thank you. Thanks very much everybody for joining us this morning and your interest in Global Payments.

Ladies and gentlemen, thank you for participating in today's conference. That does conclude today's program. You may all disconnect. Have a great day, everyone.