Global Payments Inc. (GPN) Q2 2013 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to Global Payments Second Quarter Fiscal 2013 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.

Thank you, Tien Tsin. Good afternoon, and welcome to Global Payments' Fiscal 2013 Second Quarter Conference Call. Our call today is scheduled for 1 hour. And 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 today, January 8, 2013, which may be located under the Investor Relations area on our website at www.globalpaymentsinc.com. Now I'd like to introduce Paul Garcia. Paul?

Thank you, Jane, and thanks, everyone, for joining us this afternoon. I am pleased with our solid performance in the second quarter of fiscal 2013. Revenue grew 11% in the second quarter to $589 million, and cash earnings per share grew 8% to $0.93. We have increased our full year EPS expectations, which David will detail later in the call. I'm also pleased to note that the acquisition of U.S.-based Accelerated Payment Technologies, or APT, and the purchase of HSBC's remaining 44% ownership interest in our Asia-Pacific joint venture are both complete. APT will allow us to leverage industry-leading technology by adding new merchants through existing value-added reseller partners and through establishing new VAR relationships. I am delighted to tell you that APT has hit the ground running and is performing well. The Asia-Pacific transaction will, of course, now allow us to more fully leverage our presence in this strategic region. To that end, we are encouraged by our prospects and the receptivity of those with whom we have already met. Next, I'm happy to provide an update on our PCI recertification process. We are delighted to announce that we have essentially completed our remediation work as anticipated, and the required documentation is in the process of being provided to the Qualified Security Assessor for verification. This verification allows the networks to evaluate the results and return us to the list of PCI-compliant service providers. This was truly a collaborative effort. And first and foremost, we owe a debt of gratitude to our customers and partners for their unwavering support. I also wish to thank the card networks for their expertise and professionalism throughout this process. Their job, and they do it well, is to protect the cardholder and ensure the integrity of the payment system. Through it all, we continue to sign new customers, securely process record transaction volumes and grow our business around the world. I'm truly thankful for my colleagues' daily efforts that made all of this possible. Speaking of around the world, we have received approval from Visa and MasterCard for license to process in Brazil, and we anticipate certification of our platforms by the end of the fiscal year. We also signed a new agreement with Intuit, the makers of QuickBooks, to be the payment services provider for Intuit Pay, a new integrated mobile payment solution that targets U.K. SME business segment. This is in keeping with our strategy to power mobile-related payments globally for companies that wish to offer value-added payment services for their customers. We continue to benefit from our partnership with la Caixa as the bank leverages its financial strength by expanding through acquisitions. In addition to increasing the joint venture's footprint, some of these financial institutions have merchant acquiring businesses. To that end, our joint venture, Comercia, closed on a merchant acquiring business from Bank Civica [ph] valued at approximately USD 23 million in December. We also announced that our board has doubled our share repurchase authorization to a total of $300 million. This increase underscores our confidence in the long-term prospects of Global Payments. I will now turn the call over to David. David?

Thank you, Paul. We were pleased with our results in the quarter. Good overall business performance and a low tax rate drove strong cash earnings per share growth. International revenue grew 11%. In local currency, Europe performed well, especially given macroeconomic conditions, driven by strong revenue growth in the U.K. and Russia. Spain also performed well, growing local currency revenue at a high single-digit rate. Asia-Pacific revenue increased 1% over last year as volume continued to track below our original expectations across the region. Based on the current trends and the macroeconomic environment, we now expect low- to mid-single-digit revenue growth from Asia for the full year. International cash operating income of $62.2 million was up 15% over prior year. Operating margin of 37% increased 150 basis points versus prior year. North America Merchant Services delivered revenue growth of 11% in the quarter, driven by U.S. transaction growth of 13%. We believe we saw a fairly modest financial impact overall due to Hurricane Sandy, which we believe speaks to the diversity of our U.S. merchant customer base. Canada's revenue declined 7% in local currency on a year-over-year basis, which was consistent with our expectation. We expect Canada's local currency revenue to decline modestly for the full year. For the quarter, North America cash operating income, or EBIT dollars, were $73.3 million, approximately flat with prior year with cash operating margin of 17.4%. Second quarter GAAP and cash tax rates were about 28% and 26%, respectively, a little lower than we expected. Year-to-date GAAP and cash tax rates are each now 29%. We expect both GAAP and cash effective tax rates to approach 29% for the full year of fiscal 2013 and thus expects to report higher tax rates in Q3 and Q4 as compared to the second quarter. We generated free cash flow of $32 million, which included cash outflows related to the processing system intrusion. 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. During the quarter, capital expenditures totaled $25 million, primarily related to intrusion remediation activities and data center initiatives. We continue to anticipate our full year fiscal capital expenditures will total about $110 million. Regarding our data intrusion remediation efforts, during the second quarter, we reduced our estimate of fraud losses, fines and other charges by $31.5 million, resulting in a credit of $14.5 million in total processing system intrusion costs for the quarter. We based our initial estimate of fraud losses, fines and other charges on the operating regulations published by the networks and preliminary communications with the networks. We have now reached resolution with certain networks, resulting in charges that were less than our initial estimates. However, we continue to anticipate that full year 2013 expenses for the data intrusion will total $25 million to $35 million as insurance proceeds will now possibly occur in fiscal 2014 rather than 2013. In the second quarter, we closed the new senior unsecured term loan of $700 million and increased our existing revolving line of credit by $150 million for a total increase in capacity of $850 million. We used the term loan proceeds to pay down $280 million of our existing revolver debt and to complete the APT acquisition of $413 million. We funded the $242 million for the Asia-Pacific transaction with the combination of cash and the draw on our revolver and now have remaining capacity approaching $600 million. Regarding our stock repurchase program, our total authorization is now $300 million. During the quarter, we purchased a total of 190,000 shares at an average price of just under $43 per share for a total of about $8 million. Just under $290 million remain authorized for further buybacks. We continue to anticipate fiscal 2013 revenue of $2.36 billion to $2.4 billion, representing 7% to 9% growth on a reported basis and 8% to 10% growth on a constant currency basis. Given the solid performance in the second quarter, we now expect cash earnings per share in the range of $3.61 to $3.68, resulting in 2% to 4% growth over fiscal 2012 or 5% to 7% growth on a constant currency basis. This outlook does not assume any impact from future share repurchases. And now I'll turn the call back over to Paul.

Thank you, David. I continue to believe that our company is in a great position to benefit from the ever-changing payments environment. Our global market position and our execution on strategic initiatives will provide us with a platform for sustained growth. I'll now turn the call over to Jane. Jane?

[Operator Instructions] And operator, we will now go to questions.

[Operator Instructions] Our first question for today comes from Tien-Tsin Huang with JPMorgan. Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division: I just wanted to ask about -- maybe, Paul, just get the question out of the way, the ISO channel, any change in relationships there worth noting? I know there's been some noise out there in the marketplace.

No, there's been nothing of any note or any materiality. Our ISOs have been growing very nicely and have been incredibly supportive during the last period. So we're very pleased with the ISO channel. So I appreciate you giving me a chance to address that one because there has been a lot of noise out there. Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division: Okay, so no change there. Good to know. Just as my follow-up question then I'll jump off. Just -- Europe is doing well. I guess Asia, you did take it down. Is it really all cyclical? How are you performing there versus the broader market? And I mean, is this a good opportunity to maybe add more sales and to try and drive some better performance here relative to the cycle? Just curious what the short-term thinking is on Asia.

Well, Tien-Tsin, the performance from Asia, when we took that business over, we grew it very nicely, and then we added product. But you get to a point where you're limited by the number of referral channels you have. And HSBC is a fabulous partner. But we found ourselves adding reasonable number of merchants, and on a net basis, we're growing the business. But we annualized some new product introductions and some additional revenue generators. And we are in need of new sources. So there's a couple of ways to do that. You can add organically to your sales force. And we are slowly doing that in PRC in particular. But having new referral channels and partners is the biggest opportunity. Now we have not been able to do anything with that because of the past exclusive relationship. That now terminates. And although, of course, HSBC will always be in a very important position and never be disadvantaged, we are having conversations. And as I mentioned in the script, many of those have actually been very, very well received. And I have to tell you that I'm very encouraged by our conversations to date. And I made a comment, I think, in the last earnings call, so I said in the year, if we don't see something of some significance, now that's 9 months, so I want you to know that we are very focused on making some things happen. So the opportunity in Asia is about taking advantage of our first mover, adding new referral partners, slowly adding organic sales, introducing some new products. And we're going to hit a lot of that, quite frankly, next week, too, at our Investor Day at the NYSE. We'll talk a little bit about all of these, too.

And Tien-Tsin, this is David. Maybe a little more tactically. Our new sales are on track across the region. And we do believe we are taking market share. We believe what you're seeing in terms of the results really is consistent with macro and not unlike what you hear from other similarly situated companies in the region wherein between average ticket and transactions, we're just not seeing the kind of growth we thought we'd see entering the year. We do believe that it actually does create an opportunity to take more market share with these new referral partners Paul's describing. We have a couple more we expect more to bring online late in the year. As you can tell from what we expect from the region, we obviously are expecting higher growth, particularly in Q4, versus what you've seen year to date at this point. So we think the business itself is executing on track. So in a tough situation from a macro and then the real opportunity, as Paul said, is the long-term opportunity of new partnerships, new referrals, new markets and new products, and we're working hard on all of those things.

So let me add to that, too, Tien-Tsin, what David said. So we had -- it's not about getting 8% or 9% or 10% or 11% to 12% growth out of that market. It's about a much more aggressive target, and that's what we're focused on. And we quite frankly believe that market can deliver that.

Our next question for today comes from a Roman Leal with Goldman Sachs.

First, with respect to Canada, can you comment on how Canada is tracking relative to your expectations? I know you have a lot of different initiatives there. And I mean, are we close to seeing an inflection point there?

Yes. Roman, it's Jeff. We did see in Canada, as David described, an improvement in the rate of decline in the second quarter versus the first quarter. And if you listened to David's prepared remarks, we are looking for that to continue throughout the remainder of the fiscal year. We also saw, Roman, very good transactional growth in Canada versus what we believe our competitive market to be and certainly versus Canadian GDP. And we've also seen, Roman, very good new sales growth in terms of revenue in Canada. So what I would say about Canada is it remains a balanced transaction growth, new sales with a diminution in spread and a weakness across economies that we've seen over a period of time. But I think you can see in the results from the quarter some improvement and the guidance from David relative to where we're trending. There remains a balancing act. It remains difficult to pick a precise end date as to when that will be easier. But I do think that we are managing that mix consistent with what our expectations are. David, go ahead [ph].

Yes. I think we've become better at predicting it. You obviously can sense it's performed, perhaps, a shade less than what we might have thought. Originally, when we started the year, you can tell that from the language of the prepared comments, but we're becoming better at predicting, particularly the spread declines. So there's the kinds of things we might be able to either control or be able to analytically predict, which gives a little bit more confidence as we head later in the year.

I will add. I think Jeff just alluded to this, Roman. We are adding merchants. We are growing the business transactionally. We're actually adding more transactions. So we have a nice growth in that. And it's all about the spread issue. We are controlling attrition. Merchant attrition is down. So from those measures, it's pretty good. And this will work its way through. I think we're hesitant to give an exact time, but it is working its way through from all the metrics we've seen. And regardless, we understand that this is something we have to grow around. I mean, Canada has a lot of a very positive things, throws off a ton of cash, and we use that cash elsewhere. But every market is what every market is, and we got to take all of that, put it together and grow the company regardless of what Canada throws our way.

Our next lesson comes from Kevin McVeigh with Macquarie.

I wondered if you could give us -- it seems like you're making nice progress on the data intrusion -- when we could expect the record of compliance to be back based on where we are in the process?

Yes. Kevin, this is David. We -- in terms of the ROC remediation, the PCI remediation, we are right on the goal line. We believe we are legally on the 1-inch line to use a football metaphor since it's playoff time in the NFL. We are literally in the process of handing over our work to our QSA while we clean up some final items. Once that QSA certifies, it's on to the networks for their own evaluation. So we're thinking, and of course, we don't control this. We don't control this process. But we're thinking, we believe we're looking at a matter of weeks to return to the list of PCI-compliant companies. And so we think we've done exactly what we hoped to do. We are living on that 1-inch line, really making great progress. And it is probably an appropriate moment for me to echo something we said in the prepared comments. The networks have been fantastic through this process, professional, sophisticated, rigorous but also appropriately supportive. They do a great a job. So working with them in partnership, we feel like we are, as I said a couple of times earlier, right in the goal line.

Super. And then it sounds like from a reserve perspective, you took down the reserve. I know -- just so I'm clear on that. I know that didn't impact the reported EPS. It was just that's kind of part of the onetime reserve, and that's why it was brought down. Or could you just clarify that for me?

Yes, I'd be happy to. Great question. So if you go back to July to our year end, we recorded estimates for the various fraud-related expenses, fines, fees, charges, all of those things that might come given our liability for the data intrusion. Those were estimates based on our own reading of how the bylaws worked for each of the various networks involved in this and based on any preliminary communications we might have been able to have with some of those networks. As we then progressed a few months later, we've gotten to the final charges from some of the networks, not all of them, at all. And the good news for us and for our shareholders, those final charges particularly for the fraud-related stuff have come in lower than our estimates in July, and hence, you see what's essentially a $31 million reversal of that original July accrual coming through the GAAP results for the quarter. Interestingly enough, that actually turns you in a net credit position for data intrusion for the quarter, which is a little odd to see on the face of the income statement.

Next question comes from Bryan Keane with the Deutsche Bank.

I wanted to ask about Europe. It looked like it pops pretty good in the quarter. I was a little bit surprised by the strength. Is there a constant currency revenue growth number we can think about there, David, and maybe why it popped? And then how do we think about in the next 2 quarters that European segment for growth rate?

All right. So Bryan, it's a great question. We really are seeing very nice growth, particularly in the U.K. and Russia, very nice local currency growth as I saw, as I stated, in Spain. But that flips to a negative when you translate the Euro because you're looking at the full year. So yes, constant currency growth for Europe for the quarter, year-over-year, would be about 15%. That would be the revenue number, just roughly that range, Bryan, when you aggregate all the pieces and then you bring it down a little bit for FX. So this wasn't our largest FX impact quarter as you can tell from the earnings release itself. It's really that's almost right on the FX-related impact you see. So really good growth in that quarter, and again, particularly from those markets, with really solid performance from Central Europe as well, something we don't often talk about. But worth mentioning that we had solid performance there. When you go out to the out quarters for Q3 and Q4, we're thinking we'll see another solid quarter of local currency growth in Q3, but maybe a little less so in Q4 as we have a lot of big items happening for us across Europe in Q4. But I think you're going to see very consistent performance in Q3 and Q4 from Europe, and it's going to look a lot like the full year stuff we talked about, the sort of local currency mid-single digit to high single digit in the U.K. and Spain, much higher than that in Russia, about flat from GPD [ph] and just kind of nice washing of all those results in combination.

Okay, that's helpful. And then just on the segment operating margins, I guess I'm thinking about it sequentially as we go into the third quarter. We know that the third quarter is a little bit weak. But maybe you could talk about the North American segment margin, international segment margin, what we can expect sequentially? Because if my math is correct, we might actually get to EBIT growth in North America year-over-year in the third quarter?

Thank you, Bryan. Yes, I think that -- a couple of things to look at. I think you -- depending on how your math and how you want to model, you may will see EBIT growth in North America in Q3, which would be a nice thing to chat about at that point. If you're looking at the margin sequential performance, maybe flattish in Q3 to Q2 for North America, plus or minus. It can be down a little bit. It can be up a little bit and really similar in Q4 when you get out to the out quarters as well. So roughly flattish margins over the course of Q2 through Q4 in North America. When you get to our international results, I think you'll actually see us tick down in margins in international in Q3 and Q4. And it really shouldn't shock you when you think about the moving pieces of our international margins, which include Asia, challenged a little bit for growth, as we said, while still absorbing some investment costs as well as some new technology costs for some of the new platforms to which we moved. So thinking about the pieces there, you can see international margins challenged a bit there, as well as in the U.K. A lot of our revenue growth is coming from our international acquiring products, which comes at a lower margin. As that continues throughout Q3 and Q4, that will pull margins down a bit. And in addition, in Spain, we've got some nice new products rolling out. But still, Spain overall may have some margin challenges when you translate all of this to U.S. dollars given what the euro is doing year-over-year.

Our next question comes from Craig Maurer with CLSA. Craig J. Maurer - Credit Agricole Securities (USA) Inc., Research Division: Regarding your comments that you have received your license to process in Brazil and that you could see yourself getting started there by fiscal year end, I was wondering if you could talk about who your partner is going to be for affiliation because that might help the size the opportunity that you have down there.

Craig, it's Jeff. We're going to talk a lot more about that next week at our Investor Conference. What I would say is it's a local Brazilian commercial bank in market, which is important to note. It comes with not just sponsorship but also with referral and existing book of business, which is also important to note. What I would say though is our task in Brazil is this is really a startup in market, which is very different from what we typically do. So I think what you'll hear from us next week is it's terrific that we have sponsorship and referral from a bank in Brazil. It's great that we've got the licensing, as was described in the prepared remarks. But it's also going to be important for fiscal '14 and beyond that we expand that base to include additional referral banks beyond the one that we'll discuss next week. And I also think, Craig, it's important for us to continue to look at acquisitions and other joint ventures in market because, as you know, given the size of our company, given the history of how we've developed these businesses, we are really going to try to look for step-like functions in a market as attractive as Brazil. And the best way for us to get there is to find additional partnerships, augmenting what we're already going to discuss next week about where we are. So we are happy with where we are, and we view this as a nice initial piece of foray into an attractive market. Craig J. Maurer - Credit Agricole Securities (USA) Inc., Research Division: Okay. And a follow-on question regarding your China business. Is it -- is my understanding correct that in China, you need province-by-province regulatory approval to move forward, that it isn't just a question of sales reach but it is a question of actual approval from local governments?

So Craig, that is true for CUP acceptance. So we are the only non-Chinese CUP acquirer, meaning that our salespeople, in a number of regions, we have 5 and counting, big regions, I mean, talking about hundreds of millions of Chinese citizens living in these domains. Our salespeople can directly assign merchants for CUP acceptance in renminbi, in local currency. Now we are working on a more countrywide approach that's working its way through the various regulatory channels. But in the interim, we continue to hammer it away region by region. Now for Bancard, we are not restricted. We can sign Visa and MasterCard and American Express and Diners Club and JCB and others countrywide throughout the PRC. And there's no restrictions that relate to that at all. And we are indeed doing that, and those would be mostly the brands that you probably recognize and a lot of big Chinese cities that have a lot of tourist activity in particular. Because China citizens don't really use Visa MasterCard, they use CUP card. So there's 2 markets you're chasing, people that come into China and use their plastic from their country and then the Chinese citizen, and that's the big opportunity, quite frankly. Craig J. Maurer - Credit Agricole Securities (USA) Inc., Research Division: With -- knowing that the merchant discount rate is capped legally in China, how are the spreads compared to other regions you guys participate in?

Yes. It's -- they are pretty robust at the end of the day. The Visa, MasterCard spreads, I think, are in keeping to high end, and the CUP spreads for a debit spread are actually very high. They actually mandate pricing that is actually very favorable.

And Craig, there's a very important distinction. So you have cross-border traditional spreads for the Bancards, [indiscernible], the AmEx, et cetera, and then strong -- remember, those CUP cards are almost all debit cards but strong relative debit spreads for those. It's a very important distinction.

You're next question comes from Jason Kupferberg with Jefferies. Jason Kupferberg - Jefferies & Company, Inc., Research Division: Just a question on the U.S. business. Are you hearing anything incremental from either your direct sales force in the U.S. or any of your ISO partners in the U.S. about any kind of additional competitive pressure from any of the newer entrants in the market?

So Jason, are you talking about things like Square and things like that in particular or... Jason Kupferberg - Jefferies & Company, Inc., Research Division: Yes, yes.

Okay. Yes. I would say, Jason, that our ISOs are primarily competing with Square in that space. And based on the numbers we've seen, one in particular, that is now advertising, in fact, advertised, I think, at the BCS bowl last night. I saw an ad for them. They are after that space and had been for quite some time, for years, I believe, and really having some success. I think they are kind of head-to-head with them. The rest of them, not so much. Us, almost never. But I mean, don't take that away as we don't have robust competition. The competition is it remains robust in all of the spaces we're in. But in terms of new entrants, I would say Square is chasing that. And a couple of our customers are as well. We're going to have a little more about our strategy in Investor Day next week on that. We hope to see you there to take you through that. So that's the answer. Jason Kupferberg - Jefferies & Company, Inc., Research Division: Okay, that's helpful. And then on the share buyback side, obviously, good to see the additional authorization. And I think there was some language in the press release that you intend to execute on the authorization, which is encouraging. Can you help us a little bit just from the timing perspective? I mean, do you think we'll see a meaningful amount of the authorization actually exercised this fiscal year?

Jason, this is David. We really can't comment on the timing of a buyback. I can tell you we have a track record of executing our buybacks, and that's probably as far as we can go.

Our next question is from a Greg Smith with Sterne Agee. Gregory Smith - Sterne Agee & Leach Inc., Research Division: In Canada, the upcoming price change from Visa and MasterCard, what's your latest thoughts on? Is that an opportunity? Or is it more of a risk?

Yes. Greg, it's Jeff. I think that's an opportunity. As I think we've discussed on other phone calls, whenever there are changes in any direction from a network point of view in any market, really, those are generally good news for us. In particular, in the Canadian market, it has been a number of years since there had been any changes to that network environment. So we view the announcements from Visa and most recently from MasterCard as good news for us in that market. And we welcome those changes in the coming months.

Let me just add that the market that is a very competitive market, and merchants are very well served. And that's -- I mean, this was, I'm sure, a long, hard decision from the associations to do this. They feel confident that there are reasons to justify it. What we are able to do is round, do a couple of a basis points here or there. It's nothing of any mammoth proportion, but it does give us that opportunity as you picked up, Greg. So that's all good news. Gregory Smith - Sterne Agee & Leach Inc., Research Division: Okay, great. And then just maybe, David, on APT acquisition, can you give us some metrics, maybe what volume was in the quarter or how we should think about run rate or revenue if you could, possibly?

Greg, it's a great question. It's a tough one to answer because we had more than 90% of APT's volume, and hence, revenue on our platform already. So you'll recall the incremental revenue was really modest, and quite frankly, not material to the company for the rest of the year from October on. It's obviously not material for the 2 months ended November. So I really struggled to give you a whole lot of insight into those volumes. They've all already been here. The key for us with APT is what do we do with that business in '14, '15 and '16, adding new VAR and really diving deeper and penetrating more of the existing VAR channel of those spaces. So I guess I'd come back, too, and say this. The incremental revenue for the year is really quite small. It's really immaterial. They're off to a very good start, a little ahead of their numbers, but a little ahead is low 6 figures kind of numbers we're talking about now for those first 2 months given we already had the revenue on the platform. And then we're still on track, we believe, for the same. We said about neutral at the earnings line. We obviously don't expect to miss our numbers on those new acquisitions. So we feel like we're off to a very good start and maybe more to come when we've got 5 months of actuals come the end of February quarter.

Next question comes from Brett Huff with Stephens Inc.

Quick question on incremental margins and potential leverage opportunities going forward. I know that there's some investment in data center, modernization. Maybe there are some new products rolling out. I know there's some -- going to be some APT help as we roll forward. I guess, David and maybe Mike, this question is for you. Can you just sort of enumerate some -- the opportunities that you all see in terms of increasing incremental margins going forward?

Yes, happy to, Brett. And maybe if you'll indulge me, we can set aside the currency effects for a second and speak a little bit to some of the international businesses and kind of on more of a constant currency basis. You pointed out technology. I think that's absolutely fair. We are investing substantial amount in new network infrastructure and new data centers this year. We don't expect to have that investment recur. In other words, to the extent we added a few million dollars of expense to that this year, we're not going to add a few million more of expense on top of that next year. So we expect to begin to see immediate scale benefits in '14 and beyond for the investments we've made in '13. And really, as you well know, the real benefit from that kind of investment is going to come in '15, '16, '17, '18 and beyond because we believe what we've been building is the infrastructure for transaction processing for the next 10 years for this business. We do have a fairly robust pipeline of new product that we quite frankly have struggled to get out over the last 9 months because we've been so focused on breach investigation and breach remediation. So we hope to see that roll out probably over the course of '14 -- fiscal '14, calendar '13, and that hopefully will bring with it the opportunity for new incremental revenue and high margins again in '14, '15, '16 and beyond. As you keep rolling through the pieces of the company, you are correct in the U.S. to identify APT as the linchpin to any potential expansion there. And we obviously believe that's quite a possibility, and again, that's a '14, '15, '16 conversation with some nice little bumps just happening with the increment. As you'll recall, the increment is coming in fiscal '13. Remember, recall, the APT is bringing in more than 50 basis points of the positive margin impact to our North America margins just for this a partial year, and there's more of that to come. So then let's go abroad for a moment. We still believe there are more scale benefits to be had in Spain, still more scale and more growth opportunities in United Kingdom. Certainly, Russia represents a great opportunity for continued rapid growth in the double digits. The business is scaling nicely enough to a core adoption acceptance story wherein it's a very straightforward sort of scale benefit. You add more and more volume, and the bottom line continues to improve in Russia. And then the other final piece of that puzzle is probably Asia where at the end of this year, we'll also absorb the increased IT expenses in Taiwan. And then the question becomes really what Paul and I answered together earlier to an earlier question on Asia, I think it was from Tien-Tsin, which is the combination of continued execution, improved sales performance where applicable and in a very targeted fashion married to more newer referral channels and potentially new markets and new partners should drive long-term benefits there. So those are the sort of positives as you go around the globe.

That's helpful. And then one last. This is just a balance sheet question. The $242 million liability goes away presumably when you report next quarter on the HSBC -- related HSBC, bringing in the rest of that business, right?

Yes, that's right. And you saw that was sort of created almost in fantasyland because it really was a movement the quarter before from redeemable noncontrolling interest, which had been showing what that put was in terms of the fair market value and then paid in capital to sort of create really just geography change on the balance sheet up to that new commitment. That commitment then washes away with the purchase. You're exactly right.

Next question is from Georgios Mihalos with Credit Suisse. Georgios Mihalos - Crédit Suisse AG, Research Division: Just kind of what you guys can dig in to maybe the growth of the direct non-ISO channel in the U.S., what you're seeing there? And over the long term, is there an opportunity to accelerate growth for APT?

Yes. George, it's Jeff. Let me start, and then Paul and David surely can add to it. So we were -- in United States, we're talking more about next week. But in United States, we have a lot of very attractive vertical markets on a direct basis that we've been investing in. So 2 I would highlight for the quarter to get your question are our gaming business, and we are very pleased with our growth on a direct basis in gaming in the quarter on a revenue basis, and then our Comerica call joint venture here in the United States. Both showed very good growth in the quarter and are key to our performance. And those are areas where we have direct control over the sales force, around our P&L. And those are very attractive businesses from a growth and a margin point of view. And that's before we get into APT. So that's a core part of what you've seen in the quarter. And I'm sure David can provide more color on that. Then on APT, one of the things that we really like about APT is it came with a very nice quota-based salary and commission-based sales force, which is also now part, since October 1, of Global Payments. And as David mentioned in his answers to one of the questions from Brett, we have seen good performance in APT since October 1. That, of course, includes revenue as well as contributions. So I would say looking ahead, to answer your question, if we look at some of the vertical markets we're in x ISO, you look at gaming, you look at Comerica and you look now at APT, we've been pretty pleased with the direct sales positioning of those businesses. And then overall, from a quarter point of view, on all the direct in the United States, we've been pleased with its performance to date. David, you want to... Georgios Mihalos - Crédit Suisse AG, Research Division: Okay. Maybe one follow-up to shift gears going back to APAC. David, I think you spoke about a bit of an acceleration in the back half of the year skewed more to the fourth quarter. Should we be looking for double-digit revenue growth in the fourth quarter from APAC? And is there any reason why double-digit growth in APAC is not sustainable looking out over the long term?

George, great combination question. I would not necessarily look for double-digit growth in Q4. But it's certainly on the table. If you think about what we're saying in terms of the range for Asia, somewhere between high single and low double is possible in Q4. But I wouldn't suggest you count on double in Q4. We expect a couple of things to come together in that time frame. One is this new referral channels that we have signed become more productive and then generating actual volume come Q4. We've got a couple of promotions that are going on and a couple of reprices to go on that helped Q4. I think on a long-term sustained basis, there's no question you should be expecting double digit. And Paul said it quite rightly earlier. the real trick to Asia is how do you arithmetically or logarithmically expand Asia and not just grow it 10% to 15% year after year after year, and that's really what we're focused on doing. In terms of jumping off into '14, I'm not ready to talk about that now. Let's see how Q3 and Q4 play out, and we'll talk some more about '14 tactically at the right time.

Our next question comes from Tim Wojs with Baird. Timothy Wojs - Robert W. Baird & Co. Incorporated, Research Division: Just looking at EPS seasonality, I think typically, you've seen a little bit of a step down in cash EPS in Q3 and then a little bit of a step up in Q4. And I'm just wondering with the tax rate going up and some of the things you said about North America how we should think about cash EPS seasonality in the back half of the year.

Yes. Great question. So we expect a fairly typical Q3, which to your point, would be sequentially down from Q2 and in rough proportion to the percentage of earnings that prior Q3 delivered to the company. So last year's Q3 was on the order of 24% of the full year's earnings. This would be plus or minus, maybe in the same ballpark. And then same for Q4, we've developed over the 3 years a bit of a hockey stick in Q4 relative to earnings performance, and we expect some a version of the same. If you look at last year, again, compared to this year, you might see a version of the same type of distribution wherein generally speaking, Q3, you have the worst seasonal quarter for almost every one of our businesses due to holidays and then sort of the shorter quarter into February and then a really strong seasonal Q4. And that's generally true with U.S., Canada, U.K., even Russia and even across a little bit into Asia and also true for Spain. So I'm glad you asked the question, I would think it'll look an awful lot, generally speaking, like the proportions we saw last year. Timothy Wojs - Robert W. Baird & Co. Incorporated, Research Division: Great. And then just on FX, what types of rates are you assuming in guidance now? Are you assuming recent rates or maybe rates from the beginning of the year? Just a little clarification on that.

Yes. Great question as well. Each quarter, when we have this conversation with investors, we update our outlook for FX based on actuals as of, frankly, the day before. And so when we look at this, this particular quarter, look at the rest of the year, and this is the topic of conversation amongst investors and analysts, generally speaking, I'd say our outlook for the full year really remains unchanged in aggregate from where we were a few months ago at the beginning of the year. That doesn't mean the rates on a country-by-country basis don't match what we expected. But generally speaking, what we've seen even in the first 6 months is dead on almost in aggregate what we thought we'd see. So for the 3 months ended this last quarter, as you know, our revenues increased by about $900,000 and earnings by about $0.01, but for the 6 months ended for the year to date, we're down $15 million of revenue and down earnings of about $0.03. So for the rest of year, here's what we're expecting. On a sequential basis, we think the U.S. dollar very slightly strengthens against the Canadian dollar, the British pound and the euro. If you stop and say what does that mean for the full year given what we have to date, that means year-over-year full year, you've got slight strengthening against the pound, very, very slight strengthening against the Canadian dollar, more pronounced strengthening though, obviously, against the euro, the koruna and the ruble. And then given the profitability of those markets, when you're talking about wherever we're seeing strengthening, that's how you aggregate to kind of an $0.08 bad guy for the year. And I know -- I saw a couple of notes out about FX helping and maybe some good guys there. We actually saw the dollar weaken a bit against some of our currencies in December. I'd tell you a little more color. Those same rates swung right back the other way so far in January, as of yesterday. So obviously, it's difficult to predict. And quite frankly, I'm trying not to be in the business too deeply trying to predict this stuff. But I would say again that the rates so far this year have been dead on what we thought they'd be. And hence, the conversion to our financials have been right about what we thought. So there's the outlook in detail. Maybe a little more than you wanted, but I thought I'd get it all out there.

Next question comes from Dan Perlin with RBC Capital Markets.

So I wanted to revisit Europe for a second. I appreciate the 15% constant currency number. But can you give here what was the reason for the growth? Is it -- can you parse that out a little bit in terms of pricing opportunities, strategically that you put in market relative to a bit of a market rebound? Is there a significant mix towards Russia that was disproportionate this quarter out of U.K.? Because that number was stronger than I also was looking for.

And I think you have add one word too, Dan. I mean, just business performance, adding merchants, taking market share. I mean, I think we enjoyed all of that.

Okay. So you're saying it's pricing, it's market share, we added a bunch of people. I mean, it was just the typical blocking and tackling, and all of a sudden, they just kind of started hitting this quarter or...

Go ahead, David.

So Dan, a couple of things that are happening. We are seeing -- so there are really 3 keys. Paul has provided the foundational answer. There are 3 key markets and 3 primary things happening that drive the kind of growth you saw. First is Russia where we're seeing really rapid growth. Two things: adoption and sort of acceptance of general adoption, 140 million Russians transacting, more and more; also, a little bit more of the year-over-year impact of the Alfa acquisition, which is now fully annualized but we got some help from that in the quarter. So outsized growth in Russia from Alfa married to really just strong growth general organically in Russia. The Spain business that has growth in, again, the high singles, but really, growth you might not expect from Spain given macro when you sort of stare at us from the outside. That's been fueled by the partnership with la Caixa in general, so the sales and the execution Paul described, but also by new products, including DCC we've introduced in the Spanish market. And then the final piece of the puzzle is the U.K. where we're seeing solid performance even though the macro is challenging. Average tickets are challenging in a market like the U.K., as you might expect given macro, given economic. But we're seeing really nice card-not-present growth in our international acquiring platform there. Now with that comes a little less profitability, little lower margin, which you can see in some of the other parts of the income statement when you look at international. But it's really driving great growth for the United Kingdom overall for the quarter.

Okay, that's very helpful. And then if I could revisit the notion of referral partnerships. I have -- I guess the question is when you're talking about first mover advantage, sometimes that worries me a little bit in terms of giving up pricing to gain share early on. It doesn't sound like that, but if you could just kind of maybe talk a bit about how that might play into the equation? And then the last thing I have in relation to that, is there anything unique and different that would surprise us about how some of these have to be accounted for?

Dan, so you cut out at the beginning of your question. Was that a question about some of the mobile partnerships or the market?

Sorry, I'll repeat it. The question was in the referral partnerships that you guys are looking forward to, hopefully later in the year, when you talk about first mover advantages of those markets as one of the things that are exciting, sometimes I ask kind of is it indicative of having to give up pricing early on in those relationships to gain that kind of a share early on? And I just want to know if that's something that we can just alleviate and we don't have to worry about? And then secondly, is there anything that you unique and different that would surprise us about how some of these partnerships have to be accounted for?

Got you. So great question. You're really speaking to the commentary about Asia and the new partnerships and sort of the tail helping a little bit with the Q4 hockey stick in Asia. The answer to your question is these are very traditional-looking referral arrangements. These aren't ISOs. So we don't have the beginnings of ISO accounting in Asia with the stuff that's on the table in Asia right now. What you do have is expanding referral basis and then expanding source of the kind of leads we need to close and grow more rapidly in the markets in which we already operate. Maybe the opportunity to accelerate those since we can now, after having closed the acquisition of the other half of Asia, actually talk to other partners who might not otherwise have wanted to process through a joint venture with a competing bank. So it's actually very traditional. And really, I don't think you'd find if you saw the details on any sort of risk to how you understand referral partnerships work around the world from a market perspective. Just sort of right down the middle for Asia right now.

Okay. So there's no kind of disproportionate fixed costs versus variable costs or anything like that in that market, right?

No, it's the usual -- the more we can get these leads, the more we get more merchants. And then the fixed cost leverage is what comes into play as soon as we can process it.

We will take our final question for today from Steven Kwok with KBW. After which, Mr. Garcia will give his closing statement. Steven Kwok - Keefe, Bruyette, & Woods, Inc., Research Division: Just one quick question on surcharging. I believe merchants have the ability to surcharge at the end of the month if they choose to. But they also need to notify the networks and the merchant acquirers as well. So I was wondering if you could provide any context around any indications on merchants, whether they're looking to do that or not? And what are your thoughts on there?

Yes. Steven, it's Jeff. So those rules just came out. Those operating regulations just came out from the networks right before Christmas and the holidays. So you're right, the effective date is the end of January. The merchants do have to give their acquirers, the networks, 30 days advance notice, is what I believe you were referring to, of the desire to surcharge. And there's a fair amount of training, signage and changes to billing statements that have to go into effect to enable that to happen. Sitting here today, I'm not aware of widespread notifications to us or other acquirers that matter of the desire to surcharge. We are making changes to our operating rules pursuant to what the networks have asked us to do as part of the settlement to enable surcharging. I'd also point out, it is restricted in a number of states in the United States by state law. So the networks are subject to that, and the settlement is as well. So I think, Steven, more to come, but there have not been a lot of initial pre-notifications, 30 days in advance of the end of January to enable the surcharging. I do think that some will try it, and we'll have more update on that as time goes on.

Okay. Thank you, operator. And thank you, ladies and gentlemen, for joining us this afternoon. I want to remind you all that next week, on January 17, we'll be at the NYSE for our Investor Conference. I look forward to seeing you all there. Thank you so much.

Ladies and gentlemen, this conference will be available for replay starting today at 7 p.m. Eastern Time and again at midnight on January 22, 2013. If you wish to listen to the replay, please dial (855) 859-2056, or international participants can dial (404) 537-3406. This concludes our conference for today. Thank you for your participation. You may now disconnect.