Global Payments Inc. (GPN) Q2 2012 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Global Payments Second Quarter Fiscal 2012 Earnings Conference Call. [Operator Instructions] And as a reminder, today's conference will be recorded. At this time, I would like to turn the conference over to your host, Senior Vice President of Strategic Planning and Investor Relations, Jane Elliot. Please go ahead.

Thanks. Good afternoon, and welcome to Global Payments Fiscal 2012 Second Quarter Conference Call. Our call today is scheduled for 1 hour. Joining me on the call are Paul Garcia, Chairman and CEO; Jeff Sloan, President; and David Mangum, Senior 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 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. 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 cash earnings, which are not in accordance with GAAP. Management believes these results more clearly reflect comparative operating performance. For a full reconciliation of cash earnings to GAAP results in accordance with Regulation G, please see our press release furnished as an exhibit to our Form 8-K dated January 5, 2012, 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 Happy New Year, everyone, and thanks so much for joining us this afternoon. I'm pleased to report that we are executing well across all of our businesses as evidenced by our solid results for the quarter. Second quarter fiscal 2012 revenue grew 20% to $531 million. Cash operating income grew 14% to $109 million. And cash earnings per share grew 13% to $0.86 for the quarter. As you are aware, the debit interchange legislation took effect October 1, reducing interchange rates on most domestic debit transactions. Our strategy is to pass along a significant share of this benefit to our customers. Consequently, this legislation resulted in less than $0.02 of cash earnings per share for the quarter. However, we added nearly $15 million in revenue, primarily from our ISO channel. While it is still early, we consider even these results to be transitory due to the strong competition in the marketplace. I am pleased to announce 3 targeted acquisitions, which will expand our international and eCommerce presence. First, we increased our footprint in Russia by acquiring a merchant business with more than 6,000 merchants from Alfa-Bank. Alfa-Bank is the largest private Russian bank by total assets and operates a network of over 300 branches in the market. This expands our existing referral network and overall sales distribution by adding over 20 new regions within the Russian Federation. Secondly, we acquired HSBC's merchant business in Malta, consisting of nearly 4,000 merchants. We believe solid card usage trends will continue in Malta, primarily driven by its tourism sector and the government's continued focus on increasing card-based payments. Most importantly, this transaction demonstrates the ongoing strength and expanding nature of our global relationship with HSBC. Finally, I'm pleased to announce that we have agreed to acquire the U.S. merchant portfolio of CyberSource from Visa. This transaction will broaden our U.S. eCommerce presence by adding over 9,000 merchants and it will expand our eCommerce strategy by augmenting our existing U.S. distribution channel. We expect this to close during our third fiscal quarter. Now, second quarter highlights. North America delivered revenue growth of 16% in the quarter, driven by our U.S. ISO channel, strong growth from our Gaming business and solid performance from our direct channel. Canada continues to perform as expected, delivering 4% local currency revenue growth, with transaction growth of 5%. Our International segment produced another quarter of solid results, with revenue growth of 30%, fueled by all regions across Europe. These results include the addition of Spain, which continues to perform well, coupled with solid performance across Europe. Asia's revenue growth was flat for the quarter, primarily due to the strong growth in last year's quarter related to an enormously successful product launch by one of our merchants. I will now turn the call over to David. David?

Thank you, Paul. We are pleased with our second quarter performance and our outlook in this difficult macroeconomic environment. North America Merchant Services revenue growth of 16% was about what we anticipated, fueled by U.S. transaction growth of 13%, growth in Gaming and continued stable performance in Canada. As a result, North America cash operating income or EBIT dollars were up 5% for the quarter over prior year. While the result of debit interchange legislation added nearly $15 million of revenue, once again, the majority of this came through our ISO channel. The net benefit to cash earnings per share approached $0.02 for the quarter and the net unfavorable effect on total company operating margin was just under 15 basis points. Our International segment delivered solid results. International cash operating margin increased to 35.5% compared to 34.5% in the prior year. The aggregate purchase price for the 3 acquisitions will be about $45 million. We expect these deals to add about $15 million of revenue for the remainder of fiscal 2012. We expect these transactions to be about neutral to slightly dilutive to fiscal 2012 cash earnings per share and dilutive to GAAP earnings per share, primarily due to integration costs. In addition, we expect these deals to reduce total company cash operating margin by about 20 basis points in 2012, primarily due to our accounting for CyberSource as an ISO going forward. For the quarter, we generated free cash flow of $79 million, representing 24% growth over last year. We define free cash flow as net operating cash flows excluding the impact of settlement, assets and obligations, less capital expenditures and distribution to noncontrolling interest. During the quarter, we spent $23 million on capital expenditures. Incremental capital expenditures coming from the 3 acquisitions will take our expected full year fiscal capital expenditures to about $95 million to $105 million. Our second quarter effective tax rate, whether you track cash or GAAP earnings, was down a bit as we anticipated, coming in at about 29%. We continue to expect our effective tax rate to be about 30% for fiscal 2012. Our second quarter GAAP and cash tax rates, as calculated from the face of our income statement, were each a little less than 28%, again as anticipated. We expect our full year tax rates based on the face of the income statement calculation to be about 29%. During the second quarter, on a year-over-year basis, currency changes slightly benefited each of GAAP and cash revenue and earnings by about $2 million and $0.01 per share. We continue to believe the aggregate effect of currency will likely be about neutral to slightly positive to our earnings per share for fiscal 2012 compared to 2011 due to the general strengthening of the U.S. dollar to date and our outlook for the rest of the year. Fluctuations in exchange rates, in particular, rapid further strengthening of the U.S. dollar, could cause variances to our outlook. Before acquisitions and without debit interchange legislation, our core expectations for revenue and earnings per share and operating margin remain unchanged, including margin expansion by as much as 50 basis points for the year. We continue to believe that any benefits resulting from the debit legislation are uncertain and transitory in nature due to our competitive marketplace. Additionally, we plan to use a small portion of this temporary income to make targeted investments in key vertical markets, sales and infrastructure to drive long-term growth. Based on our current assumptions and net of investments to be made, we expect the debit legislation to add approximately $40 million of revenue and about $0.04 of cash and GAAP earnings per share and to unfavorably affect cash operating margin by about 20 basis points in fiscal 2012. Once again, we expect the 3 acquisitions to add about $15 million of revenue, be neutral to slightly dilutive to our cash earnings per share and to reduce our cash operating margin by an additional 20 basis points for the remainder of the year. In total then for fiscal 2012, we now expect revenue of $2.15 billion to $2.2 billion and cash earnings per share of $3.50 to $3.58. On a GAAP basis, we now expect earnings per share of $3.14 to $3.22. Now I'll turn the call back to Paul.

Thanks, David. Based on our current outlook and assumptions, we are increasing our annual fiscal 2012 revenue expectations by $50 million to a range of $2,150,000,000 to $2,200,000,000, reflecting 16% to 18% growth. We are also increasing our cash earnings per share expectation by $0.04 to a range of $3.50 to $3.58, reflecting 14% to 16% growth over fiscal 2011. Excluding the impact of the debit legislation and our recent acquisitions, we plan to expand cash operating margins in our core business by as much as 50 basis points for the total company for fiscal 2012. I'll now turn the call over to Jane. Jane?

[Operator Instructions] Thank you. Operator, we will now go to questions.

[Operator Instructions] Your first question comes from the line of Tien-Tsin Huang of JPMorgan. Tien-Tsin T Huang - JP Morgan Chase & Co, Research Division: I just wanted to ask about International, maybe just starting out with Europe. I'm just looking at the revenues and the profits, both down sequentially, which was surprising to me. How did that come in relative to plan and what should we be looking for here in the coming quarters on the Europe side?

It's David. Relative to our expectations, Q2 came in about where we expected, for Europe as well. I would tell you, if you put me on a rack and press me, I'd like to see maybe a little bit more revenue in the U.K., and we were clipped a little bit more by FX than we thought during the quarter, and some of that was in the U.K., some of that obviously would be in Canada, but as a general rule across the business, we were about on forecast, about where we expected to be. In aggregate we were where we expected to be as well. If you look out into Q3 and to speak particularly to Europe, I would expect Europe to be up a little bit sequentially in Q3 and then up a little bit again in Q4. And then of course, across the business, as you well know, Q3 will look like our weaker -- weakest quarter of the 4 from a pure earnings perspective relative to the sort of percentage of total earnings for the year, with Q4 far and away being our strongest. Maybe in a little more color in that regard, I would think about modeling roughly, and I do mean roughly a plus or minus, the same percentage of earnings in Q3 compared to full year, and in Q4 compared to full year as you saw last year. So Q3 as a percentage of total, your full-year earnings roughly the same percentage range as for each of the next 2 quarters. Tien-Tsin T Huang - JP Morgan Chase & Co, Research Division: Okay, okay. And then I have the same question on Asia Pac, I was also kind of surprised there with no growth. I know, Paul, you said there was tough compare, which we are aware of but what's the outlook there for Asia Pac? Can we assume that we're back on a growth mode in the second half of the year?

Yes. Tien-Tsin, this is David, I'll take this one again. To your point, we are flat this year, and that's compared to a quarter over last year, we grew 42%. I guess I should remind you in Q3 of last year, we grew 31%. But we think in Q2, we're right back to double-digit growth, we think -- I'm sorry, in Q3, I apologize, we're right back to double-digit growth. In Q4, we're back above that in the sort of the mid-teens range we expect to see. And so for the full year, we remained right on track for that same low double-digit into the mid-teens range we expressed at the beginning of the year. I don't doubt for a second that flat is a little bit of a surprise because it's tough to get yourself all the way to flat. We're just looking at it from the outside in, and you think about Asia. But that product launch we've talked about fairly often really was substantial, and the real telling point of that was of course 42% year-over-year growth last year. Tien-Tsin T Huang - JP Morgan Chase & Co, Research Division: And then just to be clear, David, that includes acquisitions in terms of all the commentary you just made?

It does. Of course for Asia we really don't have one. But for Europe as well as the total company, when I was just answering your first question, it is inclusive of everything at this point, yes.

Your next question comes from the line of Jason Kupferberg of Jefferies and Company. Jason Kupferberg - Jefferies & Company, Inc., Research Division: So just to clarify and reiterate, what you guys are basically saying is that if we put the acquisitions and Durbin on the side and just look apples-to-apples at your guidance, what you were talking about last quarter versus what you're talking about now, there's no change. Is that correct?

That's correct. It's a perfect way of saying. We reaffirmed. Jason Kupferberg - Jefferies & Company, Inc., Research Division: Okay. And so going forward, just on the point with Durbin and obviously all the disclosures is helpful. So you have $15 million in revenue based on 2 months of Durbin contribution. But it sounds like you're only going to have another $25 million over the subsequent 6 months of your fiscal '12 to get to $40 million in total. So just wanted to understand why the run rate slows down so much?

That's a great question. This is Paul. Let me also add to that. We did about little less than $0.01 a month, right? 2 months for -- $0.02 for about 2 months of results. And that would suggest around $0.05 or $0.06 for the remaining 6 months, yet, we're telling you it's going to be like $0.02. So the words and the music aren't going together here. So here's a couple of fact points, I think, are important. Because a number people have actually written some reports that would suggest about $0.01 a month, and that's about right quite frankly. But we have taken a more conservative approach for 2 reasons. #1, the situation still is nascent. I mean we don't really know what the associations are going to do. I mean we're not exactly sure where the card issuing is going. Competition, although I will tell you this, Jason, we watch this like a hawk, we watch any kind of attrition and just the opposite, our position has been to be very generous hoping it will simulate new business for us and we're very pleased with that and it has done exactly that. But yet, we've taken a conservative stance because of all of those factors. The revenue is more driven on the ISO side. I would tell you, our ISOs have taken, I would think, a commercial approach here. They have -- they're a little more aggressive. But quite frankly, they have a very small merchant base. But yet they've been pretty open with sharing a large amount of that with the ISOs, obviously they would with their customers. We think that actually continues, they end up sharing a little more of that. So the good news is it didn't have the big hit on margin that everyone feared, but yet it didn't also drive EPS on our side. But on the positive side, it didn't have the ISO affect everyone feared. David, you want to take another shot with that?

Maybe just to supplement a couple of things. I think we have seen the ISOs as being more circumspect than one might have thought, which is actually great news for the market. So we're cautious on the outlook of how those pieces come together in the next few months. I think we're cautious on our own as well. This is something that was effective, really, the month of October. So nascent, as Paul said, is exactly the right word. We're a couple of months into this and really only a billing cycle, maybe 2 into what the customers are seeing and how the pieces are really coming together. So very interesting. I would just give you one other sort of anecdotal data point, and this may well be apropos of nothing, but I think we've talked the last quarter or so that we started to see credit transaction growth in the U.S. approach debit transaction growth. This past quarter, we actually saw a credit transaction growth, north of debit transaction growth, first time in -- you can imagine Jason, how long that's happened. Doesn't mean it's a trend, doesn't even mean it's even related to this issue, just gives you a little more insight into the moving parts of issuers, networks, competitors, our own channel partners, as well as just consumer behavior. All these dynamics make us circumspect ourselves as to our outlook for the impact of the legislation. Jason Kupferberg - Jefferies & Company, Inc., Research Division: And just last for me, the CyberSource acquisition, seems like a great move to expand your eCommerce presence. I think you guys have talked in the past about wanting to accomplish that. Can you just give us a sense, order of magnitude-wise, how much does this expand your overall eCommerce business, and particularly in the U.S., whether you want to think about in terms of merchants or revenue? Just so we can get a sense of how big of an impact this will have on that slice of the company.

Jason, it's Jeff. I'll take a stab at answering that. I think we have talked about in the prepared remarks that it adds more than 9,000 merchants in eCommerce segment here in the United States. So from our perspective, that's a substantial enhancement to what we currently do. It's a very attractive portfolio in its own right by way of metrics and growth. And it really puts us in a market that we historically have been underrepresented in. And what we're going to do is, I think this is in the script as well, is allocate sales resources, IT resources and operating resources against that portfolio of 9,000 plus customers. So as we think about it strategically, this gets us to a really good toehold in the market that we've been smaller than we would like to be and allows us to build very substantially off that market. In terms of sizing, it's a little bit more than 9,000 merchants is what we're disclosing.

Jason, I would add too, we're going to be the best partner the CyberSource that we can, and we're not alone in that regard. There's lots of other institutions, as the processors would like to do the same thing. But we believe that we are going to be very responsive and we're hoping our relationship with them extends. Jason Kupferberg - Jefferies & Company, Inc., Research Division: How many merchants did you have in the U.S. eCommerce prior to the acquisition?

We haven't broken out...

I don't know if we've ever broken it out, Jason, but you well know that eCommerce is a segment where we like to have a bigger presence than we've historically had. So this is a meaningful step in our eCommerce strategy, there's no question about it.

And just so I would add, this is a well-diversified portfolio. So to the extent that we had eCommerce folks before, they tended to be a combination of bricks and mortar, as well as online presence. This is really specific to the online presence. So I think this bolsters what we are doing previously, but it really is a very big step in the right direction.

The next question comes from the line of Glenn Fodor of Morgan Stanley.

On Brazil, I know you're building out the capabilities there. I was wondering if you can update us on where you stand and is there any way HSBC is helping play a role with your buildout there?

Well Glenn, we have good news for you here. Jeffrey, why don't you go and...

Sure. So we're pleased to announce that we've executed a sponsorship and referral agreement with a financial situation in the Brazilian marketplace, which is a meaningful step forward for our business in Brazil. Second, in the last quarter, we have signed a significant technology contract with a large vendor for the construction of our firm back-end platform in Brazil, and that platform construction is beginning and is underway as we speak. So as we look at where we are today, Glenn, relative to the last number of quarters, we think we moved the ball pretty far down the path on sponsorship and referral, as well as on our technology build. And I think the next step for us down there will be our certification with the associations, with our Brazilian partner, as well as with our technology vendor.

Great. Paul, just a theoretical question for you. So I want to talk about this Brooklyn case out there and one part of a potential settlement that people talk about is allowing merchants to surcharge at the point-of-sale. So I think you're well versed in answering this, given you know the U.S. market so well. I mean how do you see it? If merchants are allowed to surcharge in the U.S., how do you see this playing out in terms of merchants actually doing it, consumers reacting to it? Could this be a large catalyst for a shift from credit volume to debit volume?

I have to say that's an excellent question. And forever you could give a discount for cash. There's never been a provision against doing that. And I think the basis for this type of relationship has kind of been in place, and merchants haven't really taken advantage of it. I think to surcharge your consumer when she pulls out her preferred payment, I think is a bridge too far, I really do. I mean there might be some exceptions, but I personally think it's not going to be a biggie. I don't think we're going to see a big shift, I really don't. I mean that's -- we'll see. I just want to -- we'll wait in front of that. We'll see if I was bright or stupid there, but that's my take.

Your next question comes from the line of Chris Brendler of Stifel, Nicolaus. Christopher Brendler - Stifel, Nicolaus & Co., Inc., Research Division: So I just want to stay on CyberSource and also the other items in particular. They're not closing, I guess, with a whole lot of time left in your fiscal year. I know it's probably a little early to give 2013 guidance. But from my rough estimation, looks like CyberSource itself was doing about $100 million in annual revenue in the acquiring business. So I'm just trying to get a sense of what this could look like for 2013 for CyberSource and the other 2 relationships you announced this quarter. It sounds like it could be meaningful. Is that a good way to characterize it?

Chris, this is David. You'd have to look at exactly what we're purchasing, and I don't believe you can find an external fact that would help you other than what we said in our prepared comments and in the press release earlier. So if you take the combination of the 3 transactions, which we're saying add on the order of $15 million of revenue for what's effectively, call it, 5 months of the year, it's really 4.5, because you're right, they haven't an all closed. But they'll all be closed, we think, by the end of January. So maybe you call it 4, 4.5. If you want to annualize that, that's step one. Now know that we expect each of them to perform better than those 4 months and to grow next year. You can let them grow a little north of the pure annualized level. But no, we're not verging on the kind of numbers you're talking about at all with these transactions. There's probably a disconnect between something you've been able to find externally and the actual portfolio we're purchasing in any of these 3 acquisitions. Christopher Brendler - Stifel, Nicolaus & Co., Inc., Research Division: And CyberSource, obviously, the only one I can really get anything on. It was public at one point.

Yes, understood. Christopher Brendler - Stifel, Nicolaus & Co., Inc., Research Division: Is there any color, David, on exactly what the difference could be and what you're purchasing? Is it not the whole portfolio? Or is it -- they lost some relationships?

Chris, I think that's a fair question. So with the ongoing relationship with CyberSource, if they continue to have an economic interest in these relationships. So that's why the purchase price is what it is. That's why this is a about winning future relationships, continuing to encourage them to do business with us in the future. So it's a stated amount from the existing portfolio, which we purchased. And it's an opportunity to participate in other deals. So that's really what this is. And there's some of the economics -- some significant amount of the economics that stays with CyberSource. And that's why your numbers -- that's where you're getting kind of balled up on these numbers a little bit. Christopher Brendler - Stifel, Nicolaus & Co., Inc., Research Division: Okay. I'm sure we'll learn more about that as time goes on.

Absolutely. Christopher Brendler - Stifel, Nicolaus & Co., Inc., Research Division: A Separate question, just following up on the obvious European question, I didn't hear from your previous answer if you saw any signs of the Armageddon that everyone fear or love. If the transaction is falling off a cliff, and consumer spending retrenching in any significant way, any color there? And also -- if you could also address, Asia Pacific was flat, I guess, on year-over-year basis after growing 18% last quarter. Is that currency or is there anything changing there in terms of spending patterns?

Well let me do the -- Chris, I'll do the color on Europe, and I'll ask David to talk once again about AP. So of course our business in Europe is Russia, the Czech Republic, Spain and the U.K. The euro is actually in Spain, and it's the toughest economy of all of them, and that business is growing at a double-digit amount. I mean just pure and simple. Now with low double digits, but it's growing at a double-digit amount. We are organically growing this business in an economy with 20% unemployment and some real challenges at a double-digit amount. Now that's because we're taking market share, we're adding sales people, we're doing all things we can do. The U.K. is much -- it's a market that also provides opportunities. We had a good quarter in the U.K. I think David said we would like to have a little more. We like a little more everywhere. But still the U.K. was a solid performer for the quarter. And you'd say Russia and the Czech Republic are kind of outliers a little bit. But the long and short is we're not seeing a meltdown. Consumers are still spending. They're taking vacations. They're going to dinner. They're buying shopping at their favorite retail establishments. And the transaction counts are pretty decent. And you're seeing those same numbers from others who report. Dave, you want to talk about AP?

Yes. I will also say relative to Europe, the core sort of metrics we watch, Chris, the transactions, the average tickets, what that means for volume, are all hanging there fine relative to our expectations. And that's probably the core. We watch it -- the large complex business is something south of what we wanted, something the north of what we wanted in the mix. We're on track, and we feel very good about that relative to the headlines and everything else involved in driving your question. Relative to the AP, I think the real key to AP is that big large customer launch. It was really the official launch of some new products in Asia in Q2 of last year that drove, you may recall, 42% revenue growth. We talked about that launch quite a bit. I know it's tough to model a flat revenue growth, particularly when we're talking about some Asian markets. But it really was right about what we thought Asia would be. We do expect Asia to return then to double-digit growth in Q3 and in Q4 as well. We still expect the exact same low double-digit to mid-teens full-year growth in Asia as before. So no real shocks in Asia at all. Just the sheer math of taking something that fueled 42% growth last year and annualizing that. And again, in Q3 of last year, it was 31%. We'll annualize that. We'll still grow, I think, double digits in Q3. So just bring those pieces together, nothing fundamental in the market in the 11 markets we serve thereof.

Now the reality is that Asia is -- most of the revenues are being generated from places like Hong Kong and Taiwan and Malaysia and Singapore, with not very much at all from India and from China. And that's where the real opportunity is obviously. And that's where we're very focused on. And we're making progress on that every day. So I continue to be very excited and optimistic about our first-mover advantage and opportunities to do some meaningful things in those markets.

Your next question comes from the line of Bill Carcache of Nomura.

Paul, can you talk about what we should expect to happen to the GAAP between revenue growth and transaction growth post Durbin? You've spoken in the past about how at a minimum, one of the benefits from Durbin is you'll have, when you sit down to renegotiate with merchants, it's going to alleviate pricing pressure. And I just wondered if you could just share your thoughts on that point.

Sure, Bill. I think that is, I stood by that statement, and I would say that we have a couple of months of hard data that would suggest that's exactly right. And that goes across the gamut. So you're dealing with a large merchant who just got obviously every penny of this back in a very big meaningful way. I mean their rates went down. It takes a little pressure off you. That doesn't mean they still don't do their RP [ph] processes, et cetera. But the merchants are feeling pretty happy right now. Even the smaller guys, you saw the magnitude of the giveback, and that's where Joe's pizza. I mean the magnitude to giveback we had was pretty significant. And ditto with those guys. I mean it's -- we track things like attrition. We track obviously signings. We're taking full advantage of that posture. I mean we could have sat back and earned a lot of money. We chose not to do that, and we did that for hard economic reasons. And those hard economic reasons are being worn out as we speak.

Okay, great. And on a completely different topic here, looking ahead a little bit. There's been a lot in the press about Square and some other mobile acceptance technologies out there. And I just wondered whether if the scale is still just not large enough for it to even be on your radar screen or whether you come across a greater desire some of your SME merchants to want to incorporate mobile acceptance in their business? And then if so, how do you think about the impact of mobile acceptance on your business model overall as we look to the future?

Well I would tell you, I would start, Bill, by saying I love Jack Dorsey. I mean I love -- he's the Steve Jobs of payments. I mean it's creative, it's interesting. I mean I love stuff like that because it gets new payments, it gets consumers interested in our industry. And I think that's all good and that tide is going to raise all of our ships. We also, you can be sure, we have our own answer to those technologies, and I think I would encourage you to stay tuned. But we have different needs. I mean Square initially is focused on a U.S. non-EMV compliant application. We have and we really think there's even more applicability for that type of mobile payments for international developing markets, which quite frankly are EMV -- have EMV requirements. So I would look for us to be coming forward with some technologies to take advantage of that, and we are very high on it. We think particularly once again for the developing markets. So no, we don't think it's too small. I think if you took a little narrow piece of it and said okay, it's painters and people who are doing home delivery. And if you just, people -- P2P payments, you could probably define that, but you're not going to get terribly excited. I think this is a lot more than that. And so, stay tuned. Jeff, you want to share anything?

Yes. So I think, to follow-up on what Paul said, I think it's good news to the extent that cash is being displaced by electronic means. That's good for us no matter where it occurs. It's also good news that it's cheaper to accept cards. That's also very good news for us. So as the size of the pie expands in the United States and globally, we'll be the beneficiaries of that, and we'll leverage some of the distribution channels that Paul mentioned around the world. But we have a competitive advantage like multinational inquiring, experience with EMV, both on a card present and a card not present environment. So I think this is all very good news as we see it from where we sit today. And we'll continue to capitalize on those opportunities as they come around. So we look at Square as something that's very complementary and additive to what we do.

Your next question comes from the line of Tim Willi of Wells Fargo.

Just 2 questions. One is if you could talk a bit about M&A. Obviously you did some smaller niche stuff this past quarter, but what are you hearing, I guess, in terms of pipelines, and I guess I'm particularly curious around the European continent or it seems like the banking industry is probably going to have to go through the same drill that the U.S. banks did several years ago in terms of raising capital, which did involve divesting payment assets. Any thoughts around what that looks like now or what you think it may look like over the next couple of quarters?

Well Tim, this is Paul. I'd start by saying you're exactly correct. That is happening, it's good news. I mean let's face it, we wouldn't have a relationship with la Caixa, and I couldn't be happier with that deal. We wouldn't have our relationship with la Caixa, if it wasn't for those same pressures quite frankly. They were looking at assets, and this made a lot of sense, great decision for them, great decision for us. There are other institutions in Europe, they're doing exactly that as we speak. And you can be sure that we are all over that. The 3 deals we did, they're not huge but they are meaningful to us for all different reasons. Russia is certainly a complicated place, but 140 million Russians, we think, it was well worth the risk and it gives us some additive benefits above and beyond just that portfolio from Alfa. Obviously we've talked all about the other 2 deals, and they are terrific. We actually did talk too much about Malta. I mean it's a tiny little country, obviously, but its -- that's all about servicing our huge partner, HSBC. That's part of their stated objective, and we responded accordingly and quickly and in a timely fashion. So the long and short of it is that our pipeline has been as full as it's ever been. I could not be more pleased that we got these 3 done, and I think that bodes well for things to come. And hopefully, we'll be talking to you about deals for quarters to come. Jeff, do you want to...

Tim, I would just add that of the 3 deals we announced today, 2 are with non-North American financial institution. So Alfa is in Russia, HSBC Malta is obviously in Malta, and Royal Banks, of course, have their own points of view as to the motivations to do it. Clearly the key thing is what's going on in the worldwide economy. So as that continues, we're going to see more of these attempts to raise capital and exit businesses that we view as core to us and banks may view as a little more around the periphery for them. As Paul mentioned, our pipeline is full. That is true worldwide. And I expect to see more financial institution monetizations in the near and intermediate terms, and all those trends are very good news for us.

Okay. And then my follow-up had to do with sort of the second impact, I guess, of Durbin, which is network holding preference. And that whole discussion of, which obviously is not in your income statement right now, but there's been discussions and Visa, as many people talk about paid some and rebates and incentives and touched on this issue. I guess can you share any thoughts around what you think the impact of the whole routing and sort of the routing preference will be once it's instituted and where you sit in the ecosystem?

Yes. Tim, this is David, I'll take a crack on this, and let the other guys chime in as well. This is another instance where not unlike some of the questions we've answered earlier. There really isn't anything but good news here for us when you think about it, particularly when you focus on the small to medium merchants as we do throughout our multiple channels of the go-to-market in the States. We are ready to provide the least-cost routing. We can do our merchants as part of the service we offer. We're happy to enable that. So what you have in reverse then for us is essentially procurement opportunity here to continue to provide the least-cost routing that we can to benefit our own income statement on the way there. As you might imagine, we've had any number of conversation, notional and a little beyond notional, about how that might work, with some of the other folks are going to be competing for volume in this new world of competitive routing. And as I said, it's nothing but good news for us as we head in the late fiscal '12, on the way into fiscal '13.

Your next question comes from the line of Wayne Johnson of Raymond James. Wayne Johnson - Raymond James & Associates, Inc., Research Division: I was -- just a couple of follow-ups here. On CyberSource, did any technology come with that particular acquisition or is this purely merchant's that you guys are buying?

Wayne, it's Jeff. It's largely a portfolio of the 9,000 plus merchants that David and Paul alluded to in their prepared remarks.

Well I would just add, though, the positive part of this -- Wayne, this is Paul, is that it puts us in a position to continue to work with CyberSource to win new business. Now their technology is a key to a lot of those wins. So in that regard, we have the benefit of that.

That's a fair point, Paul. It's probably worth pointing out, which I don't think we've done yet that these are CyberSource's, and existing customers of ours. So an amount of this volume, we're already processing for today. So from a technology point of view, the difference here is we're acquiring that portfolio from an ownership perspective. But a lot of the technologies around processing that portfolio already exists within the world of Global Payments, since it's in the customer of ours today. What is going to change, as Paul alluded to, is our ability to allocate sales, IT and operating talent to a portfolio that we now own to enable to grow in the same more quickly as it did with CyberSource in their own right. Wayne Johnson - Raymond James & Associates, Inc., Research Division: Terrific. I'll look forward to hearing more about that relationship. And if I could just follow-up on some tangential but yet related topics, in my view, is when you're acquiring CyberSource and when you're going to be acquiring the Alfa-Bank merchants and HSBC Malta, is that going to be on G2 or where's the technology that enables those particular merchants going to be located?

That's a great question, Wayne. So let's talk about those in order of your question. For Alfa, we're going to migrate the customer processing to the platforms we own and operate in Russia and our existing Russian business. As you know, any sort of migration of Russia, considering you can imagine the customization of all of that toward G2 or even toward our own back-end here in the States is much further down the roadmap than anything sort of near to medium term. So Alfa moves really directly to our Russian. So it's again consolidating platforms, driving economies but all within the Russian Federation. Malta is a bit of an interesting case in itself. There is an eventual migration there. Again it would be further down the roadmap. There's some unique characteristics to Malta, particularly in terms of the manner in which the fairly insular couple of debit networks operate in Malta that mean it's really not, again, on the near-term migration path at all. But it will be part of the vision for consolidated platforms over time. We're in very good shape contractually with continuing to operate the existing platforms for a while there with the existing providers. And then on the CyberSource portfolio, as Jeff mentioned a moment ago, we processed that volume today on our existing platforms. Mechanically a couple of things will change in the infrastructure from the outside looking in, even for the 3 of us sitting at the table talking to you, really very little changes. And the IT folks will now crucify me for having said that out loud. So we've got a lot of work to do to do the full migration, bring things over. But it's on our platform. So it will be on our current front end, which as you know is a combination of G2, as well as our various mainframe solutions. And so to move that way, we'll have the ability with G2 and with new volume that comes from CyberSource to board new merchants to G2, just as we're doing today with new merchant volume that comes. So we got, I would call, sort of optionality in the U.S. in terms of how we board right now, which we can determine based on functionality, scalability and even product sets that are on the various platforms we run, all with still that same long-term vision toward platform consolidation and maximizing economies of scale. Wayne Johnson - Raymond James & Associates, Inc., Research Division: Please forgive me for this follow-up, but I got to go there. So how was G2 progressing? And if you had -- if you could put a percentage of completion on it or a range. Could you give us any color on it? I feel like we haven't heard anything on it in a while.

They've been working as planned, Wayne. So I'd be happy to give you a little more color. I don't think you can trap me in the percentage completion, but I would say, as the front-end vision remains the same, thinking about G2 and consolidated front-ends and platform consolidation, obviously in an industry like ours where scale is key, consolidation is nothing but a good thing. We are, as I mentioned, in answer to a previous question, we are migrating volume to G2 as we speak. We migrated the majority of the volume for one of our largest customers over the last quarter or so. We are also boarding new merchants to G2 as we speak. In fact, one of the items in Q4 that drive such a big Q4 for us is some large sales that are coming alive in the U.S. in that Q4 time frame. Those will be boarded to G2. Now as I said earlier, we're selectively doing this based on functionality, which platforms are ready for which customers, whether it's a migration or a new. So we're still boarding -- we still have many customers on the legacy mainframe platforms. We continue to work on all the things we've talked about the last few quarters, the requirements we need for any existing customers, the right sequencing in migrations, which is as you know involves a conversation with the merchants themselves. They have work to do, and it's participating in the testing. So we're trying to roll that all -- all that out thoughtfully in a plan full manner and no longer predict or promise you, which volumes or which percentage, when. But again, we continue to make very nice progress, incremental progress in terms of being thoughtful and pragmatic about how we drive the front-end strategy in the U.S. and then eventually globally. Wayne Johnson - Raymond James & Associates, Inc., Research Division: I appreciate that response, and realize it's a sensitive topic. But I'm going to bang the bell one more time here. Would you say you're more than 50% complete or less than 50% complete as far as the U.S. goes?

Wayne, you can't get me down on that. It's an excellent attempt, but I would say we're thoughtful and pragmatic. And as we start moving more and more of this meaningful, new volume that those percentages are going to rise steadily over time. Wayne Johnson - Raymond James & Associates, Inc., Research Division: I thought I'd give it a try.

You had to.

Your next question comes from the line of Greg Smith of Sterne Agee. Greg Smith - Sterne Agee & Leach Inc., Research Division: Just back to the routing issue with Visa and MasterCard, have you received any payments then from either association?

Greg, the answer is we have ongoing dialogue. And I will tell you this, though, it is not going to be -- it will be something of some -- how would I put arms around this.

It will be a nice...

It will be something meaningful. It will be significant. So we're in the process of that. I think meaningful is a better word. So we have -- we're having conversations. We're in the process of completing those, and it's going to be meaningful. Greg Smith - Sterne Agee & Leach Inc., Research Division: And is that likely from an accounting standpoint just to hit in a single quarter?

It depends, Greg, on how the pieces come together. But for us, we certainly are looking at this with an eye toward reducing ongoing processing cost rather than any sort of single event. Greg Smith - Sterne Agee & Leach Inc., Research Division: Okay, good. And then just back on CyberSource, so is that -- I mean it sounds like you have a great opportunity to actually grow that portfolio through this new relationship. But is that exclusive? Or are we going to hear about other acquirers doing deals with CyberSource?

Greg, it's Jeff. I think you have to look at the way we've discussed it, which is to say that we're buying the existing portfolio, which is a little bit more than 9,000 merchants. We've had a relationship with CyberSource historically. We're going to continue to have a great relationship with them going forward. We're the only one buying that portfolio that we described in the release, and that's all we can really say to that. Greg Smith - Sterne Agee & Leach Inc., Research Division: Okay. And then just one last one. David, I guess, I think you said these 3 deals would be slightly dilutive to neutral on a cash basis. If that's correct, why is it not a little more profitable?

Most of that, Greg, particularly for this first period, the first couple of quarters and maybe it ticks into early '13, it's really integration costs. So we do have, as I just mentioned before, platform work to do for some of the CyberSource stuff. We've got integration work to do. As you might imagine, just to be able to report financials in a place like Malta, even though we're really aren't starting formal platform migrations there for some time. And we have real platform migration work to do in Russia. So if you think about the relative size, you can imagine just a little bit of integration expense can very quickly take you from modest profit, down toward neutral and then a hair dilutive from there.

Your next question comes from the line of David Togut of Evercore Partners.

If you strip out the Durbin benefit in the November quarter, can you quantify the unit pricing trends both in the U.S. and Canada merchant processing business?

I can give you color, David. This is David. I can give you color, not quantify. The merchant pricing trends in the U.S. were very solid and stable quarter-over-quarter. I believe you're asking the question sequentially. So very stable and right where we expect them to be. In Canada, we saw what is really sort of the traditional Canadian pricing scenario right now, which is a little bit of a leakage as our new sales come in at lower spreads than our existing sales, particularly our existing customers -- excuse me, particularly in the small to medium channel. So I would say that leakage, that little reduction, and that's our expectations in our forecast. But that's the place where you're seeing a little bit of a leakage as we, again, we replace higher-priced merchants with lower-priced on a fairly consistent basis.

And can you quantify your unit class reduction plan both for U.S. and Canada in the quarter and for fiscal '12 as a whole?

In what fashion?

Well since unit price historically has been declining, presumably you're reducing unit costs to offset unit price over time.

Of course, that's right. And so what we do is we target each infrastructure department with a cost per transaction target. For example, our IT department, which they're required to reduce on an annual basis. They may or may not be reducing that at any given quarter, depending on investment levels and the timing of any expenses. And so yes, you're exactly right, our infrastructure department, as well as our sales channels are all tasked and budgeted based on either/or both cost per transaction or incremental margin. We don't go into the details of how the pieces come together in any given year. We may well be investing in the United Kingdom, while making sure we scale Canada. So that will vary based on our own choices. As you well know, David, we operate and that went a bit of an asset allocation strategy. But each business and each business unit is targeted in the fashion I've described.

Dave, obviously, Dave, you're discussing what's our leverage and what's our margin ability. And we are reaffirming as much as 50 basis points for total company cash operating margins. And that's a good thing and gaining. And clearly we have designed to go well beyond that. And as long as you've been following this business, you know that's one of the great components of this industry is that there's wonderful operating leverage. Obviously the ISO accounting is a significant headwind. But it's our objective and certainly, the task of all of us to expand our margins and continue to do so. So we'll continue to report on it.

Just finally, Paul, did the U.K. price increase from the August quarter stick in November?

The answer is yes. The U.K. pricing did very well, and the answer is it absolutely stuck. So that says 2 things. Number one, it was balanced. It was properly -- and once again, we really don't characterize it as an increase. It was just a pricing methodology. So it was appropriately and properly administered, and it absolutely has stuck. Thank you for that question.

Your next question comes from the line of Ashwin Shirvaikar of Citi.

I wanted to ask, and I apologize because I probably missed this, but what were the currency impact in the quarter? And what are you seeing about the forward assumption on currency impact?

Ashwin, we did not have that question. So, David?

In the quarter, currency helped revenue by $2 million and helped earnings per share by about $0.01 of earnings per share. As we look out to the rest of the year and refresh our forecast, Ashwin, we're expecting the U.S. dollar to strengthen a little bit more against our key currencies on sequential basis in Q3. In fact, as we sit here tonight, sort of period-to-date in Q3, all of those currencies have -- at dollar are strengthening against all of the currencies, Canadian dollar, pound, euro, the Czech koruna, the ruble. So we continue to see the U.S. dollar strengthened, really, for the rest of the year, which means on a year-over-year basis, currency, which was our friend in Q1, kind of less of our friend in Q2, will not be our friend in Q3 or in Q4 on a year-over-year, not sequential, basis.

And obviously, that's incorporated into your guidance, right?

Yes, that's correct.

Of course.

My second question is the year-over-year margin improvement in International, the sustainability of that, especially as you sort of go through a cycle of investment in the Spanish sales force and integration investment and so on, and in a couple of quarters you got the U.K. pricing anniversary coming up, could you sort of frame the sustainability going forward for International margins?

Yes, I'll be happy to. And I think here's another place where if everything operates as planned, time is our friend here and it sequenced fairly nicely. You're exactly right. The U.K. is carrying is a lot of water for us this year, as the U.K. has for quite some time. It will continue till we have to expand margins, but probably not at the levels you saw based on the changes David asked about a moment ago in his questions. But the other pieces are really scaling nicely. We're having a solid year in the Czech Republic. The Russian business, as you might imagine, is an early adoption sort of acceptance story, but the margins there continue to scale. It still is the same kind of scale economies market regardless whether we're talking about Russia or any other places. So we expect that business to continue to grow with double digits and scale its margins steadily. We expect the same of Asia, and it's making nice progress on that very assignment. As you well know, a few years ago that was a breakeven business, even a money-losing business when the company embarked on that venture. It now has very solid margins with a 2 in front of it. So it's made very nice progress, and there's no reason it doesn't continue to scale. So the final piece of that puzzle is, really, Spain, at least for the existing assets we have today, and not speaking to Malta or how Alfa comes into the business. And Spain, you're right. As we speak we're investing the sales force, and it's in the learning phase. So we start off the first couple of quarters of this fiscal year investing and hiring and getting folks trained. Now we're looking for them to begin to become productive over the latter half of fiscal '12, so that we can see some benefit from that, and have Spanish margins hopefully scale for us in 2013 and beyond, marrying that opportunity for double-digit revenue growth Paul talked about to the opportunity now for increasing that if the sales forces is truly productive, and having that be profitable expansion. So margin expansion, to begin to supplement where the U.K. settles down to a more normalized trend of margin expansion. But notional margin expansion rather than the more outsized number you're obviously seeing inherent in our International margins this year. So I actually think there's a nice opportunity, again, for the sequencing of this to work well for us over the next handful of quarters.

We actually have time for one final question. Today's last question comes from Dave Koning of Baird. David J. Koning - Robert W. Baird & Co. Incorporated, Research Division: Just 2 quick ones. The first one, North America EBIT growth mid-single digits, is that sustainable? I know you hit now 4 quarters in a row of about mid-single-digit growth, so you're hitting a little tougher comps. But are there any reasons that, that won't be sustainable going forward given kind of Canada is stable and the casino business is getting a little better?

Dave, this is David. No, not really. The growth in North America EBIT is all about continued U.S. progress, and we believe are seeing that. A stable Canada, absent any FX are really driving you the wrong direction. And then the timing of any investments in the infrastructure, as you know most of our technology investments tend to affect North America whether in international. But as I think about those pieces and how they come up in the next couple of quarters, to answer your question, I don't know the reason why you wouldn't still see a version of EBIT growth in those couple of quarters on a year-over-year basis. David J. Koning - Robert W. Baird & Co. Incorporated, Research Division: Great. And then just the other question, Durbin, you talked about the $15 million this quarter and getting a little smaller, shrinking as we go through the course of the year. Is that because you've already seen, starting in October, a bigger benefit that started to deteriorate a little bit? Or is that more just out of conservatism?

It's more of the cautious outlook we've described a couple of times given the whole series of unknowns we talked about, and an answer to a couple of the earlier questions there.

This concludes today's question-and-answer session. At this time, I would now like to turn the floor back over to Mr. Garcia for any additional or closing remarks.

Well thank you, everyone, for joining us on today's call. And we wish you all a happy, healthy and prosperous 2012.

Thank you. Ladies and gentlemen, this conference will be available for replay starting today at 7 p.m. Eastern and ending at midnight on January 19, 2012. If you wish to listen to the replay, please dial 1 (855) 859-2056 or for international participants, they can dial (404) 537-3406. This concludes our conference for today. Thank you for your participation. You may now disconnect.