Global Payments Inc. (GPN) Q4 2012 Earnings Report, Transcript and Summary

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

Thanks. Good afternoon, and welcome to Global Payments' Fiscal 2012 Fourth Quarter and Year-End 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-Q and 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 today, July 26, 2012, which may be located under the Investor Relations area on our website at www.globalpaymentsinc.com. Now I'd like to introduce you to Paul Garcia. Paul?

Thank you, Jane, and thanks everyone for joining us this afternoon. I'd like to begin with an update on the data intrusion and the substantial progress we've made to date. I'm pleased to report that our investigation is now completed, and we are actively executing the remediation plan. In regard to returning to the list of PCI-compliant service providers, a qualified security assessor, or QSA, is conducting an independent review of our active remediation activities. Please be assured that we are progressing as rapidly as possible. In the meantime, we continue to sign new merchants and process transactions around the world for all card brands with the same high level of service our customers have come to expect. Given the challenges we faced this year, I am pleased with the revenue and earnings growth we delivered in fiscal 2012. Revenue grew 18% to $2.2 billion, and cash earnings per share grew 15% to $3.53 over prior year. Excluding the impact of acquisitions and debit legislation, our core cash operating margin expanded 10 basis points to 21%. Our North American segment benefited from solid U.S. transaction growth fueled by our ISO and direct channels, partially offset by continued pricing pressure in Canada. Internationally, Europe's strong results were driven by the addition and growth of Spain, the February 2011 U.K. back-end migration and significant market share expansion in Russia. Our Asia business grew more modestly, but continued to improve its contribution to income growth in the international segment. Additionally, during fiscal 2012, we successfully completed 3 targeted acquisitions increasing our distribution in Russia, adding a merchant acquiring business in Malta and expanding our e-commerce presence in the U.S. by acquiring the CyberSource portfolio. We also expanded our domestic footprint in China. Recently, we added 3 new regions for China UnionPay acquiring: Guangzhou and Szechuan provinces and the City of Shenzhen. These significant geographies collectively represent over 175 million people. And we continued to make progress on adding other new regions. It is important to note that we remain the only non-Chinese merchant acquirer licensed to process CUP renminbi transactions in the People's Republic of China. Additionally, I am absolutely delighted to announce we have signed an agreement to acquire the remaining interest in our joint venture in Asia-Pacific from HSBC. Our partnership in Asia-Pacific now evolves from a joint venture to a marketing alliance. Our performance in Asia-Pacific with HSBC support has provided a strong foundation for long-term growth. We intend to leverage our presence there to increase our market penetration across the region. We could not ask for a more supportive partner than HSBC. The strength of their brand and reputation is unparalleled, and we look forward to playing our small part in their global strategy. Turning to fiscal 2013. Even in a challenging global macroeconomic environment, we anticipate 8% to 10% revenue growth on a constant currency basis. Canada remains a modest headwind as we navigate through competitive market conditions. However, I want to remind you that Canada will continue to provide significant cash, which helps fuel other investment opportunities. In 2013, we will continue our technology investment program, with the expectation that these investments will both strengthen our technology infrastructure and improve our long-term operating leverage. We will also increase our investment in Asia as we continue to execute our expansion plans in that region. We intend to use our capital flexibility in 2013 to make additional strategic acquisitions, and we also intend to return cash to shareholders through our newly authorized share repurchase program. Now I'll turn the call over to David.

Thank you, Paul. For our fourth quarter, we delivered solid financial performance with revenue growth of 15% to $597 million and cash earnings per share of $0.97 or 13% growth. These results exclude special charges. The pretax charge in the fourth quarter related to the data intrusion was $84 million and includes an estimate for charges from the payment networks, cost of the investigation, as well as initial expenses related to remediation. We anticipate that in 2013, there will be adjustments and additional net charges of $25 million to $35 million after insurance proceeds of as much as $28 million are applied. As all of the costs are finalized, we true up our estimate for charges from the networks and we execute remediation. Other special charges in the fourth quarter included employee termination benefits and the settlement of 2 contractual disputes. Our cash operating income increased 15% to $123 million with operating margin of 20.5%, which was flat with prior year, reflecting the unfavorable effects related to the debit legislation and the 3 acquisitions we discussed last quarter. Now let's move on to our segment results. North America Merchant Services revenue grew 17% for the quarter, with U.S. revenue growth of 25% and U.S. transaction growth of 13%. Canada declined 9% for the quarter, with transaction growth similar to last quarter at 6%. International revenue increased 10% for the quarter compared to last year, with Europe and Asia producing 11% and 5% growth, respectively. North America operating income or EBIT dollars grew 11% in the fourth quarter. International operating income grew 17% in the fourth quarter, with another quarter of strong margin improvement of 230 basis points year-over-year. During the fourth quarter on a year-over-year basis, currency changes negatively affected revenues and cash earnings by about $9 million and $0.03 per share, respectively, with the most significant impact from the Canadian dollar and the euro. The impact on revenue and earnings for the full year 2012 was slightly positive, adding $2 million to revenue and $0.01 to cash earnings per share as we had anticipated. For fiscal 2012, we generated free cash flow of $258 million. We define free cash flow as net operating cash flows excluding the impact of settlement, assets and obligations, less capital expenditures and distributions to noncontrolling interests. Our capital expenditures totaled $110 million for the year, about 1/2 of which relates to data center and network infrastructure initiatives. Now let's turn to 2013. We expect North America revenues to grow at a high single to low double-digit level. This reflects consistent growth in the United States of low double digits. And we expect Canada to decline slightly in local currency due to continued market-based pricing pressures. We anticipate that our international revenues will grow in the mid-single digits in U.S. dollars. We expect Asia-Pacific to return to low double-digit growth. We expect mid-single-digit growth rates in local currency in the United Kingdom and in Spain. We expect the Czech Republic's revenue in local currency to be about flat. Russia continues to perform strongly for us, and we expect it to grow over 20% in local currency. When you translate this performance into U.S. dollars, given the strengthening of the dollar, this results in low single-digit growth overall in a difficult macro environment in Europe. Our fiscal 2013 outlook includes incremental technology spending, which affects our earnings growth by as much as 2 percentage points. This is a continuation of the program we initiated prior to the data intrusion and represents a transformation of our data center, network and underlying processing infrastructure, along with compliant spending related to card network initiatives like EMV and the fixed acquired network fee or FANF. Additional technology spending related to security remediation has not been included in our cash earnings expectations. In North America, excluding increased technology spend, we expect cash EBIT dollars to be about flat compared to last year with our core U.S. business modestly increasing, offset by a decline in Canada. Internationally, we expect EBIT dollars to increase in the mid-single digits on a reported basis. We expect overall company cash operating margins to decline approximately 150 basis points on a reported basis. We expect foreign currency to negatively affect cash earnings per share this year by approximately $0.08, assuming downward pressure from all currencies, with the most significant impact coming from the euro in Spain and the British pound. We expect these currency headwinds to be more heavily weighted in the first half of fiscal 2013. We anticipate our effective tax rate to be approximately 29% and our diluted share count to be about $80 million. We expect the Asia acquisition to close during our fiscal second quarter. This transaction extends the period of our existing deal so that HSBC will provide exclusive referrals to Global Payments until 2021. The purchase price is USD $242 million. Given that we already fully consolidate the joint venture, the accounting for the acquisition will not change our revenue or operating income. It will, however, eliminate the impact of the net income attributable to noncontrolling interest from Asia. There will be no incremental purchase accounting amortization on a GAAP basis. Assuming an October 1 close date, we expect as much as $0.07 of cash earnings per share from this acquisition, and this is included in our expectations for 2013. We expect our capital expenditures will be about $110 million. Our total available cash, including working capital as we enter 2013, is approximately $270 million, and our credit facility has approximately $370 million available. In terms of the sequence of quarterly earnings per share, we expect first quarter cash earnings per share to be slightly down over Q1 of 2012 as a result of currency translation. We expect the distribution of quarterly earnings to be roughly consistent with that of 2012. Based on our current assumptions and including the Asia acquisition, we expect annual fiscal 2013 revenue to range from $2,360,000,000 to $2,400,000,000, reflecting 7% to 9% growth and our cash earnings per share to be in the range of $3.59 to $3.66, reflecting 2% to 4% growth over fiscal 2012. On a constant currency basis, we expect revenue to grow 8% to 10% and cash earnings per share to grow 4% to 6% over fiscal 2012. These expectations exclude any impact from potential share repurchases. And now I'll turn the call back over to Paul.

Thank you, David. As I reflect on our fiscal 2013 objectives, I want to highlight the fact that we will be growing transactions processed worldwide at a double-digit rate in a very challenging economic climate. We will also continue to grow U.S. EBIT. And our European businesses are extremely well positioned for both organic and inorganic expansion. The data intrusion incident will soon be behind us, and we will emerge with a world-class technology infrastructure offering future operating leverage. Lastly, and I believe the most exciting opportunity of all, is the ability to expand meaningfully across Asia. To be clear, I am not satisfied with our 2013 earnings expectation. Our company has historically performed at a much higher level, and I have every expectation that we will return to those performance levels. However, I believe it is prudent in a year in which we will be dedicating significant resources to building our systems infrastructure to be cautious in regard to our earnings growth. Our faith in our future and our desire to return value to our shareholders is underscored by our board's approval to purchase up to $150 million of our company's stock. I'll now turn the call over to Jane. Jane?

Thanks, Paul. Even before we begin the question-and-answer session, I'd like to ask everyone to limit their questions to one with one follow-up in order to try to accommodate everybody in the queue. Thank you, and operator we will now go to questions.

[Operator Instructions] Our first question today comes from Dave Koning with R.W. Baird. David J. Koning - Robert W. Baird & Co. Incorporated, Research Division: I guess first of all, I was just wondering. In North America, it looked like an almost unnaturally high both revenue growth and margin. I was wondering it almost looks like there might have been a term fee or some sort of onetime item. I'm just wondering what maybe that might have been?

Sure, Dave. This is David. It's not really onetime items. A couple of things going on there. First is strong seasonality out of the ISO channel. In addition, as you know, if you come on year-over-year rather than sequentially, you'll have the effect of debit legislation there. The beginning of the FANF filling occurred as well, the new FANF filling that's rolling out across the market right now. Also in our Q4 in the United States, which will roll to North America, you have a typical greater giving seasonality with that small business unit does 100% of its earnings for the year in Q4 alone. And I think on sort of a full quarter basis, again depending on whether you're comparing sequentially or year-over-year, remember that our CyberSource relationship evolved from an indirect net revenue relationship to a gross revenue. So all those pieces kind of come together for a very strong Q4, but really about what we expected. Really, in fact, an over-performance in revenue, but in terms of rolling it down to the EBIT line, about what we expected. David J. Koning - Robert W. Baird & Co. Incorporated, Research Division: Okay, great. And then I guess my follow-up question, just in APAC, you are calling for a little bit of deceleration relative to the new style is to be in a theme like 20% or 15%, 20% or more. In your contra-deceleration, I know China is coming on. Is that something that you'd expect to have some sort of reacceleration in the next year or 2 or 3 years as some of those Chinese transactions came on more strongly?

Yes, that's a part of the answer. And just to make sure I'm answering your question, you're speaking to the revenue across Asia, the growth? David J. Koning - Robert W. Baird & Co. Incorporated, Research Division: Yes.

Yes. So if we think about Asia for the full year in 2012 was a 7% growth and in particular, 5% in Q4. We really expect low double digits as we said earlier in the prepared comments in Asia and that is -- it has to do with a number of things. One of them, quite frankly, is that comparables get a little bit easier. Remember, this past year, we were rolling over very tough comparables, large retailer, rolling out new products and the fact that we have rolled out our own new products sort of sequentially over the course of the year before. So that comparable gets a little bit easy. It gets to a more normalized year-over-year comparable, which is always helpful. We do have an accelerated roll out, and we do expect accelerated growth in China to your point. And as you also correctly pointed out, the end result of that is the additional sales folks and some other infrastructure in China as we add these new regions. So it doesn't all drop then to the operating line. And then finally, we've got a number of scheduled rollouts of new products and/or promotions across the regions that we think fuel us back to the level of growth one would expect from these Asian markets.

Our next question comes from Jim Kissane with Credit Suisse. James F. Kissane - Crédit Suisse AG, Research Division: And congratulations on the HSBC deal.

Thank you. James F. Kissane - Crédit Suisse AG, Research Division: And following up on that, can you really discuss how you'll operate that business differently now that you have complete control? And then maybe, David, if you can give us some insight in terms of valuation, in terms of what you paid on an EBIT and EBITDA basis?

Okay. Well I'll take -- as you suggested, we'll do just that order. So this is Paul. The opportunity here is all about expanding our market share in some areas where HSBC had a rather small presence. Not because they lacked the desire or the intent, but they were quite frankly limited by a number of forces, China and India in particular. So we're going to be focused on expanding those markets with some additional partnerships going forward. Now how our relationship changed with them is basically just economic. In terms of referrals, in terms of partnership, in terms of all of the branches directing new business towards us, that continues. In fact, it continues to 2021. David, is that correct?

That's correct.

2021. So that's all terrific news. But the real sizzle to that steak, Jim, is taking advantage of these opportunities in China and taking advantage of opportunities in India, which we've been talking about for a very long time. And in not too many days from now, that's where I'm heading.

And, Jim, if I may put a final point, that's an extension of our referrals to 2021, which we're quite pleased about. Now speaking to the purchase price of $242 million, I'll probably stay away from a specific multiple, but certainly on the EBITDA, but let me characterize it a bit. I think this will help. We arrived at that number in the collegiate conversations with the bank that I think appropriately reflect the growth in Asia to date, as well as the opportunity for further growth in Asia. And double-digit growth, the opportunity policies described certainly is going to put you in that sort of a range where you expect a healthy multiple, and it is just that low double-digit kind of multiple. But without putting a precise number on it, I think it reflects the growth we've achieved and the scale we've achieved, as well as the future growth. And I think both parties are pleased with the outcome. James F. Kissane - Crédit Suisse AG, Research Division: Okay. So low double-digit multiple?

I think that's the way to think about it, yes.

Jim, this is Paul again. I think you have to really listen to what David said though to get the feel for it. I mean without HSBC, we would not have been in that market. Now -- they are now participating to the tune of 44%. And the real opportunity will be forthcoming. If they won't be participating economically, they deserve to be compensated somewhat for that. And that's partly what this was in all fairness. James F. Kissane - Crédit Suisse AG, Research Division: And you know what you're buying? I get that. And one last question, David, I was a little confused in terms of the remediation costs on data securities. So you're not including any estimate in your 2013 guidance? I mean you talked about a $25 million and that was after insurance. So it sounds like one was a charge and you've not included any estimate in terms of ongoing remediation, is that right? And maybe...

Yes. So let me try and polish it a little more clearly, Jim. We don't intend to reflect remediation costs in 2013 in our cash earnings per share as we go through the year. So it's clearly not in the cash earnings per share expectations. Now having said that, as we look to our GAAP expectations, it's difficult for us to precisely estimate the true-ups right now. There's a full process the networks go through. It's very rigorous. It's frankly incredibly impressive, as you sit on the other side of it and work with the networks at the level of sophistication that goes into this. But it takes some time to roll out as they do the right things for issuers, consumers and then in all fairness, the acquirers and the processors involved as well. So it's difficult for us to estimate any true-ups to our current estimates for charges in the networks. To that you'd marry remaining investigation costs that we have already accrued to date, as well as remediation costs. Those we can estimate a little bit better but overall, difficult for us to put a precise number on it. So we offered you, in the prepared comments and also in the footnotes that I think is Schedule 9 in the press release, is we believe the range will probably appear to be something on the order of $25 million to $35 million net of insurance. Now we have $28 million of remaining insurance capacity. So that would put you in the $50 million to $60 million kind of range gross, $25 million to $35 million net. And as we go through the year, we'll be truing those charges up and recording actuals and we'll certainly report those. And obviously, we expect a little bit of a far better feel for a more precise estimate as we report Q1. But that really -- those are the pieces. So it won't be in cash, regardless we've tried to keep it fairly clean cash year-over-year view, so you can assess the progress of the business on that side. The security remediation will be charged to GAAP but difficult to put a precise number and hence, our GAAP earnings expectation range does not yet accommodate whatever the remediation plus true ups will be as we go through particularly ahead with the first 2 quarters of 2013.

Your next question comes from Tien-Tsin Huang with JPMorgan. Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division: David, I wanted to ask on the 150 bps in margin decline for fiscal '13. Can you break that up or decompose that for us between FX. I think you say incremental tech and compliance costs. Anything you could do to break it up would be great.

Yes, be happy to, Tien-Tsin. So let me walk you through the pieces. As usual with Global Payments, the single biggest piece is the impact of the ISO channel in the United States. Now remember, that ISO impact is going to include the ongoing effect of the debit legislation changes, as well as the impact of FANF filling, which is yet -- and we're really just rolling out in now, so there may be a little risk to -- further margin issues there. But I think it's at the margin at best -- margin issue at the margins, sorry about that. Remember also related to the ISO CyberSource moves from an indirect relationship quite profitable in the face of the P&L to becoming an ISO as well. That's already implicit in some of what you saw in our Q3 and Q4 results. But that really is the biggest chunk right there. Now having said that, you have a number of other smaller things that take us the other direction as well. The continued spread declines in Canada, which we expect to be able to partially offset with some other actions we're taking in Canada, but still the spread declines are what they are. They're profit in what is a very profitable piece of our business overall. We've got investment costs in Asia which are really small, but are part of the pieces -- a part -- one of the pieces of this. We've got the tech investment that we referenced in our prepared comments on the overall infrastructure, currency as well particularly. Now as currency hits some of our higher-margin jurisdictions like United Kingdom and Spain, which has been growing in its margin nicely. And then remember we did -- and this is quite small, but we did bring in the Alfa, the Russian acquisition and the Malta acquisition at lower margins. So let me get back and summarize this a bit. Biggest single chunk is the ISO including the CyberSource change. And then also roughly the same size incrementally, Canada, the tech investment, currency with a little bit more from Asia and the acquisitions from last year to take you to your roughly 150 bps plus or minus. Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division: Okay, okay. ISO the biggest and the rest is pretty much equal. So just my follow-up, the Canada component. I think the guidance seems very reasonable given what you've talked about. But is there a chance to revive growth there, maybe with new products like DCC or something else on the horizon? Or is it pretty much it is what it is?

Tien-Tsin, it's Jeff. I think there's absolutely an opportunity to do that. You'd note it in our release recently that we have rolled out DCC in Canada recently. One of our avenues of minimizing any headwind that Paul referred to in his comments, is new products, additional sales and to be honest, some of the expense actions that we referenced in the fourth quarter of 2012. And in that fourth quarter, there was a very small piece of fiscal 2012 that had the impact of those expense reductions, for example. And I also mentioned in the last call that we've actually rolled a fair amount of the operations into U.S., into the Owings Mills service center as well. Very little of that, just given the time of year, was encompassed in the fourth quarter of 2012 fiscal, and we'll have the full year effect of that in fiscal '13. So it's a variety of avenues of attack, Tien-Tsin, to make that modest headwind even less than might otherwise be. And very much as David alluded to in the fourth quarter of fiscal '12, we're very focused on growing North American EBIT dollars in the aggregate as David described. And I would say our focal point, therefore, is to turn that headwind into something that generates additional EBIT dollars in that market.

Our next question comes from Roman Leal with Goldman Sachs.

So if we just look, I guess, on the share buyback. Can you give us some sense of how much flexibility you have to actually execute on that buyback? And I guess given your commentary that a lot of these pressures from currency will be heavily weighted towards the first half, would you be -- I mean I guess are you looking after potential use in that a little bit more in the first half versus second half?

Yes, Roman, I can -- this is Paul. I can say this that we -- I think actions speak louder than words. We have announced several of these in the past, and it's been our practice to execute upon them in a fairly quick manner. Other than that, I think we would be -- it would be inappropriate to give you kind of exact data on that. But we put these out, we execute on them. David, maybe you can follow up on that?

No, I think you've summarized it.

Okay.

Okay. And as we -- I guess we think what's left to be -- to do here with the breach, you're obviously still actively trying to get back on the PCI list of providers. Can you walk us through the process or maybe are you kind of -- what kind of inning are you in there and what's really left to be done there?

So it's a couple of ball games, to use that metaphor. We finished one game. It's a doubleheader. So we finished the -- our investigation. And now we're at a point where we are working with all the card associations, and they are taking all this data and compiling it and trying to understand any other liabilities associated with it. And as David mentioned, this process they have in place is unbelievably thorough. And quite frankly, it really works. I mean, I could tell you from someone who's seen it from a vantage point I never want to see again. But this is -- they are very professional people who are focused on this, and they're doing a really terrific job. Now with that said and done, we are so focused on getting this rock back, I can't tell you. But we will clearly, with every expectation, we'll clearly get this back before the end of the calendar year. Hopefully, we'll get it back quicker than that. But our company working collaboratively with all the brands is just ticking off all the boxes relevant to make sure that happens. So in terms of innings on that, I would say that game is probably bottom of the second.

Okay. And then finally on the M&A pipeline, you're obviously very focused on Asia-Pacific and you also made commentary on Europe. If you had to maybe pick where you're mostly focused on or you see the most attractive pipeline, would you say it's in kind of pursuing the Continental Europe deal or something in Asia-Pacific?

It's a little bit -- we call it the steak or lobster choice here. I mean they're both delicious, they’re both different. So the -- let's take Continental Europe. The issues in Europe -- we have a partner in Spain who is doing terrifically. They're making acquisitions. I think there'll be excellent opportunities to do some more there at very advantageous prices. There -- because of what's going on in Europe, there are opportunities in some big European countries for some brands you would recognize. And we would be foolish not to take a full advantage of that if we could. Now moving over to China and India, which I mentioned in particular, HSBC have been hamstrung, Roman, in the past from really operating. They're like limited to 40-something branches in India, for example. So we now have an opportunity to work with others, and we've had a lot of conversations that have only been notional. Now we can have real conversations about expanding our presence there and what we bring to that party and how we make that happen. If you force me, I would say those are probably the most momentous for the company. But the opportunities in Europe were actually nice too.

I would just add to that -- Roman, it's Jeff, that we go with where the opportunity is. So a lot of this is driven by where we see the supply of good quality companies. I think Paul is right to point out the tailwinds we see for our business, in M&A, in the markets you described, I would see -- I'd also say that we see a lot of activity in the United States today to somewhat lesser extent in Canada. And we actually are now seeing a fair amount of activity in Latin America, including in particular, in Brazil. Some of that in those markets is driven by capital, some is driven by some of the changes that you've seen in some of those markets, particularly in the Brazilian marketplace. So to a certain extent, it's a function of what availability is. That I would say in all the markets that Paul described, including in the U.S., we feel like we have a tailwind, and the trend is really going in the right direction.

Our next question comes from Kevin McVeigh with Macquarie Holding.

I wondered if you could clarify, the incremental technology spending, if I heard it right, it's going to be about 2% of revenue in 2013. How much of that will be kind of recurring year-to-year versus one time in nature as we think about 2014 and up?

Right. So to clarify, Kevin, it negatively affects cash earnings growth by as much as 2 percentage points. So it's not 2% of revenue. It's -- and guides your earnings growth of -- on the order of 2 points. And what we're trying to do, we're trying to complete an investment cycle related to our core technology infrastructure. So networks, data centers, transaction processing engines that we started last year as you may recall. At the end of that pipeline, the end of that process, we have to have a better, mostly fixed-cost infrastructure that's more leverageable for the long term of the company. So as we head into '14 on this specific investment thread of sort of the core processing infrastructure, physical and logical, we don't think that's a headwind in 2014. We think 2014 is where you sort of normalize and begin to see some of the benefits of that fixed cost. The fixed cost really come in for the long term. And then as you well know, that's how we're thinking about our investments whether they're strategic, technical products, et cetera. So I think that's the way to think about that specific set of investments for the core infrastructure that are negatively affecting our earnings growth this year, as they did a little bit in 2012 as well, you may recall.

Our next question comes from Bryan Keane with Deutsche Bank.

I guess my first question for David. Just looking at the operating margins by segment, it looks like North America is probably going to be down maybe as much as 200 to 250 basis points. I guess after the fourth quarter was only down 100, I just want to see what else could be in there? What else is driving that? I know we talked about a lot of different moving pieces, but I'd be interested to know why the drop is so significant. And then the second piece to that is that the international margins doesn't look like the EBIT is growing like it used to, and what's causing that to kind of come to a halt?

Yes, sure. So with North America at the margin -- or on the margin, Bryan, the first change on a year-over-year basis since we are going say sort of relative to changes is the ISO growth that continues to negatively affect it, which is being enhanced now by the flip of CyberSource from an indirect net revenue, high-margin customer to an ISO lower margin, same customer now growing widely for us as we access that portfolio and continue to get referrals. But flipping up in terms of the accounting treatment married to the full year impact of the debit legislation from last year and the introduction of the FANF filling as we go through 2013. Then you have the FX impact on Canada and then also just the sheer sort of negative revenue performance is, of course, resulting in negative earnings performance from Canada overall. And then as you may recall, the majority of our technology spending is allocated to the North American segment, and that's a big number that's affecting that margin as well in the North American side. So that -- and by the way, your sort of back of the envelope guesstimate of that 200-plus basis points is right in the ballpark. So if you move now to international you're right, there's an implicit sort of slower earnings growth coming from international and it really has to do with a couple of features. One is as you might imagine, we're cautious on the macro particularly in Europe. We all read the same headlines, the same articles about Spain especially. And remember now, we have businesses in the U.K., Spain, Malta, Czech Republic. So we're more and more "near-term" year-over-year European exposure, and that'll hold things down a bit. And of course, FX materially impacts the growth rate in international. And you've several points of growth depending on your modeling assumptions. From an international segment perspective, we'd go away due to FX on a year-over-year basis.

Okay. And just let me ask one follow-up to Paul. Paul, you mentioned cash EPS growth of 4% to 6% is not what the GPN story is about. So I guess, help us feel a little bit better about the future GPN story as we get past fiscal year '13. What can change? Because a lot of these issues seem like they're structural and not quick fixes.

Well, Bryan, I appreciate that opportunity, and David said a big piece of it. We're building a technology platform that's going to provide operating leverage. That's a big one. On the investments in Asia, which are a piece of that headwind they’re going to be -- and by the way, if we didn't make those investments in Asia, you should be disappointed in us. They're going to pay real dividends. The FX, I mean who knows which way that goes, which way those winds blow. I mean that is we kind of just deal with that. And quite frankly, the more we expand internationally, the more we'll be buffeted by those winds, but I think that's a good thing. And then Canada is the last piece of that. And I think Jeff gave a pretty articulate -- sorry, Jeff, a very articulate answer as to what the upsides are there. So we're being cautious as we look at this year. But that's not our expectation. We have smart people running this, and we have every expectation that we're just not going to sit back and accept that. So, Bryan, the long answer to that question is this company will return with answers for every one of those headwind. We have plans in place, and you will see us pivot nicely.

Our next question comes from Moshe Katri with Cowen and Company.

So Asia-Pacific was down sequentially. That's what I see here in my table. And then Europe had a significant moderation in revenue growth. Is it possible just to touch on that what happened in Asia-Pacific? And then I'm assuming as you said you have some currency headwinds in terms of comps in Europe, but had a drop from 28% growth in February to 11% growth in May. So are we starting to see some of the macro kind of headwinds impacting growth? And if so, maybe you can talk a bit more about where we're seeing that impacting the slowdown?

Sure. So in Asia, relative to Q4, it really wasn't very far off of our expectations. There is a little bit of mix moving between our DCC and our e-commerce products. But really, the way to think about, I think, Q4 is to look forward to what changes we had into 2013, which are the rollout of some new promotions and new products that did not occur in Q4, married to getting through the easier comps of some of those kinds things and return to double-digit growth. I take your point, sequentially it was down as we thought through the programs and the promotions. We did not launch any in Q4, we're really launching earlier this year. At least their effect would be earlier this year. So that number itself didn't really strike us as sort of shockingly -- a shocking number off of whatever we might have expected. Now when you're talking about overall international growth -- and again, I want to make sure I answer the question you asked. You're preparing...

Well, I'm talking about Europe. Europe, I think in May was up 28% year-over-year and then -- sorry in February. And then in May, Europe was up 11.4% year-over-year. That's a pretty big drop. Some of it is currency, but some of it seems to be just related to a core slowdown in the business. Maybe you can talk about that?

Well, I'm not sure you see a slowdown in the business. What you really find are a couple of things going on across Europe. And I'm going to over answer your question to make sure we talk about all the moving parts. Recall particularly when you look at anything related to Europe on a year-over-year basis and pick a quarter, we closed the acquisition in Spain in December a year ago. And so you've got some quarters with that comparable, some without that comparable, which changes your metrics drastically. Then also recall the timing of the United Kingdom reprice, which was effective February over a year ago. So it fully annualizes as you head into our Q4 of this year, our May quarter where before it had been fueling off a lot of growth as you may recall. So I don't think you’re seeing a fundamental slowdown in our businesses across Europe in terms of their performance or the quality of the operations or the quality of how we're running the businesses. Now you do, and you raised a fair point, you do have to deal with macro realities in places like Spain and in the U.K., et cetera. But fundamentally, the businesses continue to add merchants, to add volume and they continue to grow and operate well. FX then kicks in as well on top of being maybe cautious on macro. But please recall the really material comparable changes that come out of that reprice, as well as the timing in Spain.

So if there -- if Europe slows down even more next year, isn't there more margin risk to the entire operation just given the fact that Europe is highly profitable?

Well I would say this. As we look out at the macro, we're not expecting anything materially better or materially worse. Certainly things get materially worse in pick a geography. Everything we're discussing could change depending on the geography, the size and the magnitude of the impact.

Our next question comes from Jason Kupferberg with Jefferies & Company. Jason Kupferberg - Jefferies & Company, Inc., Research Division: Just wanted to circle back for a second to make sure I'm parsing the different pieces of the IT investments and make sure I've got it straight. So clearly, there was pre-breach IT investment going on. And then there is presumably some incremental ongoing, breach-related IT security-related expenses in fiscal '13. I'm not talking about the additional $25 million or $28 million of kind of one-time discharge, but just ongoing investments presumably. So I just wanted to validate if that in fact is correct. And is that post-breach ongoing IT security costs, are those in the 150 basis point decline for fiscal '13 margins or are they not? It wasn't clear.

Right. So let me parse it, Jason. It's a great question. Thanks for asking. Let me parse it a little bit more. So I think you've correctly characterized the sort of core technology infrastructure spend. It's in the numbers, part of the ongoing -- expected to create leverage for the long-term. Then there is a security remediation piece of this that will carry through 2013. Again, I think the bulk of it is obviously early in the year because it includes remediation and work on the rock, as well as appropriate remediation to make sure we've got the appropriate level of ongoing -- of an ongoing security posture. That is generally speaking all in the number that I suggested, that $25 million to $35 million net. Some of that will return as run rate probably in 2014. Our view of that is that in 2013, a lot of investments. Some of it returns the run rate in 2014, but it returns in a manageable form to 2014. So modest handful of earnings per share, shall we say, in 2014 coming out of investment level. And that's really I think the way to think about that investment. But generally speaking, yes, there is ongoing security inside the ongoing business and cash earnings, but that investment in enhancing our posture marry to remediation because the 2, quite frankly, are inseparable as we go through the remediation process with our partners. That's all set aside from the cash earnings for 2013. Jason Kupferberg - Jefferies & Company, Inc., Research Division: Okay. Okay, that's helpful. And then just to go back to Canada. Obviously, you took the charge in the quarter, which you already told us about. The competitive conditions kind of are what they are. I just wanted to get a sense from you guys on where do you see Canada right now? Like have you kind of taken it as far as you can in terms of things you can control and now it's just kind of up to the macro environment and the competitive dynamics? Or are there Global Payments-specific initiatives that are still ongoing that you will continue to implement that will generate better performance for Canada, maybe not even in fiscal '13, but beyond? I just wanted to get a sense of are we going to be in kind of a perpetual sort of holding pattern in terms of top line in Canada just because of the market structure? Or are there some initiatives within your control that you're focused on implementing to fix this beyond the cost take out that obviously you just did? I know you talked about some client-retention tools over the last couple of quarters, for example.

Jason, it's Jeff. On Canada, I think the answer is there is a lot more we can do. So in addition to stuff I mentioned before that I think you just touched on, there are certain markets that were not really well represented in, in Canada. One would be the e-commerce or card-not-present business. So we talked about DCC which we had a release on, and we chatted about that a minute ago. But in certain markets like card-not-present e-commerce in Canada, we have a very small presence. We feel like we're underrepresented there. So we're very pleased in what we've done in the United States in that market in the last number of months. We are certainly taking intense look, Jason, at becoming bigger in that business, which will help both our growth and I think ultimately our margins. That's additional item to help the business. The other thing I'd say is that to a certain extent, the economy in Canada in our fourth fiscal quarter really was in the same place as it was in the third quarter, meaning, as we chatted about before, the third quarter we thought the economy in Canada was worse than it was in the first and second quarters. In the fourth quarter, it was really flat to the third quarter. So many of the trends that we saw in the third quarter that we reacted to are the same, they're not any worse. And we're assuming that will persist. So spread compression continues. But if -- as David mentioned before, if the economy kind of stays where it is, no better, no worse, coming out of the fourth quarter, we feel like we've taken all the right actions to make this a modest headwind or not even one as we enter fiscal '13. But I would be disappointed if we didn't do more by way of card-not-present, additional products like DCC and target sales in Canada to better position us into '14 and beyond.

We will take the last question from Chris Brendler with Stifel, Nicolaus. After which, Mr. Garcia will give his closing statement. Christopher Brendler - Stifel, Nicolaus & Co., Inc., Research Division: Can you just give us a little detail, perhaps on both the U.K. and Spain as to where those numbers track either on a revenue or even better on a transaction basis? During the quarter, how much of a slowdown did you see through the month of May and even June if you could? And then what kind of spending slowdown is embedded in your guidance? Because as you noted, there are some pretty concerning headlines over there and we have seen some other issuers report some significant several hundred, almost 700 [ph] basis points slowdown at American Express in their Spain portfolio. Can you just give us a little color? Just wanted to figure out how conservative your international guidance is.

Sure, Chris. This is David. So if you look at Q4 on a year-over-year basis, you see 11% growth. That obviously is enhanced by the reprice as well as a few other pieces. That's the starting point. And that is obviously fueled a little bit by the acquisitions in Russia and Malta. I think the core, which is really what you're asking about, the U.K. and Spain is we expect mid-single-digit growth from each of those markets. Now that's a combination of a couple of things. Our market position in the United Kingdom, and we continue to take market share in the United Kingdom. So in local currency, mid-single-digit growth based on really good execution in the United Kingdom. We're not expecting high-single digit in some other numbers you've seen before. In Spain, we're looking for mid-single-digit as well in local currency. Probably maybe a little less than I expect in the U.K. given macro. And really in Spain, that's demonstrating the value of the partnership we built with Acacia. Their brand, their solid financial standing, their access to market and their continued growth help us as we work together fuel growth in a market where by all rights, that should be pretty darn difficult to do. So the pieces there are mid-single-digit, which reflects a little bit of assumption that macro is tough in both of those markets, but still expects good execution from our teams there. And we have seen no evidence to suggest why they wouldn't execute as well as they did the year before. Now obviously when you translate that to U.S. dollars, you're going to come back the other way and shrink that. In fact particularly in Spain, you can imagine what a huge impact on a year-over-year basis from the euro, big changes we saw. If you think about where the euro was beginning of last year and where we kicked off this year, that mid-single-digit growth is going to look the other direction in Spain on a year-over-year basis sort of by definition as you work through your model. The same thing will happen in the U.K., but you'll see a bit of a reduction. So I would characterize our view Europe is prudent and cautious, but still expecting we'll continue to take market share the way we have in the past.

And Chris, this is Paul Garcia, and that's where the growth is coming from. We're not expecting any tailwinds from greater card usage, et cetera, just the opposite. I mean we're getting our growth because we're signing more merchants, typically at the expense of someone else. Christopher Brendler - Stifel, Nicolaus & Co., Inc., Research Division: I guess I'm just wondering if the overall macro spending is falling, even if you're getting share, you're going slower. How do your mid-single digits for both of those compare to what you put up this quarter? I would hope that they would be a little bit lower. And then also in the North America region, the U.S. revenue slowdown that you're projecting for 2013, is there any assumptions for Durbin and that debt benefit's starting to weigh in, in your guidance?

So thank you for clarifying. The answer is yes, the growth expectations are lower for those markets in 2013 than they were in 2012. And on the U.S. side, relative to the debit legislation, it's fully in the numbers. As you've no doubt heard in your market checks, you haven't seen a lot of deterioration or attrition of that. So for us, to be perfectly frank, it's just in the numbers and part of processing for our merchants these days. And we don't think about it separately, and probably won't be talking about it much separately unless it's a margin-based conversation as we sort of annualize things over the course of 2013. Christopher Brendler - Stifel, Nicolaus & Co., Inc., Research Division: Okay. And I was going to squeeze in one more, since I'm the last guy here. The acquisition of the HSBC business in Asia-Pacific, the cash you spent there relative to the cash you’re spending on the buyback, can you give us a little more color? Because if I just do the math of buying back $208 million of additional stock at these levels, it's a lot more accretive than $0.08, so just the strategic benefits and the analysis that you went through in weighing those 2 options, help me feel a little more optimistic and a little more bullish on using that excess cash for acquisition at this point.

Sure, I'd be happy to. And I'll tell you quite honestly, that was not a difficult calculus for us at all. The opportunity in Asia, the growth available in those markets, the growth available particularly in China or in India for the long term, the value of the expansion of our relationship with HSBC and the ongoing partnership with HSBC, stands with no problem financially next to the near-term use of cash on the buyback. Christopher Brendler - Stifel, Nicolaus & Co., Inc., Research Division: Okay. So fair to say in future years, hopefully a lot more accretive than $0.07.

Absolutely. Fair to say.

Let also be clear, that's also for a partial year.

Yes. Okay, well, first of all, thank you to everyone for joining us on today's call. As a reminder, you may have noted in the earnings release that we plan to have an Investor Day at the New York Stock Exchange on October 11. We plan to provide additional information over the coming weeks and of course, it will be available via webcast for those who can't attend. Thank you very much.

Ladies and gentlemen, thank you for your participation. You may now disconnect.