Global Payments Inc. (GPN) Q3 2013 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to Global Payments' Third Quarter 2013 Earnings Conference Call. [Operator Instructions] And as a reminder, today's conference will be recorded. At this time, I would like to turn the conference over to your host, Senior Vice President of Strategic Planning and Investor Relations, Jane Elliott. Please go ahead.

Good afternoon, and welcome to Global Payments' Fiscal 2013 Third Quarter Conference Call. Our call today is scheduled for 1 hour. Joining me on the call are Paul Garcia, Chairman and CEO; Jeff Sloan, President; and David Mangum, Senior Executive Vice President and CFO. Before we begin, I'd like to remind you that some of the comments made by management during the conference call contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to vary, which are discussed in our public releases, including our most recent 10-K. We caution you not to put undue reliance on forward-looking statements. Forward-looking statements made during this call speak only as of the date of this call. In addition, some of the comments made on this call may refer to certain measures, such as cash earnings, which are not in accordance with GAAP. Management believes these results more clearly reflect comparative operating performance. For a full reconciliation of cash earnings to GAAP results in accordance with Regulation G, please see our press release furnished as an exhibit to our Form 8-K dated today, April 2, 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 thank you, everyone, for joining us this afternoon. Our third quarter performance was consistent with our expectations, and we are pleased with the progress we have made in achieving our 2013 initiatives. For the third quarter, revenue grew 8% to $579 million and cash earnings per share grew 5% to $0.87. I am pleased to note that we are on track to achieve our full year revenue and cash earnings expectations. I'm gratified to report that during the quarter, we returned to the worldwide list of PCI-compliant companies. This was a significant milestone and I am proud of the accomplishments of our team. We are particularly grateful to our customers, partners and the card networks for their support. Now that the remediation work is behind us, we can turn our full focus to driving the business forward. To that end, I want to highlight 3 specific growth areas. First, our partner of choice strategy. You heard a lot of about this at our Investor Day. We have been successfully partnering with financial institutions, value-added resellers and other payment service providers offering merchants high-quality payment services around the world. We anticipate driving further growth and expansion in new and existing distribution channels through the partner of choice strategy. A case in point: our partnership with Intuit in the U.K. is an example of a new distribution channel. The Intuit Pay mobile POS product was formally launched on March 14. And Intuit recently won the best SMB Innovation Award at PYMNTS.com Innovation Award ceremony. In addition, and as we also discussed in January at our Investor Day, integrated payment solutions, such as those delivered by APT, will provide significant leverage to our direct sales efforts in North America in the coming fiscal year. Secondly, we are continuing to invest in technology infrastructure that will give us scalability for years to come, including new data center facilities and state-of-the-art security capabilities. Additionally, we are pleased to note that we have completed certification with Visa for contact and contactless EMV cards in the U.S. We are on track to complete certification with the other networks prior to the mandated dates later this month. Thirdly, in this ever-changing payments environment, we will continue to innovate in our core business and introduce new product offerings. For example, in the next 90 days, we will be ready to offer in-store PayPal acceptance to our U.S. merchants. Our proprietary mobile PayApp product, which recently piloted at Hong Kong, received an Innovation Award at Visa's annual Hong Kong event. We have now expanded the PayApp pilot to include merchants in the United States. Further, we just launched a pilot in the U.S. with edo, a leader in personalized card-linked offers for a merchant loyalty program that provides instantly redeemable offers tailored to customer's individual shopping habits. Through edo, our merchants' customers can access a card-linked offer platform with 200 million cards on file across 200 banks, including importantly, 3 of the top 6 financial institutions in the United States. These innovations leverage our existing merchant relationships, enhance merchant retention, grow new business and will provide new revenue sources. I will now turn the call over to David. David?

Thanks, Paul. North America Merchant Services delivered revenue growth of 8% in the quarter driven by U.S. transaction growth of 10%. Canada's revenue declined 7% in local currency versus prior year. Transactions grew 2% for the quarter but spread declined at a mid-single-digit rate. We do anticipate an improved fourth quarter in Canada, with modest revenue growth in local currency. North America cash operating income or EBIT dollars were $63.2 million with a cash operating margin of 15.5%. In the fourth quarter, given our Canada revenue assumptions, we anticipate that the North America margin will be similar to the margins in the first half of the year. International revenue grew 10%. In local currency, Europe posted strong revenue growth driven by transaction growth in all markets. Strong U.K. performance was fueled by e-Commerce growth on our International Acquiring platform. Asia-Pacific revenue increased 2% over last year as volume continued to track below our original expectations across the region. We now expect low single-digit revenue growth from Asia for the full year. International cash operating income of $60.6 million was up 5% with an operating margin of 35.6%, for a decrease of 160 basis points versus prior year, about as we expected for the quarter. For the fourth quarter, we anticipate a modest sequential increase in operating margin. Third quarter GAAP and cash tax rates were about 27%, in line with our expectations. Year-to-date, GAAP and cash tax rates are approximately 28.5%, which we also expect for the full year of fiscal 2013. During the third quarter, we incurred pretax charges of $17 million for data intrusion remediation efforts, offset by approximately $18 million of anticipated insurance proceeds for a net credit of $1 million on the GAAP income statement. Year-to-date, our net data intrusion expense is $8.3 million, and we now anticipate that the net full year 2013 expenses for the data intrusion will total approximately $20 million. Assuming we receive the remaining $10 million of insurance proceeds sometime in our fiscal 2014, the estimated cost for the processing system intrusion from its inception last year will total approximately $95 million. We generated free cash flow of $52 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 $21 million, primarily related to terminal purchases. We continued to anticipate that full year capital expenditures will total about $110 million. Our total available cash, including working capital at the end of the third quarter was approximately $220 million. As a reminder, on January 17, 2013, we announced a $125 million accelerated share repurchase program and initially received approximately 2 million shares of the company's common stock. We will complete the program in the fourth quarter, and at that time, we'll have just under $165 million authorized for further buybacks. We are reaffirming our financial expectations and continue to anticipate total company fiscal 2013 revenue of $2.36 billion to $2.4 billion, representing 7% to 9% growth, and cash earnings per share in the range of $3.64 to $3.71, resulting in a 3% to 5% growth over fiscal 2012. We have also updated our annual fiscal 2013 GAAP diluted earnings per share expectations to include the estimated full year impact of net intrusion remediation costs of approximately $20 million or $0.17 per share. Including the estimated full year impact of acquisition-related intangibles, nonrecurring items and processing system intrusion costs of approximately $0.77, GAAP EPS is now expected to be in the range of $2.87 to $2.94. And now we'll turn the call back to Paul.

Thank you, David. We have built a strong foundation in our strategy to expand distribution through partnerships and innovation while producing tangible results. We believe that no one is better positioned to take advantage of expanding worldwide payments. I'll now turn the call over to Jane.

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

[Operator Instructions] Your first question comes from Roman Leal of Goldman Sachs.

Maybe we start with Canada, and it's good to hear you're reaffirming your expectations of acceleration in the fourth quarter. But this quarter seemed a little bit weaker than what we were expecting. What gives you confidence that in that perhaps, can you walk us through what you saw maybe January, February, March? Is the trend relatively improving over the last few months?

Yes, Roman, it's Jeff. I'm going to start on Canada, and David will certainly join me. So the first thing, a point to David's commentary in his prepared remarks, is we saw a mid-single-digit decline on spread in the quarter as he described. While we're not where we want to be as it relates to spread, that is an improvement. As you had mentioned, Roman, that is an improvement in our performance in Canada that we've seen over the last number of quarters. So you may remember that in managing Canada, it's a mix of spread, transaction growth, the economic environment, new sales and controllable costs. Spread has been a big driver over the last number of quarters in terms of results, and that mid-single decline that David referenced is important to note. The second thing I would say that we saw on the quarter is a change and a decline in volumes. So when you look at volume in Canada, and now I'm talking about specifically Visa volume, not just the Global Payments but for the whole country of Canada for Visa, we saw a deceleration of those volumes that also impacted at the margin the results that you referred to in the quarter. So we feel like we're tracking well from a share point of view against those metrics but we certainly saw a weakening of Visa volume not specific to Global in the quarter. So when we think about the fourth quarter that David alluded to in his prepared remarks, we think we've seen some progress, not where we want it to be, but some progress on spread declines, a little bit weaker of an economy as reflected in the Visa volumes and then the actions that we've talked about before for the fourth quarter that should help us finish the year as we alluded to. David?

Yes. Just to add a little more color to that, Roman, obviously in the fourth quarter, you've heard us say before, it's a pretty important quarter to watch the spread trends and make sure that what we saw annualizing early in the calendar year in terms of the big spread declines from last year really do start to come in at sort of a more manageable level to which you hopefully then could marry transaction growth, which, of course, you didn't see in Q3 to then the other opportunities to sort of manage the economics of the business with the new assessments coming out and the new opportunities to manage around those assessments for hopefully greater economic return on the fourth quarter.

I would just add to what David said, Roman, that we remain pleased with our new direct sales in Canada, including in particular some large accounts that we've won recently. So you marry that all together, we feel confident in heading into the fourth quarter of fiscal '13.

And then just -- this is a follow-up. In international, it seems like the margins were unusually strong last quarter, maybe unusually weak this quarter. Was there -- is there something in regards to timing or seasonality that perhaps we missed there? What drove the margins in international?

We have the typical seasonality that happens in every Q3, really around the business, whether you're talking about North America or most of our assets around the world. You've heard me even say that even Russia actually sees a seasonally light third quarter, as odd as that may sound, even thinking about a high-growth business like that, a high-growth market like that. When you start to think about international margins for the quarter, in isolation, I would point you back to -- we did talk about last quarter the margins would be down a little bit in the third quarter when compared to previous, and really the 2 key pieces to that when we looked ahead and then they sort of essentially came true, the margin again right about where we expect it, maybe a little bit more EBIT dollars in total than we expected, given some of the mix issues I'll talk about in a second. So the declines in Q3 really in international margins are driven by continued sluggish revenue growth in Asia, where we continue to see volumes running far shy of what we hope to see at the beginning of the year, and again, lots of macro involved in that. Of course, remember we saw average tickets decline in the summer and we've seen soft transactions and result in soft volume across Asia. With that, Asia is one of our main scale drivers over the last 3 years of the company's margin performance, particularly in international when that then hangs around low-single digits, it's not scaling margins and is a drag on total international margins. At the same time, we're seeing really different revenue mix in the United Kingdom, and this started to show through in the income statement in the second quarter when we saw outsized growth in general in Europe and talked about that being fueled by United Kingdom business, out of which we run a product or a platform we call International Acquiring, which is the processing of cross-border e-Commerce transactions on behalf of a number of merchants that are one quite large but any number of others, we signed about 30 more for that platform for this -- in this year alone. Now that business drives a great growth on the top line but operates at a lower contribution margin or incremental margin than our core credit and debit processing products in the U.K. So you get great revenue growth, we're seeing terrific revenue growth, you can see that in the top line, we look at the year of growth Q2 and Q3 year-over-year. And that will continue to grow, we think, with secular trends on transaction and with new merchant signings, we continue to add more and more to the platform, as I referenced earlier. So between those 2, you've got a couple of things that are headwinds married to perfectly fine margins and nice progress really across the region in general when you think about our international businesses. So the margins in the other markets are just fine. I think as you look ahead to Q4, we're looking to see some sequential improvement in the fourth quarter. We sing -- we swing toward a more seasonally strong quarter in the fourth quarter, and that's true again across the board just as Q3 was true across the board. And we're continuing to expect solid mid-single-digit growth in EBIT for the full year, and that's held down, as you well know, on a year-over-year basis by currency.

Your next question comes from David Koning of Baird. David J. Koning - Robert W. Baird & Co. Incorporated, Research Division: I guess my first question, just last quarter I think you talked about North America margin being more or less flat sequentially, and I know it ended up about being down about close to 200 basis points. And I guess just figuring out kind of where the disparity between those came from.

Yes, David, I think if you look at North America, what we may be best to marry it to the international commentary I just gave an answer to Roman's follow-up question. If you look at the total company for the quarter, lots of puts and takes as there always are in a business this large and this complex. So a little bit more performance than you might have expected from international, U.K., especially, maybe a little less in North America quite honestly and little less in Canada. We had the nice metric of just mid-single-digit declines in spread, which we're cautiously optimistic, portends better things as we go forward. On the other hand, Canada still had its revenue decline 7% in local currency and that's a clear headwind as you enter the quarter. So if you look at the puts and takes really across North America, you get that little bit shy on just overall performance with the revenue decline in Canada heading a little north of what we thought. If you marry that then, we got U.S. revenue, kind of right on we expected for the quarter, maybe a little bit shy, but perfectly fine putting in lots of puts and takes in any given quarter. So the Canada revenue decline with really strong ISO growth, which always puts more pressure on the margins. We continue to have that down on an annualized basis, the movement of CyberSource up from the indirect model to the ISOs, the tech spending continued and our increased -- and our expenses increased in Brazil as well. All that offset by the positive impact of APT. And as you probably pause here for a second and remind you, we talked about APT helping margins between the 50 basis points total company and 70 for North America for the full year, it's running a little bit ahead of that. But it's running that in the face of a little bit more challenging situation in Canada than we might have thought going into the quarter and then just sort of the same general performance you're used to where ISOs can drive a lot of margin swings just inside of each and every given quarter. So when we look out to the fourth quarter, which may be the best way to answer your question, I think I do expect to see some margin improvement in the fourth quarter, maybe returning to the levels we saw kind of in the first half of the year if you kind of average Q1 and Q2 maybe back toward those levels. And that's really driven by a typical Q4 in Global Payments, seasonal revenue improvements as usual in our direct channels. And in Gaming and our Greater Giving, where, as you'll recall, we'll do 50% of the full year revenue in the fourth quarter alone. And then you should probably expect us to do the traditional fourth quarter pricing actions we do in that business every year as you get your bolt-ins from the networks and work around those. David J. Koning - Robert W. Baird & Co. Incorporated, Research Division: Okay, that's great. And then just my follow-up then. If Canada, I mean should that be sustainable growth going forward now, and if so, then can we expect EBIT to grow in North America in fiscal '14 behind that in APT?

Well, I think you're ahead of the game when we're talking about fiscal '14. I would say this, that what we've talked about before when you deal with Canada, you've got -- well, North American utility, you've got APT coming in, you've got the U.S. business, you've got some trends that will normalize in general in terms of our investment spending hopefully in places like Brazil and technology. And then Canada, it comes down to do we continue to have more manageable spreads that allow us to offset those sort of core spread declines with transaction growth and with any other creative economic things we can do in and around pricing with assessments, and those are the pieces that hopefully we have a much more on toolkit as we enter Q4 than we had 2 months ago.

And let me add something too, if I could, David. Dave, this is Paul Garcia. Clearly, we understand that our job as management is to grow our company in all of our areas. And while we're not prepared to give any FY '14 guidance, I just want you to know that we certainly understand the charge at hand and we're very focused on doing just that.

Your next question comes from Steven Kwok of KBW. Steven Kwok - Keefe, Bruyette, & Woods, Inc., Research Division: I guess 2 question I have, one was just -- was curious in what was the spread compression in Canada in the second quarter? And just wanted to see what the trajectory is going forward.

Yes. Steven, David here. I don't have the exact number in front of me. We've been running in the low to mid-teens in Canada for the last 4 quarters. So that exact number, 12, 13, 14, 15. Steven Kwok - Keefe, Bruyette, & Woods, Inc., Research Division: Got it, got it. And then going forward now with the processing intrusion behind the company, what are the areas that you guys are focused on to drive earnings growth? And additionally, does that help with the ability to make additional acquisitions or -- and/or incremental capital management?

Yes, I think, let me touch on capital and then I'll turn to Paul to talk about some of the initiatives. He touched on some of this in his prepared comments. I think -- remember we said at the Analyst Day that you should continue to expect us to look for global expansion. We still think that's the first and early use of our excess capital. That said, we expect to be consistently in market buying back stock as well. So from a capital perspective, you should expect us to stay consistent with that planned strategy we articulated in mid-January. I guess I'd point out as we're exiting Q3 and heading into Q4, we still have that accelerated share repurchase extant. And then we'll look out and talk some more about that as we close that out and give you sort of the final accounting on that. And then with that, maybe, Paul, some of the more specific initiatives?

Yes, thanks, David. Steven, during a most difficult time for our company, a difficult time for any company, one of the most significant challenges you could face, we actually -- we grew our company. But I would tell you that we had a number of initiatives on hold, these things you couldn't pursue. And I don't think we fully recognized just how that would impact a lot of innovative things, new customer signings, large customers, a number of things that we had in place to execute in this fiscal year that we're just now executing on. So that's why I was upbeat on my comments and why we're very focused on things like partner of choice. We're making significant progress internationally and domestically. We're signing big merchants. I mean, big, like billion dollar merchants in various locales around the world. That wasn't on the table. So things are -- very positive things are happening, which I think will set us up well for fiscal '14.

Your next question comes from Georgios Mihalos of Credit Suisse. Georgios Mihalos - Crédit Suisse AG, Research Division: Just wanted to circle back on the transaction growth in North America. It looked like there was a bit of a slowdown both in Canada and the U.S. And maybe speak a little bit more broadly, what are you seeing in the North American region? Is there anything you can kind of point to, consumer spending or anything like that?

Well, George, it's Jeff. Why don't I start, and I'll start with Canada because we really have a national business there in the U.S. It's more of a tale, as you know, of vertical markets. So as I said before in response to Roman's comments, in David's prepared remarks, we saw a 2% transaction growth in the quarter for Canada, that is lower than we had seen in the prior number of quarters, although I would say that's consistent with the market growth. So if you go back to what I talked about in the context of how we measure our progress in Canada in terms of our share and we look at Visa volumes for example across all of Canada nationally, those were in line with what we reported in our own business. Those Visa numbers have decelerated over the last number of quarters to about 1% growth in this most recent quarter. So if you look at the macroeconomic environment in Canada, George, whether you measure it by unemployment, GDP growth, same-store sales growth and now, of course, the Visa volumes across the country, you've seen a deceleration in the growth -- on the rate of growth in that market. So I still feel like we're well positioned and capturing share in that business, but no doubt a difficult macroeconomic environment. Second, in the United States, I feel like in the vertical markets that we're in and I think David referenced Gaming, I'll add, as Paul referenced, integrated payments and also look at our bank joint venture with Comerica, I actually feel like our growth there has been pretty good from a transactional point of view. So on those vertical markets in which we have a direct business, in which we compete, we've seen reasonably good transactional growth that I feel is in excess of those relevant markets for Visa and MasterCard. Dave, do you want to...

Yes, I think when you look at the U.S., George, it's really a story of the ISO metrics sort of swamping the others. I think when I look at the numbers at base on the surface, we're dealing really with the law of large numbers. If you go back a couple of years ago, you'd see mid to high-teens settling down to mid-teens on its way down to low-double-digits. And I don't think there's much more going on than that on the surface of metrics. Georgios Mihalos - Crédit Suisse AG, Research Division: Okay, that's helpful. And maybe just a follow-up question. Your opportunity for acquisitions, I mean your portfolio acquisitions in Europe and abroad.

Yes, George, Paul Garcia here. Pretty robust pipeline, and that's something we are focused on. I can't really comment too much more than that other than we're seeing a number of things, including some things that aren't necessarily processes, which means we've been working hard on bringing something, bringing an opportunity forward. And I will say that we are very disciplined buyers. I mean, we pass on a lot more than we buy. But I'm fairly encouraged, particularly internationally.

Your next question comes from Kartik Mehta of Northcoast Research.

Paul, or maybe David, can you talk a little bit about the U.K. business? You talked about the International Acquiring business, maybe that's putting a little bit pressure on the margins although it's showing some good growth. Can you talk about maybe how big of that -- how big of a business that is now? I think that's something new for you. And trying to get a perspective of maybe how big of a business that is for the U.K. market.

Yes, Kartik, we don't break out the U.K. to sort of a product level. It's actually a fairly -- it has been historically a fairly small piece of the U.K. and it's growing at such a rapid rate that actually it's moving the meter on the metrics themselves. Maybe an easier way to answer this is our sort of core credit and debit transaction growth rate in U.K. are just fine. This business is growing so fast, 2x or 3x some of those core transactional growth rates in the, again, the core credit/debit business that it just has the ability to take that high-margin business and drive it a little bit backward in terms of margin while still delivering EBIT to the operating line.

And then just as a follow-up for Europe, can you just talk about maybe what kind of transaction growth you're seeing in some of those countries? Just to get an idea of there's still so much on the news about what's happening in the economy. I'm just wondering what you're seeing in terms of transaction growth to get an idea of maybe if things are slowing down there or just maybe more of just what you kind of hear on the press?

Yes. So if we sort of zip around without quoting too many specifics, we've said to you before that our Russian business is growing well into the double digits. That's a revenue comment. It's clearly a transaction comment as well, when we think about sort of the pieces of that. Then our Spain business, which is, I mean, this is just really remarkable in the face of the economy in Spain, the revenue itself in local currency is growing to mid-single-digits. Obviously, by the time you translate it back, it's lower than that. But let's focus on what the business can do inside of its own market. Revenue is going mid-single-digit; transactions are right on that same kind of number. And again, I continue to think that's just remarkable. It speaks to the value of the partnership we formed with la Caixa and the partner, la Caixa itself and the leverage they help bring to the market married to our ability to run this business in a very focused manner, and it's working beautifully. In the United Kingdom, I think you'd be surprised as how high the transactional growth is. It's really a little bit north of where it was a year ago. That's the business that -- and in local currency in pounds, we talked about mid-single-digit, it's going to do better than mid-single-digit revenue growth this year and its transaction growth is right alongside its revenue growth. So they all feel healthy at that transactional metric level. I mean again, when you think about Spain and what's going on kind of across Europe, it's pretty remarkable.

Your next question comes from Bryan Keane of Deutsche Bank.

I'm going to ask, believe it or not, on Canada. Just trying to make sure I understand it. So second quarter, Canada was down 7% in constant currency and it remained at that level. And so when I look at the pieces, it sounds like 2% transaction growth in this quarter was below expectations. I guess first question is, what was transaction growth in the second quarter? And then the reason why revenues stayed the same even though spreads got better was because, I guess, transaction growth decelerated and volume decelerated. And then why did those 2 things necessarily get better into the fourth quarter?

Right. So Brian, the transaction growth in Q2 was 4% year-over-year. It became 2%. So you really -- you put your finger on the right interplay. You had higher spread declines in Q2 with -- offset partially by higher transaction growth. In Q3, fast forward, you've got lower spread declines but then lower transaction. Now if I take a look at any other metric, let me see if there are any other metrics of any sort of relevance -- no, averages tickets are kind of flat. So it really is just those 2 that pull into the difference in the numbers. If you look ahead to Q4, and I'll toss it over to Jeff for any other color, we're not expecting a huge acceleration in transactions. It's much more about, hey, does that spread -- the core spread decline stay consistent with Q3 levels and then do you have other opportunities with these new assessments coming out to economically benefit Global Payments and have this all turn to a prettier picture for Q4 than it was in Q3.

I think that's a great summary.

Okay. And then just my follow-up to Paul, obviously, a lot of noise around this Chase/Visa deal and maybe what it might mean and possible potential implications for the merchant acquiring industries since Chase Paymentech is going to be a big part of that, just want to get your thoughts on the changing or if there will be much of a changing industry dynamic there?

Brian, I've been in this industry for 30 years and we've seen these type of announcements in the past, and I think there is something here that has to meet. I think that -- and I think we shouldn't read too much into reduced interchange levels, et cetera, because that's just not commercial. I mean the reality is developing markets have honest [ph] interchanges, not typically developed markets. And it's just not a commercial proposition. So I think I've got a number of questions about will Chase provide lower discount rates based on accepting lower interchange levels. Reality is they always could do that. This arrangement doesn't provide any unique opportunity for them to do so. They haven't done so because it doesn't make sense. I think the ability, however, for them to offer some marketing incentives and some programs, that's real. And I think they -- we'll see some action. They are already do that. I mean there are already some things now. If you're a Chase cardholder, you can get some discounts. Going into merchants, I think there will be more intense levels of focus on their own merchants. We are responding in kind with things like edo, plus you can assume we're talking to other financial institutions. We are uniquely positioned not being aligned with any big card issuer. So it's kind of refreshing to get to inbound calls, and we're actually fielding some of those. So long and short of it is, Paymentech is a robust competitor domestically, particularly and also in Canada, robust competitor. They, I think -- I don't know if this gives them any unique position. I think it's a clever move and -- but we're not -- I mean there's a lot of things that keep us up at night. This is not amongst them.

Bryan, it's Jeff. I would just add that, as you know in the United States, we generally have a vertical market strategy. So we've been very selective about those markets in which we compete, which, of course, David and Paul and me have described for a long time. I would say that, that kind of approach is outlined by Chase and Visa. While it's applicable generally, it's most applicable to large national and international accounts in the markets in which Chase operates. So as we think about the vertical markets that we've described, while they're all intensely competitive, that vertical market strategy is very different than, perhaps, some of our competitors.

I want to say just one other thing too, I think everyone knows that we lost a real pioneer in Mike Duffy, who passed away a couple of weeks ago, and that's a -- he was a class guy, built a great company and a robust competitor and a really good fellow.

Your next question comes from Tien-Tsin Huang of JPMorgan. Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division: Of course, I get the -- in the queue right after the Chase question. I'll guess I'll also ask the Canada question just on the price compression. I mean, I guess it's safe to say that the price compression was not as good as you expected it, I think. So I'm curious, is it due to competitive actions or the timing maybe some of the initiatives you're putting in? It just seems like a little bit of a pushout in your recovery plan in Canada, that's why I'm asking.

Tien-Tsin, it's David. I think that the -- what we saw is the big spread declines annualized in January really. And for me, quite frankly, the key is does Q4 look like we've annualized those and we have a more manageable spread decline. So if we set the idea that Q4 was going to have flat spreads or something like that, it was unintentional really, it wasn't in our forecast. This 4% kind of decline, the mid-single-digits we quoted, kind of about what we expected honestly. But the key for me all along has been in Q4, does that settle down to some level that's manageable and then how do you marry that to the other things going on in the market that we talked about before the assessment and the reintroduction of assessments and assessment increases. And again, does that give us something else from the toolkit that we haven't had really for quite some time in Canada.

Yes, and Tien-Tsin, it's Jeff. I would just add to David -- to what David said, just to remind you that in the prepared remarks, David talked about growth in the fourth quarter from a revenue point of view in Canada, so clearly that embeds in it assumptions about spread, volume and transaction growth. So when you think about where we are from a trajectory point of view, well, we're not exactly where we would like to be at the start of the year. I do think as we head into the fourth quarter, it will be nice to see as we expect revenue trend in the other direction. Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division: Okay, okay. So Jeff and David, just as a follow-up to that, it sounds like some of the revenue initiatives and your ability to pass through the assessments and maybe round up or what have you, that's in place today or still to do? I'm just trying to understand the visibility around it.

Yes, so they haven't happened yet. The official dates are April. So think of them as coming in place as we speak literally. And so we have pretty good visibility into the actions we either have taken or intend to take in the very near future.

And Tien-Tsin, it's Jeff. Just to add some more operational color. So from a Code of Conduct point of view, those notifications, David is exactly right on what he said about the implementation. Those notifications under the Code of Conduct need to be sent months in advance. So those notifications, Tien-Tsin, in our service center around those notifications have happened already. Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division: Okay, good. That's kind of what I was getting at. So since you talked about Code of Conduct, I got to ask just around the U.K. and there -- they put out that paper talking about creating utility-like oversight committee or whatever in the region. It kind of reminded me of Code of Conduct. What's your thoughts on what's going on in U.K.? I know it's early days, but given your presence there, I'd figure I'd ask you.

Yes. I think there are some things that may be reminiscent to Canada. I think there are fundamental differences. First off, what's going on in the U.K. when you look at the -- I think it's called the Treasury Select Committee. It's really -- it's not focused on cards or merchant acquiring in contrast to what we've seen in some other markets. We also clearly don't see it targeted at regulated price or the nature of customer relationships. And that would run counter to a lot of public statements frankly over the years from the U.K. regulators if it were targeted again at price or the nature of customer relationships themselves. There are calls for greater transparency and improved governance really for the payment system or systems at large. And so to us, that suggests a focus again on the systems and clearing on settlement on all the pieces that come together and maybe a focus on the barriers to entry of some of those systems and does that reduce transparency and increased cost whether it's to businesses, small businesses, consumers, anyone who has sort of a play somewhere in this ecosystem. You may even remember we had an example of this a few years ago with some of the faster payment initiatives that were driven in and out of banks and then the vocal [indiscernible] folks as well who had to enable some of the faster payments. And really for -- that means, I think, the big banks and their sort of gatekeeping role relative to payment systems are the focus of this. Again, not merchant acquiring, not customer relationships with merchant acquirers and the card networks themselves. And quite honestly, I think there's possibly a benefit for us. We participate in those systems but we need sponsors, we need any sort of sometimes gymnastics to participate in the systems themselves. If that were to become easier and less costly, maybe level the playing field between ourselves and some of the bank owned acquirers out there, there's nothing wrong with that, that can be nothing but a positive for us. Now to balance that, maybe there's some risk to an acquirer like us of some compliance costs for settlement or reporting for this extra transparency. But I don't view it as the fundamental issue the price of our product out to the customer itself. It's more the cost of doing business, and this happens in every market around the world at any given time.

And allow me to add, David, that -- this is Paul, Tien-Tsin. We'd never, and never should you, be afraid of having full transparency. We think we're pretty transparent now, quite frankly. And whatever comes out, we will fully comply, and I think that's generally a good thing if you're pleased with how you price. And you shouldn't be afraid to discuss that in detail if one wants to see it.

Yes, and Tien-Tsin, I think at the end of the day, you said it well, it's early days. But as we sit here now, we don't see a fundamental change for us coming out of the, again, the early days of pronouncements.

Your next question comes from Greg Smith of Sterne Agee. Gregory Smith - Sterne Agee & Leach Inc., Research Division: Paul, I wanted to kind of ask you what the mood out there is among other acquirers you talk to and your ISO customers. Sort of getting back to the Chase/Visa announcement, I don't think anyone has mentioned Square yet, so throw that in there. Is there sort of a sense of urgency and is it possible that companies are maybe talking about some merger combinations they may not have been talking about 6 to 12 months ago? Or would you say it's just business as usual?

I would say the former. I would say there is more kind of urgency. I think that's a good thing, actually. I don't think anyone sees this as business as usual, because business changes pretty dramatically, Greg. I think Square -- I think I said all along, Square, and you could pick apart a lot of things about Square. They don't make money, and there's a lot of issues. But I think this -- the fundamental nature of it brought some excitement to the space. Now there were those, you were not amongst them, that thought we're all going to be dis-intermediated. That was silly. It remains silly. But I think just that kind of excitement with Square kind of took our game up a little bit. And we're doing a number of things we're really proud of, and we're trying to one up Square. So -- and I think that goes for a bunch of us. In terms of combining companies and big M&A opportunities, I think those probably get kicked up a little bit too, and that adds a little more excitement to everything as well. Gregory Smith - Sterne Agee & Leach Inc., Research Division: Okay. And then I guess, Dave, the -- were there any material APT integration expenses in the quarter that you can call out?

No, Greg. Really, the integration expenses will come in, in Q4.

Your next question comes from Craig Maurer of CLSA. Craig J. Maurer - Credit Agricole Securities (USA) Inc., Research Division: I was hoping to drill down Asia a little bit. Looking at Visa and MasterCard's trends, you really don't see much, in a way, a fall-off in Asia. So I'm curious if you could describe a little more what you're dealing with. Is it slow approval for expansion in China? I'm just curious.

I think, Craig, fundamentally, our portfolio really across Asia is heavily weighted toward the travel industry and the high-end retail shopping. In some cases electronics, but also just high-end retail shopping itself. And that's really the portfolio which we started with HSBC, and that's how we focused our merchants since then when you think of the markets we're in with the Maldives, Hong Kong, et cetera, you can imagine the level of travel. So with that, what we've seen is we saw a drop in average tickets in the summer, which generally indicates less spending. We may see the same number of transactions we saw the quarter before, but less spending overall. And, of course, we take a percentage of that, and that then harms the actual performance of the business. I mean at the same time, we've annualized some products as well. And including we now have DCC fully rolled out across the region, as well as our installment payment plan fully rolled out across the region, so some of the things that fueled a little bit more growth have annualized now. Really still brings you back to the core question of we're going to ride more secular adoption over time there. But for the moment, we're being harmed by being so travel again and high-end retail focused, but that's the place where we're seeing some pain. And this is true really across many of the regions there, whether you're talking about Hong Kong or all the way to Brunei, and again as I mentioned, the Maldives, et cetera. So I think we're not a dead-on comparison necessarily to the networks in those regions as they're driving more generalized secular adoption and we're focused in different part of the market. Now we have a number of initiatives in place to actually drive into other parts of those markets, more penetration. The same things we talked about last quarter that we thought would drive improved performance in Q4 actually still hold true. We are driving additional product launches, including new flavors of installment payment plan processing that we think will drive volumes deeper into the bank customer base as they shop, and general retailers around the various markets rather than just the high-end retailers. And then also, we've signed a number of new referral partners this year. They all do come live and are continuing to come live. Unfortunately, those improvements aren't quite enough to offset the overall volume softness we're seeing in general on the market.

And let me add something, David, if I may. Craig, this is Paul Garcia. We just received 11 awards from MasterCard, Visa and CUP. I mean we're talking weeks ago, for our performance in the region, including Highest eCommerce Acquiring Volume award, Highest Market Share awards, various things we've done and some -- and also the mPOS Acceptance award. So we've done a number of things we're very proud of, and the team's doing a great job. But we're not in China in any real way. I mean we are just what David said, we have all the high-end merchants in Shanghai and Beijing and a number of cities but we have not been able to truly penetrate the vast market opportunity throughout China, and the same with India. We have a new referral partner in India. We have some other big opportunities in India, having just returned. We have a number of big opportunities now in China with us buying the other piece of HSBC. But as I said for a lot of calls, the real opportunities are those markets, and we have yet to capitalize on those but we're very focused on doing so. And now we absolutely have an opportunity to do it with us buying the other half of HSBC. Craig J. Maurer - Credit Agricole Securities (USA) Inc., Research Division: Can I ask a follow-up on Brazil?

Of course. Craig J. Maurer - Credit Agricole Securities (USA) Inc., Research Division: I apologize if you already mentioned this, but are you live there yet? And can you disclose who your bank partner is down there? I'm trying to get an understanding of your market share opportunity.

Yes, sure. Craig, it's Jeff. So our bank partner is Bank de Brasilia (sic) [Banco de Brasilia], BRB. It's a state-owned bank based in the capital of Brazil, Brasília, and it's a bank where most of the federal employees and the government have their bank accounts. And that was publicly announced in Brazil, I think, last month by BRB. What we've said before, which is still true, is that we plan on being live in fiscal '14, which, of course, starts in June, which would, of course, mean therefore a pilot before that. And given that we're in April, you can assume that that's relatively eminent.

Your next question comes from Kevin McVeigh of Macquarie.

I wonder if you can give any incremental thoughts just around buyback. It looks like you bought back, if I have it right, 130 million shares. And how we should think about that over the balance of the year and prospects for taking that up?

Yes, this is David. So I would point us all back to the Analyst Day in mid-January. We did then announce a $125 million buyback in an accelerated fashion that obviously hadn't closed by the end of the third quarter, so more to come on that as we close that out. And then if we think about to our commentary, we are committed to continue to buy back shares. Let us go and finish off that operation, come back and talk to you some more about it. But just know that we said -- we meant what we said in January, we intend to be in the market routinely buying back stock as the core part of our capital strategy.

Got it. And then just on the data intrusion, it's -- are we totally done at this point -- all behind us? It just -- it seemed pretty clear from the press release, just want to confirm that.

Yes. So let me parse that just a little bit. Again, this is David. We are complete. We are back on the list of PCI-compliant companies. We are processing. We are on, I believe, every list possible at this stage, all the way around the world from all the various entities. We still have some internal cleanup, so you'll see charges come through again in Q4 as they finish documenting processes and/or make sure that they're ready to roll on a sort of a run-rate basis as we exit the year. But our remediation activities are complete. Our rocks are all back, and we are compliant with all the networks now. It's a matter of making sure, as we exit the year, we're ready to roll and have that to be the core part of how we run the business and not as sort of a standalone function the way it's been for the last nearly a year from investigation through remediation.

Your next question comes from Brett Huff of Stephens.

Just one question. The loyalty stuff you were talking about, Paul, was really interesting. And I'm curious when the conversation start on loyalty, tell us how they start. Is it an issuer-driven conversation or is it a merchant-driven conversation? And then how do those conversations go? Kind of what's the focus, is it an issuer trying to keep their card top of wallet? Is it a merchant trying to understand their customers better? What's the genesis of that?

So they're typically -- it depends a little bit by market. But it's typically starting with us having smaller merchants in mind, kind of the SME to middle market, and offering that. The big guys are pretty much pursuing their own path, although we are having some discussions with larger merchants about this as well. And what you try to do is make it as seamless as possible. You want to tie in as many -- and that's why this edo thing is in [indiscernible] through the others. But this edo thing makes a lot of sense because you have 3 of the 6 biggest banks and 200 million cards. So you have a good chance as -- if you're a merchant, to get a wide spectrum of your consumers in. The challenge is you got to get as close to a majority as humanly possible. So we focus on ubiquitous offerings, ease of use by the consumer, some -- a commercial proposition for the merchant and, by the way, a little bit for us too. It makes the merchants stickier. It produces some good revenue sources for us. You want to add something, please, Jeff?

Yes. So I think what we liked about edo was that unlike some of the other models, which are deep discount models, edo really rides the back and the rails of the financial institutions from an issuing point of view. So I think Paul rightly described 3 of the top 6 FIs and about 200 million cards. So from a supply-and-demand point of view, in the case of edo, as one example, a lot of the offers are coming through the bank-related channels, and therefore, are very targeted. And it doesn't depend, therefore, on the small to midsize merchant, accepting very large, call it, 30% to 50% discounts. But instead, it can be a relatively small discount. But because it's very efficient and targeted in the way it's delivered, which is just coming through an FIs who knows the card spend, it's a very nice outcome for the merchant, for the issuer, for the consumer and for Global Payments. And we get bounties, as well as the volume related to loyalties on that. So I think from that point of view, it's a very nice way for us to participate in the loyalty schemes.

And then maybe -- I'm going to take a little crack, a little more color too, what the heck. It does -- Paul said exactly what I think is very important to emphasize is it actually starts with us looking to enhance our merchant value proposition and trying to find offers that aren't so issuer-focused that we can't bring enough value small to medium merchants, as Jeff had said. The final thing -- I'll pop in the real reason I'd butted in for a moment here is you should expect us to do similar things with our international partners where we have referral partners and our core partners in Europe and in Asia who have enormous issuing presence and allow us to be even more thoughtful about how we bring offers with them in partnership.

And just one more thing, we're beating this to death but it's important. Brett, I think the fact that we are this honest broker, right? We are taking inbound calls from a number of financial institutions, both domestic and international, saying, look, we understand you won't just to do this exclusively with us, but we understand that you will bring -- you bring some utility. Let's see if there's something we can work out that makes sense for everyone, and those are very interesting conversations.

Great. And then just, I guess, one quick follow-up. Is this the thing that merchants are next asking for from you all? As the trusted advisor, what's the #1 thing that your ISOs are being asked or your direct sales force is being asked next that you can help them with?

That's a wonderful way to wrap this up, thank you so much. I would say, Brett, that is precisely what we're being asked for. We were just -- I was just addressing -- our international product guys who are in for a big meeting, and we talked about what is it that we do. We provide core processing, but we provide much more than that. We have to allow the merchant to have a more intimate relationship with their customer by providing lots of data and have lots of relationships with the merchant that will be very difficult to disrupt. Pricing, generally, comes down in core products. You replace it with things like dynamic currency, with IPP, with installment payment, with loyalty products and that is exactly what they expect. Of course, PayPal is another one. That is exactly what they expect. The ISOs are asking for that, as are the merchants, and we're very focused on making sure we deliver it.

This concludes the allotted time for today's question-and-answer session. I would now like to turn the floor back over to Mr. Garcia for his closing statement.

Thank you, operator, and thank you to all of you for joining us today.

Ladies and gentlemen, this concludes our conference for today. Thank you for your participation. You may now disconnect.