Global Payments Inc. (GPN) Q3 2011 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to Global Payments Third Quarter Fiscal 2011 Earnings Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to your host, Vice President of Investor Relations, Jane Elliott. Please go ahead.

Good afternoon, and welcome to Global Payments Fiscal 2011 Third Quarter Conference Call. Our call today is scheduled for one hour. Joining me on the call are Paul Garcia, Chairman and CEO, Jeff Sloan, President, and David Mangum, EVP 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 that are subject to risks and uncertainties that could cause actual results to vary, which are discussed in our public releases, including our most recent 10-K. We caution you not to put undue reliance on forward-looking statements as forward-looking statements made during this call speak only as of the date of this call. In addition, some of the comments made on this call may refer to certain measures such as normalized and cash earnings for third quarter fiscal 2011 which are not in accordance with GAAP. Management believes these results more clearly reflect comparative operating performance. For a full reconciliation of normalized and cash earnings to GAAP results in accordance with Regulation G, please see our press release for an issue of an Exhibit to our Form 8-K, dated March 31, 2011, which may be located under the Investor Relations area on our website at www.globalpaymentsinc.com. Now, I'd like to introduce Paul Garcia. Paul?

Thank you, Jane, and thanks, everyone, for joining us this afternoon. I'm happy to report strong revenue growth of 15% to $456 million as well as normalized earnings per share of $0.63 for the third quarter as anticipated. We continue to expect strong fourth quarter results as well and are poised to deliver our full year revenue and earnings estimates. Now, for the highlights of the quarter and some recent events. I am pleased with the initial performance of our joint venture in Spain, which is on track to deliver $25 million to $30 million in revenue for fiscal 2011. As we reported during our last conference call, we plan to pursue sales strategies similar to those which we successfully employ in the U.K. Accordingly, we have begun the process to add over 50 sales people over the next few quarters. When combined with the "la Caixa" brand and 5,000-plus branch footprint, we expect to drive significant market expansion and long-term growth. We are obviously delighted with the partnership we have formed with "la Caixa". Speaking of the U.K., I'm pleased to announce that we have completed the migration of our U.K. merchant payment processing platform to the Global Payments back-end platform. This was a remarkably complex, multi-year process that affected over 145,000 merchant locations and added 13 currencies to our payment processing functionality. Concurrent with this migration, I'm also happy to report that we are now fully operational for all U.K.-related customer support functions in our Philippines call center. North America delivered strong revenue growth in the quarter, with U.S. and Canadian transaction growth rates of 20% and 7% respectively. Our International segment produced another quarter of strong results, driven by the addition of Spain, continued strong growth in Asia and solid core performance in Russia, Central Europe and the U.K. Lastly, we continue to make progress in our efforts to enter the Brazilian market, and we'll update you as further developments unfold. I'll now turn the call over to David.

Thank you, Paul. North American Merchant Services revenue grew 13% for the quarter, driven by U.S. Merchant Services revenue growth of 15%. U.S. results reflect continued strong growth from our ISO channel. Our expectation for low-double-digit revenue growth from the U.S. in 2011 remains unchanged. In local currency, Canadian revenue was flat with prior year, and we expect similar performance for the full year. Consistent with our expectations, North America Merchant Services' normalized operating margin was 19.1% for the quarter as compared to 20.8% in last year's quarter, with EBITDA was up modestly over 2010. International Merchant Services' revenue increased by 20% compared to last year. Operating margin increased to 28.2% for the quarter compared to 27.4% and now incorporates the margin-dilutive effect of Spain. Asia-Pacific growth slightly exceeded our expectations. Based on current trends, we expect revenue growth in the low 20% range from Asia for the full year. And given these results, excluding the addition of Spain, our annual expectation for overall International revenue growth in U.S. dollars has increased to mid-single-digit percentage growth. Our total normalized company operating margin from continuing operations for the third quarter was 17.9%, down from 18.5% last year. Excluding the addition of Spain, our overall company normalized operating margin expectations remain unchanged for fiscal 2011. During the third quarter, on a year-over-year constant currency basis, currency changes benefited revenue and normalized earnings by about $5 million and $0.02 per share, respectively. Our outlook for fiscal 2011 continues to assume that the U.S. dollar remains constant or slightly weakens against the Canadian dollar and remains constant or slightly strengthens against the British pound, Czech koruna and the Russian ruble. And we continue to believe the aggregate effect will likely be about neutral for us in 2011. Fluctuations in exchange rates, of course, may cause variances to our outlook. We reported total cash and cash equivalents of about $1.3 billion, a somewhat fanciful amount as the large increase results from our quarter ending on a Monday, which means that cash balances included weekend merchant dollar volume which is then offset by a corresponding settlement obligations balance sheet line item. Our total available cash at the end of the quarter was over $235 million. During the third quarter, we generated free cash flow of $82 million. We define free cash flow as net operating cash flows excluding the impact of settlement assets and obligations less capital expenditures and distribution to non-controlling interests. During the quarter, we spent $25 million on capital expenditures, and we now expect our full year total outlay to approach $100 million. In December, we expanded our financing capacity with a new five-year, $600 million revolving line of credit, which replaced our previous $350 million line. We use the facility to pay off the remaining $150 million outstanding on our 2009 U.S. term loan. Our GAAP and cash earnings are reconciled on Schedule 7 of our earnings release. For the third quarter, the company reported $0.71 of cash earnings per share from continuing operations compared to $0.63 on a normalized and $0.60 on a GAAP basis and compared to last year's performance of $0.65, $0.58 and $0.58, respectively. Cash earnings exclude the impact of acquisition-related amortization, special or non-recurring charges and their related tax effects. We also provided a quarterly trend of cash earnings by segment for fiscal 2010 and 2011 in Schedule 10, with the detailed reconciliations on Schedules 11 through 13. We continue to expect Spain to add about $25 million to $30 million of revenue from the December acquisition date through this fiscal year and to be dilutive to GAAP and normalized earnings per share by $0.02 to $0.04 and accretive to cash earnings by $0.02 to $0.04. Our normalized effective tax rate for the quarter was 29.2%, and we continue to expect our full year 2011 normalized effective tax rate to be about 29.5%. Our cash tax rate was 31.3%, and we expect our cash tax rate for the year to be about 30%. Now I'll turn the call back to Paul.

Thank you, David. Based on our current outlook for normalized continuing operations, we have tightened the range for our full year fiscal 2011 annual revenue expectations to $1,800,000,000 to $1,820,000,000, or 10% to 11% growth over fiscal 2010. Our annual normalized diluted EPS expectations range for fiscal 2011 is now $2.70 to $2.77, reflecting 6% to 9% growth over fiscal 2010. Similarly, we now expect fiscal 2011 cash earnings per share of $2.99 to $3.06, reflecting 7% to 9% growth over fiscal 2010 cash earnings of $2.80. I continue to believe that our company is in great position to benefit from the ever-changing payments environment, and I am confident in our ability to continue executing on our growth strategies. Prior to going to questions, Jane Elliott wishes to make a comment. Jane?

Thanks, Paul. Before we begin the question-and-answer session, I'd like to ask everyone to limit their questions to one and one follow-up in order to try to accommodate everybody in the queue. Thanks for doing that, and Operator, please take the first question.

[Operator Instructions] Our first question comes from the line of Adam Frisch with Morgan Stanley.

It's Glenn Fodor for Adam. Now that you have the U.K. integration done, I just wanted to see what your plans were for pricing in the U.K. market, timing-wise. Is this something, I guess, that can be rolled out for the fourth quarter, is that for the full quarter? And can you help get dimension what kind of -- help quantify it and perhaps some color on the U.K. market on discounting and rebate, sort of part of this market, something that could get back on the pricing once it's implemented?

So, Glenn, this is David. I think what I'll do, if it works for you, is walk you through the fourth quarter and put the U.K. in context from that perspective, because I'm sure you along with many of your colleagues are thinking through how to put the pieces together for Q4 versus Q3 from a sequential perspective. So if you let me -- indulge me for a second, I'll step back and start with -- we've talked from the beginning of the year that we think a lot of this year's performance and growth is weighted toward the fourth quarter. Obviously, given the nature of our full year guidance and our Q3 performance on track for what we expected, hence, Q4, we think, is on track for what we have expected for quite some time. And really, Q4 performance is down to our expectations for our three biggest markets: that's Canada, the U.S. and the U.K. So I'll do them in that order. We expect Canada to grow modestly in the fourth quarter, to see more stable spread in volume trends there, as we've discussed all along. If we do, then we expect some help from Q4 seasonality. It'll give us some relatively substantial in Canadian terms sequential revenue and contribution improvement for the fourth quarter. In the U.S., we obviously expect that the typically strong fourth quarter from our ISO and our Direct Card Processing business, which we think will be augmented by the fact we'll see the bulk of our -- what we projected as double-digit gaming revenue growth in the fourth quarter, including the implementation and having live the large customer wins that you guys are all familiar with from earlier in the year. And then we obviously still expect a strong fourth quarter from our Greater Giving business, where an enormous percentage of our annual revenue comes in as the auctions hit sort of the spring season, which leads us towards your direct question, the U.K. And here in the U.K. in the fourth quarter, we're looking for good performance from the core business. And then to your question directly, we are putting in place our new pricing mechanisms at the beginning of Q4, so it'll be in place for the entire quarter, given that we've now successfully executed the back-end payment processing platform migration. So out of that, we should see substantial enhancement to revenue and earnings dollars and growth. To help you size that a little bit, if you're looking at your model, let's talk earnings now for a second, you're dealing with sequential uptick in earnings that's fairly substantial. The U.K. is the single largest component, but we do see other sizable contributions from the Q4 performance we expect from the U.S. and from Canada. So splitting the sequential improvement among those three, but with more weight given to the U.K. for Q4 than either of U.S. or Canada, it's how I suggest you should think about modeling, and that sort of is Q4 at a revenue level. Maybe I'll let Paul talk a little bit about the dynamics in the market overall.

Thanks, David. So Glenn, Paul Garcia here. So the answer to the question about the U.K. back-end conversion in particular, this will allow us to more appropriately price. The way the existing legacy platform works, the HSBC back-end platform, it doesn't allow us to appropriately price for varying interchange levels. When that platform was created years ago, they didn't have these varying levels, and the platform never accommodated it. So we're kind of guessing on where someone's rate should be. This will allow us to appropriately do so. In some cases, merchants actually will get reductions. But we will be assured what our spread is. And that's why David feels the level of certainty in discussing Q4, just based on our visibility and to just what our spread will be based on this new back end. Indulge me for one second, and one thing on the backend. This is a big deal. This is 145,000 merchant locations and years of work, huge amounts of complexity, massive effort from a lot of people around the company, around the world around the company, and we just couldn't be more pleased in the end result here.

Just a follow-up, in the past, you laid out some expectations for fiscal '12 margin expansion, then you hedged a little bit on another call, noting that was pre-Durban and pre-Brazilian investment, if I captured that correctly. Understandably so. But at this point, can you provide any update or color on what your expectations might be or when you might be ready to reintroduce some color there?

Yes. Glenn, it's David. I think we'll talk about 2012 as we traditionally will, on the July conference call as we post our Q4 results and talk about expectations for 2012. Our outlook, in our view of the business, remains unchanged.

Your next question comes from Kartik Mehta from Northcoast Research.

Dave, could you talk a little bit about, or the margins in the Merchant business. I know what you said to look for fiscal '11, and I'm wondering maybe what the impact of the ISO business is having on that, considering you have so much growth in the U.S. business?

Well, I think, Kartik, the impact of the ISOs on our margins in North America continues to pace. We weren't surprised, and as we said in previous quarters, we really think our exit Q4 rate in North America margin looks a lot like last year's Q4. So we haven't been shocked by the development in terms of the channel and the mix. In fact, we have a Gaming business on track that operates at higher margins, as you know. Our Direct business is executing solidly this year. And our Greater Giving business via the old Auctionpay is on track for the Q4. But the real way to think about the ISO business, as you well know, is challenging incremental margins relative to total company margins, hence an overall sort of deleterious effect on North America margins on a sequential basis. No real changes, no changes to trend there. I would imagine your model, given the diligence you put into it, is probably right on track with that North America margin right now.

And then, David, to follow-up on Canada, obviously, last quarter you put in a price increase or a fee, however we want to state that. In relation to that, have you seen a tick-up in attrition at all, or do you anticipate that over the next three quarters, three or four quarters.

Yes. Let's step back and talk about Canada for a moment relative to price. We actually have not put in price increases in Canada into our direct merchant base. What we have is introduce some new product, with which came different fees, different reporting products and some things like that. So no, I actually -- when we look at the trends, and I'll let Jeff comment as well, we haven't seen a sea change in trends in attrition in Canada.

Yes, David. And for Kartik, I would just say that Canada remains a competitive market, as it has been for some time. And that has not really changed it in the recent term.

Your next question comes from Tim Willi with Wells Fargo.

Could you talk, I guess, just a little bit about the ongoing question around M&A and capital? Obviously, you've got a joint venture on the books here as of December and just sort of what that environment looks like, given what's going on in the credit markets, sort of the reemergence of private equity deals? And how you think about that maybe over the next six to nine months?

Tim, this is David. The question is about capital, I mean, I think we have prudently deployed capital on our own over the course of the year with some selected buybacks, and obviously, the Spain transaction. So from our capital perspective, we're right on track for original plans and our outlook. I may let Jeff comment a bit on M&A pipelines and things like that.

Yes. Thanks, David. Tim, it's Jeff. We continue to see a pretty healthy flow on potential M&A transactions in our business. Private equity, as it was throughout 2010, remains a good competitor of ours as we look at these deals. We do think, though, that we've got a number of advantages relative to private equity. David talked before in his prepared comments about the redo of our capital structure in December of 2010, where I think we've got a very favorable capital position, as he just mentioned. And we've got a long track record of successful, I believe, integration and execution on end market deals. So we rely on that when we look at these transactions. So while private equity is always out there and is a very good competitor, we actually feel we've got a bit of a leg up. I'd also say when things go the private equity route, it's my perspective, Tim, that's actually not a bad thing, because we generally tend to see those transactions again as they look for an ultimate exit. So all that may have a good or a negative effect on pricing per deals. At the end the day, the one thing I'm confident of is we'll take another look at it at the right time. That's far better from my point of view versus a deal going to a direct competitor of ours.

Your next question comes from Dave Koning with Baird. David Koning - Robert W. Baird & Co. Incorporated: In North America, the EBIT dollars have been down. I think they were down about 10% from the first half and now they're up little bit year-over-year in Q3. I'm just wondering, is that sustainable now growth in North America? And are all three components, the ISO components, the U.S. Direct and Canada, are all three of those now in growth mode?

So, Dave, we'll stick to the outlook for '11 where we have discrete financial expectations. And if you look at it that way, we did indeed see some modest EBIT uptick in North America. We obviously, if you think about Q4, expecting to see north of that kind of uptick in Q4 relative to our Q3 uptick. But I would tell you the bulk of the Q3 really is U.S. It's across the product lines in the U.S. Remember, Q3 is still sort of one of our stabilization quarters for Canada. But our Q4 implies that each of the two portions of North America, the U.S. and Canada advance their EBIT on a year-over-year basis. So hopefully, we are, as we've discussed a number of times, exiting the year with Canada in the place we want it with the U.S., the combination of ISOs, but really also marrying to the gaming performance as well as the Auction or the Greater Giving performance all being in pretty reasonable shape. David Koning - Robert W. Baird & Co. Incorporated: Okay. And then just a follow-up. Typically, Q1, and I know you don't want to get into next year, but Q1 is typically $0.10 to $0.20 better sequentially than Q4. Is there anything in Q4 this year that's much better than normal? I mean, you obviously have a really nice sequential ramp into Q4. Is there anything not seasonally normal that's falling into Q4 this year?

David, I think I'm going to stick with -- we're staying with fiscal '11. We'll come back to fiscal '12 when we talk about fiscal '12.

Your next question comes from James Kissane with Bank of America.

Can you provide a lot more color on the strong performance in Asia? And it seems like your guidance implied a pretty significant deceleration in Asia in the fourth quarter. Just trying to get a sense of in terms of why it would decelerate so much from the third quarter.

Jim, happy to. Remember, our performance in Q2 in Asia was fueled by a couple of things -- the most material which I'll come back to at the end, but the introduction of Dynamic Currency Conversion in a couple of markets and then continued solid core growth, all augmented by the couple of product introductions by a single retailer, retail we serve in several markets in Asia. So those -- as we sat in Q2, at the end of Q2, and talked to you guys in January, we believed those introductions were essentially over. We saw one more introduction that resulted in outsized growth in the first month of the third quarter. And then we saw the subsequent weeks, subsequent months settle back down to what you might think of as more normalized kind of double-digit, mid-teens growth across Asia. So as we exit Q3, we're looking for Asia to settle back to a normal range you might have modeled at the beginning of the year, when we were unaware of this launch on its way. So really is this sort of single retailer we've talked about before, one of the few brands that can really introduce a new product and drive a lot of volume in a rapid time frame, but we've seen those introductions. They're settling back down. So our exit rate, again, as we leave Q3 is a normal kind of growth rate, and our outlook for Q4 is a normal growth rate. Hence, it will decelerate, but it would decelerate back to what you would have expect anyway, really, from our Asian business.

Okay, I mean, because you had indicated it would decelerate coming off the second quarter, and it didn't decelerate much. So I'm just trying to get a sense, are you being conservative? And this doesn't count as a question. Can you update us on your progress moving work to Manila and when we'll see the impact on your margins?

Yes. So in order, your half-follow-up and your follow-up, we did see -- you are correct. We expected a deceleration in Q3 in Asia growth versus Q2. We did see that. It didn't decelerate quite as much, because we had this spillover into the first month of the quarter. So Q3 performance is a little north of what we expected, not wildly north. Hence, you've seen us take our full year Asia expectation from about 20% to the low 20% range, putting it between, depending on how you want to model us, between 20% and 24% and 25%, something like that, so not a lot of shock. But you are correct. You're factually accurate, the spillover for one month and a little better performance in Q3 than we might have expected.

Jim, Paul Garcia. In terms of Manila, so we have the entire U.K. customer support operation there. We have elements of non-customer phasing for the U.S. in Manila. And quite frankly, this -- and of course, is supporting a lot of Asia. This facility does have the ability to do a lot more for us, and we are kind of looking at those opportunities. And we think that's some future upside, and we look forward to take advantage of that in a way that provides the best customer support we can provide.

Your next question comes from Darrin Peller with Barclays Capital.

First, what was the spread between transaction growth versus the 15% revenue growth in the U.S.? And I know you mentioned Asia might decelerate a bit, but still, why would we expect overall company year-over-year growth decelerate from a 15% range in the third quarter to now 8% and 13% in fourth quarter based on your guidance, especially with price increases in the U.K?

Okay. Transaction growth is about 20%. The revenue growth is obviously, south of the delta, is roughly pricing along with really mix at the end of the day. In terms of overall reduction in percentage growth year-over-year, that's really part two of your question. Really, if you think of the components, and really we're talking about it more sequentially, but I'll relate it to the year-over-year, you will see Asia's sequential revenue decelerate, which means you'll still see solid growth year-over-year. You'll see solid growth in Europe, obviously, with Spain added on top of that. At then end of the day, we're looking for a little bit of modest growth in Canada and then solid ISO growth in the U.S. Not all those generate the same sort of incremental margins, and that's how the pieces come together from an earnings perspective. But in terms of sort of deceleration overall, you'll just say decelerate the parts and pieces to get to that point. If you go market-by-market, I think you end up in a place where your model's pretty solid there.

Okay. I mean, it just seems like the U.K. business would have more than offset the deceleration in Asia, I thought, and with Canada accelerating sequentially year-over-year as well. It still seems, I think, it would be higher than 8% to 13% range, but we'll work through a little more detail.

Well, I think, the variable is always going to be what do you think the ISOs are going to generate. And those, of course, come with not as much earnings impact at the back end, and that is always the wild card. The opportunity for our performance on this outlook really comes from ISO fees, and those are very difficult for us to guess, and as you know, we are typically thinking long and hard before we put a bunch of ISO fees in we're not sure about.

Okay, and then a real quick follow-up for Paul. Can you comment a little bit more on China UnionPay and how things are going there?

Sure. So, Darrin, we have a robust relationship with those guys around the world and, as I mentioned, I think, in a previous call, we process billions of dollars for CUP all through Asia and have a strategic relationship with them and a lot of European and North American locations as well. Now China, which I believe your question is focused on, as you know, we're the only guys that can do -- the only non-Chinese company that can acquire renminbi CUP transactions in the People's Republic of China. So we're in the process of building out more functionality into our product offering, coupling CUP with Bankcard, and we are offering that currently in Beijing. It's our desire to operate in other parts of China. We're making progress on those geographies, but we actually have some more progress to make on the robustness of the product, too. So it's kind of a two-pronged attack. And I'll keep you informed. I think the long and short of it is I could not be happier with our position in China. It doesn't look like anybody else is jumping in there. And our hard work is paying off. So we expect big things over the years.

Your next question comes from Moshe Katri with Cowen.

Paul, can we get your views from the recent events, that are taking place on the regulatory front. That's number one. And then you mentioned some developments in Brazil, maybe you can give us some more details on that?

Sure. Okay, Moshe. So firstly, with Durbin in particular, I think everyone's guess is as good as ours. And we don't have any deep insight other than we think this thing is, it feels like it's going to be delayed. I mean, it just -- I think it's hard to reach any other conclusion. As we said, this thing does have some benefits for the merchant acquirers, but in all fairness, it's not something that we are thinking about when we talk about our optimism about our future. So I'd say, Moshe, stay tuned on that one. In terms of Brazil, we're making nice progress there. Now, I want to remind you, once again, this is a greenfield. We're going to sign one merchant and then two and then three. It's not going to be a huge needle-mover. We're also not going to be -- we're not going to spend huge amounts down there too, so you won't see a lot of negative surprises there either. It's a market you got to be in. It's the B in BRIC. It's not our -- it wouldn't be how we would approach every other market, but it was what was open to us. And I think we'll be in the position to be servicing merchants there in the not-too-distant future, but we still have some work to do.

Just last question on Japan. Do you have any exposure to that market?

You know, Moshe, we do not. We do process for the JCB card for tourists who use that card from Japan in a lot of our Asian markets. But in terms of Japan itself, we have no staff, no exposure, no facilities, no business.

Your next question comes from Bryan Keane from Credit Suisse First Boston Incorporated. Bryan Keane - Crédit Suisse AG: I guess, a couple of moving pieces. But we do have the full year guidance, so essentially, we have the fourth quarter. I guess, David, I was hoping you could help us with the North American operating margin. I'm getting to like a 21% to 23% for the fourth quarter trying to back into it. I just want to see if I'm in the ballpark.

Bryan, I think you're a little high. I think Q4 is going to look a little bit more like our Q4 last year for North America. So that means, obviously, substantial ISO growth. It's going to mean nice Gaming growth again, but with that comes processing costs, although, obviously, the margins there are north of anything like an ISO margin. And that's the Greater Giving business and some help from Canada. But all in, I think you're going to look at a margin that looks a little more like the one last Q4. Bryan Keane - Crédit Suisse AG: Okay. And then some of the margin improvement, we'll see, especially sequentially as we head into next year, just kind of big-picture stuff, it doesn't seem like there's real one-timers in there in the fourth quarter. It sounds like some of these things are sustainable as we go forward.

Yes. I don't think there a lot of one-timers, really, across the company, depending on how you want to count the production of Spain, which really isn't going to be in the comps for a while. But no, I am not aware of big one-timers, with maybe the possible exception of the sheer volume of new sales and new implementations in our Gaming business is probably outside the norm. But in the context of Global Payments, I'm not sure it's that material too.

Your next question comes from John Williams with Goldman Sachs.

Really quickly, so I'm surprised this question hasn't been asked yet, but this is a little bit of a take on Durbin. I was curious to know what your views are. And Paul, this is probably a better question for you, just something I know you've commented on in the past. Regarding the network's ability to eventually push pricing increases through to you down the road. I mean, it seems as though that would be on the table. And I'm just curious to know what your thoughts are on that.

John, clearly, I don't have any insight into this, but clearly, if you're Visa and MasterCard, you're thinking about that and you would think about -- you're thinking about ways to do that, that don't result in a direct pass-through to the merchant. Then it's just a big change. So I don't know how that would happen. I get the spirit of your question, and I happen to agree with that. We haven't been approached on any ideas or any methodology. But clearly, if you're with the association, it's of course what you're thinking about, and we'll keep you informed.

So to perhaps extend that question on Durbin specifically, when you're thinking of the idea of having to share any potential, what would amount to de facto pricing increases with the ISOs. How does that back-and-forth typically go in your process of negotiating that with an ISO, whether it's related to Durbin or not, just generally, how does that back-and-forth go?

Yes. It's very straightforward. I mean, it's prescriptive. The ISOs pay the fees that we pay. There's no negotiation about it. It isn’t a large card issuer calling the association and saying you got to do better for us. It doesn't work that way. They get that. So that's very straightforward. Of course, they are interested in the extreme to how that impacts them, and they look to us for some explanations from time to time, but no. And neither do we mark that up. I mean, it's -- or absorb any of it. I mean, it's a straight pass-through.

Your next question comes from Sanjay Sakhrani with Keefe, Bruyette & Woods. Steven Kwok - Keefe, Bruyette, & Woods, Inc.: This is actually Steven Kwok filling in for Sanjay. I just had a quick question. With regards to “la Caixa”, I was wondering, can you break out what the revenue was this quarter and how we should think about it going forward? How big could it be ultimately in the longer term?

I think what we’ll do is probably stick to what we've disclosed about "la Caixa", which is we expect in the second half of the year from the date we own it, which is roughly December 20 through May 31, $25 million to $30 million of revenue that are on track for that. They had a solid start from our perspective. As you might expect, not dissimilar to any of our other businesses. Q4 should be a little bigger than Q3, but they're on track. And so I don't think we're going to parse out the pieces of it quarter by quarter, but know that they're on track for the $25 million and $30 million, and we're feeling good about that as well as the earnings range for the increment from the Spain acquisition.

I'd like to make a comment on "la Caixa", if I may. I just like to add that we really couldn't be happier with this. I mean, it isn't every day that you get to, overnight, have a number-one market position with a partner that is extraordinarily helpful and cooperative and working shoulder-to-shoulder with us to expand our joint market position. So it's number one with a bullet. I mean, we expect to add more business. We're doing so, we're making investment in sales and some miscellaneous infrastructure, and once again, the partner is with us every step of the way with their over 5,000 branches. So it's just a -- it's about as sweet as they come. So I would encourage you to look for some good things from "la Caixa" in 2012. Steven Kwok - Keefe, Bruyette, & Woods, Inc.: Great. And I was also wondering, can you touch upon how much of an impact the operating margins in the International segment was due to "la Caixa"?

How much of the operating margin in International segment was attributable to "la Caixa".

In terms of the impact of that, so I think the way to think about "la Caixa" in terms of total International is it's going to cost us in the near term north of probably a couple of hundred basis points of margin. I guess, I won't get overly precise there, because they will actually move around a bit as we spend integration money and we ramp up sales force, but it's north of 200 basis points as we think about it going forward.

Your next question comes from Robert Dodd with Morgan Keegan. Robert Dodd - Morgan Keegan & Company, Inc.: Just going back to Canada if I can, I realize the market is choppy, but if we look at this quarter, essentially, flat local currency revenue somewhat similar to last quarter, but 7% versus 3% transaction growth last quarter. So it looks like the revenue per transaction actually deteriorated in the third versus the second. So can you give us some color on that and why -- is it mix, seasonality, whatever and why you have increasing confidence that the Q4 is going to reverse that trend by even more than it deteriorated this quarter?

Sure, maybe Jeff and I will double-team on this a little bit. You are correct and that it continues to be a competitive marketplace, and a combination of that competition as well as a little bit of seasonality in Q3 means that on a relative basis, spread dropped even more than we had the quarter before. When we look ahead to Q4, it's less about whether or not that trend continues and more about on a comparable basis versus prior year, are you stabilizing so that you can stabilize the revenue and the EBIT trends in the market overall? So it's less about sequentially and more about year-over-year. And maybe Jeff, on the market itself what we see competitively, et cetera?

Yes, Robert. It's Jeff. I don't think the level of competition, while it's intense, has changed sequentially. So now I think we've seen a number of quarters where it remains intense, but I think that, that intensity has been pretty consistent across the quarter, sort to David's point. I think, sitting here today, we have a lot of confidence in David's commentary on the fourth quarter in Canada. Robert Dodd - Morgan Keegan & Company, Inc.: Okay, great. And then to follow up, I think that the parallel between Canada and the potential Durbin opportunity, obviously, it does looks like it may be delayed, so it might not happen at all in the near term. But how does your kind of experience with Canada, and I know we've talked about this before, David, over the last three or four years in terms of big price increase followed by significant competitive factors driving that excess spread back out of the market. How does that color when you view about what you might do with your direct customers if Durbin becomes effective? Maybe a little bit speculative, but give it a shot.

Robert, this is Paul. I'm going to take that one. I would say that you're exactly correct. If there is benefit from Durbin, and I would say that we are believing that the benefits from Durban will not be significant. We will get some benefit from Durban. But it's not figuring into our optimism, quite frankly. And at this point, who knows when that actually happens. But whenever it happens, we are confident of one thing. Whatever benefit that is, it will go down over time. So we've seen that movie before, and that's how it works. Now, there'll be all variants of this. There will be one company that's already said they're not going to take any of it, and there'll maybe be some ISOs who are aggressive and will take it all. We would be a lot more conservative on how much of that we would enjoy and therefore, we don't see -- that's why we're saying there's not going to be a significant benefit. But you're exactly correct, Robert. That thing, it would be -- it's going to be fleeting for everybody.

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

Just I guess maybe going down the speculative path as well, but what is precluding you from potentially buying in your Asia JV?

What is precluding us from buying in our Asia JV?

Yes. Is there something -- is there a trigger mechanism that we need to be thinking about? Is there time line? Is that something that is just too far off in the future that you're not prepared to make comments about, but it would seem as though the timing of that would start to accelerate next year?

I think you'll find us not ready to make any comments about it, other than to say we have a terrific partner there and a great partnership, and we're happy to continue to operate that for the long term.

I would just add, Dan, that it's always a possibility. And I think -- so I'd say, stay tuned.

I comment on that because you made comments about managing through changing payment landscapes. And it's not just regulatory. There's also technical issues with mobile and things of that nature that I think people are questioning about the business. So anyway, just looking for that. The second thing is...

Let me comment one more second. I think it all depends on our partners. I mean, at the end of the day, we, of course, are a willing buyer of that. It depends on what our partner wants to do. They've chosen to sell it to the rest of the JV in the U.K. They may or may not do so in Asia, and we are ready, willing and able to do so. And of course we have dialogues like that with them all the time. But as David said, we'll take that any way we can get it. They're a wonderful partner.

I got it. And then the repositioning that took place in Canada last quarter and you reduced headcount. We thought it was around $4 million annually in terms of cost savings. I'd be interested to know if we saw much of that, if it all, in this quarter. And then is there any incremental cost that you took in the quarter as a result of Brazil?

Dan, in Canada, you really saw a full quarter of the benefit of the realignment of investment levels that we did in the fall. So you saw that full quarter. And yes, there is investment in Brazil in our numbers right now. It's been in there for a few months now. It's going a little bit and we continue to ramp up that investment level. As Paul said earlier, it's obviously not a material level. But there are investments in Brazil as we speak.

I want to go back to use Dan's question or something Robert said to give a little more detail on this Durbin issue. So it is clear that whatever benefit one enjoys from that is going to bleed out over time. You're going to get all of it for some period of time and then half, then a third, and then nothing. That's kind of the way these work. But that's in a stagnant environment. I think one would be fooling oneself to think this is it, that you're not going to have other issues, other pressures on interchange and assessment fees that could cause a downward, downward pressure, a downward progression on these fees. And then one benefit may be picked up from another. So it is an evolving situation.

Your next question comes from Brett Huff with Stephens.

Just a couple of quick questions. Number one, can you tell us what you guys saw in terms of ticket sizes across geographies or just give us a sense of how consumers are behaving in this market right now? And how you are seeing it, so far, in this quarter and maybe in the next year?

Happy to, Brett. So in the U.S., average ticket was down 5%, very consistent with previous quarters. As you well know, though, the bulk of that reduction comes from the mix. The ISOs drives most of that reduction. In the Direct business, it would've been closer to 1% or 1.5% average ticket reduction, so quite modest. We actually saw really no change in the Canadian ticket, so reasonable starts there in the North America region. And Asia-Pacific ticket is actually going up, but that's a -- I think it's really at the wrong metric for that market, given the nature of the travel industry there. So across the board, pretty stable trends in terms of what we expected. Probably implicit in your question as well is the mix of U.S. transactions, credit and the other. That did not change, either. So PIN continues to still be below 10%. The combination of signature and PIN is on the order of approaching 2/3 of our overall transactions. So -- and that, by the way, is very consistent with the last three or four quarters and even beyond that. So really not a big sea change in trends overall and what that may or may not mean for consumer behavior. Again, as I think we've said for the better part of a year or beyond, certainly, things are not shocking us in terms of the trends, and they're stable, which is good news as we all came out of '08 and '09 and all of that fun. We haven't seen a big uptick or big downturn, but they're stable, and that puts us in reasonable position.

And then just an unrelated question, the corporate, it was a little bit higher than I modeled and a little bit higher than the last quarter. Where there any one-timers, deal costs, anything like that in there? And what can you expect for that going forward?

Yes, it's a great question. There actually are one-timers. Largely, what you just said, deal costs and the new accounting rule, of course, for all expensing, our acquisition costs and our deal costs, our advisors and things like that. So a lot of that is staying. You may see some of that even trickle into Q4. I don't think it's going to be a gigantic Q4 from that perspective, but it shouldn't shock you if Q4 looks a little bit like Q3 in terms of the corporate expense.

We will take the last question from Chris Shutler with William Blair & Company. After which, Mr. Garcia will give his closing statement. Christopher Shutler - William Blair & Company L.L.C.: Just a quick question on the U.K. So when you look at the repricing opportunity there, how are you taking about the balance of taking a lot of price initially versus maybe reserving some of that benefit over the next few years?

I think you would find if you met our U.K. management team that we're being very measured about the way we think about this. And as Paul said earlier, it's really important to note that some merchants will go down, some will go up. And we'll be better able to match services and value delivered to the incremental offerings we make. So whether it's a voice authorization for which you charge and you can help a merchant understand what that is, and maybe then reduce those over time, out of which we should get some terrific relationship benefit. But I think you'll find, again, if we had our U.K. guys here, one of them you guys have met at the Analyst Day in the fall, you'd find a very measured, sober approach to this that has a focus on what this business can be several years from now, not next quarter.

That's well-said, David. I think, Chris, the most important thing for us is this is a marathon, not a sprint. We're not trying to pump up a quarter or a year. This is a long-term commitment to this incredibly important market. We're growing market share. And you don't get that by gouging merchants. This is appropriate pricing, truly appropriate pricing. Now I doubt that will have a positive impact, but it is appropriate, and I think our merchants understand that. Okay, well, ladies and gentlemen, I wish to thank you for your continued interest in Global Payments. And thank you so much for joining us this afternoon.

Ladies and gentlemen, this conference will be available for replay starting today at 7:00 p.m. Eastern Standard Time and ending at midnight on April 14, 2011. If you wish to listen to the replay, please dial (800) 642-1687, or international participants can call (706) 645-9291. This concludes our conference for today. Thank you for your participation. You may now disconnect.