Global Payments Inc. (GPN) Q4 2013 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the Global Payments' Fourth Quarter and Year-end Fiscal 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 Fourth Quarter and Year-end 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, July 25, 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. For fiscal 2013, we delivered revenue of $2.4 billion and cash earnings per share of $3.65. Fourth quarter cash earnings per share of $0.98 was towards the lower end of our expectations, primarily due to lower-than-expected volumes in Asia. As you know, we focused a significant portion of our efforts in fiscal 2013 on remediating security processes and regaining our PCI certification. As part of these initiatives, we accelerated planned investments in technology during 2013 to provide improved scalability for years to come, including new technology infrastructure, data centers and enhanced security capabilities. A key element of our planned 2014 growth is through the expansion of new and existing distribution channels, which we call our partner of choice strategy. We are successfully partnering with financial institutions, value-added resellers and other payment service providers offering merchants high-quality payment services around the world. Our business in the United States has benefited from differentiated distribution through the strategic acquisition of APT, which has performed above our expectations. And we anticipate it to continue to perform well in the coming year. I'm also happy to announce that we recently signed a multiyear contract extension with our largest and fastest growing U.S. third-party sales partner. Canada reported solid operating metrics and flat revenue growth in local currency in the fourth quarter. Very importantly, May delivered the revenue growth we expected. This performance sets Canada up for a much improved 2014. We are also delighted to announce a significant expansion of our relationship with CaixaBank. Given the success of our joint venture in Spain, we will now partner in Brazil, with the opportunity to further expand our partnership into other markets in Latin America over time. CaixaBank will take a 50% share in Global Payments Brazil, and will bring additional global customers, leading-edge products, and their acknowledged expertise into the Brazilian market. We plan to rename the company Comercia Global Payments Brazil. This investment underscores the strength of the relationship we have developed with CaixaBank. In our International segment, Europe's strong revenue growth of 7% for the year was driven by solid performance in all geographies. As payments evolve around the world, we continue to look for innovative partnership opportunities to provide cutting-edge solutions for our merchants. As such, I'm happy to announce that we recently initiated a new partnership in the U.K. with PayPal Here, a mobile POS product, which we expect to launch in late summer. We posted flat revenue performance in Asia for fiscal 2013. However, we expect to increase our market penetration and drive revenue growth in 2014. In fact, we are making progress in Asia, signing additional distribution partnerships as we speak. Finally, we are committed to completing additional strategic acquisitions and to continued share buybacks as evidenced by the newly announced $250 million authorization. Now I'll turn the call over to David. David?

Thank you, Paul. Fourth quarter cash earnings came in toward the lower end of our range of expectations, primarily due to performance in Asia and Canada. On a year-over-year basis, currency changes negatively affected total company revenues and cash earnings for the fourth quarter by about $6 million and $0.02 per share, respectively. North America revenue grew 4%, with U.S. revenue growth of 6%. During the quarter, new fees that payment networks introduced last year annualized and the fees billed by our ISO channel in aggregate grew at a slower pace than in the same quarter in fiscal 2012. As a result, we report a lower revenue growth rate than in a typical fourth quarter. However, it was about what we expected. And as a reminder, ISO fees to merchants are revenue pass-throughs to us and have no effect on operating income. In Canada, transactions grew 3% for the quarter, while credit spreads were down about 4%. We implemented our repricing actions as planned of late in the quarter, resulting in strong performance exiting the year in May. North America cash operating margin was 17.8% with operating income down 1% for the quarter. This reflects growth in the U.S. offset by an increase in technology spending and performance in Canada. International revenue grew 2% for the quarter in U.S. dollars. U.S. dollar revenue growth in Europe of 3% reflects unfavorable currency exchange trends, especially in the U.K. In local currency, Europe delivered solid revenue and transaction growth in all markets. Asia Pacific revenue declined 3% over last year, primarily due to lower-than-expected e-commerce and retail volumes across the region. International cash operating income of $57 million was down 7% compared to last year primarily due to performance in Asia and currency translation. Fourth quarter GAAP and cash tax rates were in line with our expectations at 28.6% and 28.5%, respectively. During the fourth quarter, we incurred pretax charges of $28.5 million for data intrusion remediation efforts. Full-year expenses totaled approximately $37 million, net of about $20 million of insurance proceeds. Remediation costs have recently run higher as we work to ensure all of our applications, tools and systems fully reflect our revised security standards and are operating at our required production scale and performance levels as we enter 2014. For the fourth quarter, we generated free cash flow of $101.6 million. We define free cash flow as net operating cash flows excluding the impact of settlement, assets and obligations, less capital expenditures and distributions to noncontrolling interests. Capital expenditures were a little under our expectation of $23.6 million and $98.6 million for the fourth quarter and full year, respectively. Our total available cash, including working capital at the end of the year, was approximately $250 million. And for the year, we purchased a total of $175 million of shares under our original July 2012 $300 million authorization. This includes the $125 million accelerated share repurchase program that we announced in January and which we completed during the fourth quarter, as well as an additional $38 million of shares repurchased during the fourth quarter under this authorization. We anticipate completing the $300 million authorization during the first quarter of 2014. All purchases under this program are included in our 2014 financial expectations. I am also pleased that our Board of Directors has authorized a new repurchase program of $250 million for further buybacks. Potential share repurchases under this new $250 million authorization are not included in our fiscal 2014 expectations. So now let's turn to 2014. We expect revenue to range from $2.51 billion to $2.56 billion, reflecting 6% to 8% growth and cash earnings per share to range from $3.93 to $4 per share, reflecting 8% to 10% growth over fiscal 2013. Our fiscal 2014 outlook includes an incremental step function increase in security spending of approximately $17 million or as much as $0.15 per share. And without this increase, cash earnings per share growth for the year would be 12% to 14%. We expect total company cash operating margins, which includes the negative effect of the security spending, to be slightly down compared to fiscal 2013. We expect North America revenue to grow at a mid- to high-single-digit level, with growth in the U.S. of mid- to high-single digits and Canadian revenue growth in the mid-single-digit range in local currency. We expect cash operating margins in North America to be about flat to perhaps slightly increasing. We expect cash EBIT dollars to increase in the mid-single digits compared to last year, with both our core U.S. business and Canada increasing. We anticipate that our International revenues and cash EBIT will grow mid- to high-single digits in U.S. dollars. We expect stable cash operating margins for international. We expect mid- to high-single-digit revenue growth rates in local currency in the U.K. and Spain, strong double-digit growth in Russia, and flat revenue in the Czech Republic. We expect Asia to produce mid-single-digit revenue growth. We expect foreign currency effects to be about neutral to a slight headwind for cash earnings per share for the full year. We expect our effective tax rate to be about 29% and our diluted share count to be about 75 million. And as with 2013, we anticipate our highest tax rate over 30% in the first quarter with the other quarters then coming in at lower tax rates. We expect the distribution of quarterly cash earnings per share to be roughly consistent with 2013. And finally, we expect capital expenditures on the order of $90 million. Now I'd like to turn the call back to Paul.

Thank you, David. To recap, for fiscal 2014, we intend to grow revenues in the high-single digits and cash earnings growth from at least that rate to the low-double digits. Importantly, these expectations include a significant step up in security costs of $0.15 in cash earnings per share for the year. Excluding these costs, annual cash earnings per share growth for fiscal 2014 would be 12% to 14%. We are positioning our company for sustainable, long-term growth throughout all regions and capitalizing on our scalable technological infrastructure and financial flexibility. I'll now turn the call over to Jane.

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

[Operator Instructions] Our first question will come from the line of Tien-Tsin Huang of JPMorgan. Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division: I guess, let me -- I'll ask about Canada. Just Canada with the flat revenues. I think you all are looking for something slightly positive on a constant currency basis. Looks like transactions ticked up. So what was the delta there? And also in May, can we assume it was growing in the mid-single digits and that's what's giving you confidence in the mid-single-digit outlook for the year?

Yes, Tien-Tsin, it's David. Overall for the quarter, we did see volume and transaction growth. I would say it was just a little lighter than we expected, and so Canada fell a little shy of our revenue expectations. If you go back to when we were entering the quarter, I would have said, and I'm sure I did say, it's a very important quarter for Canada, and that what we wanted to see was stability in the core metrics there. And I think the good news is we did. We saw relatively stable metrics, returned to a little bit better transaction growth of 3%. Maybe most important of all, and really importantly that was consistent with the third quarter, we saw about a 4% decline in core credit spreads. So as we discussed going into the quarter, more manageable declines, that of course, is before any impact from any reprices. So then you really hit the nail in the head with the most important part of the quarter for Canada, relatively stable metrics, nice sort of base from which then to go ahead and implement the price increases driven by the network assessment changes in the market. Those did indeed go in late in the quarter in May as planned. That performance in May sets us up for a much improved '14. I'm not really going to parse exactly what growth was in '14, but you're on the right track. Nice growth in '14, nice implementation of the price increases with reasonably solid underlying metrics. I mean, I'm far less concerned about a little bit of lightness in revenue in Q4 in Canada, and much more pleased about the outlook for Canada in '14 as I head into the year, given the implementation of the reprice.

And Tien-Tsin, it's Jeff. Just to add to what David said, what we talked back in January in Investor Day was to make sure that we exit '13 with a stabilization in Canada. I think David described it exactly right about where we are. I do think his guidance for fiscal '14 about Canadian revenue growth in the mid-single digits and local currency is really where we really want to be. Tien-Tsin T. Huang - JP Morgan Chase & Co, Research Division: Okay, got it. And then Asia -- I know you said this is lower than expected, lower than we expected it as well. Just -- it sounds like there's some distribution deals that you're working on. Again, same question there, visibility to get back to growth in '14. It feels like it's been steadily declining or decelerating, so just trying to get a sense of the visibility there.

Yes, and obviously, a fair question is that was one of the real challenges for the quarter. We do have new distribution partners who have come online. It's certainly not enough volume to offset what we saw in Q4, but it should build nicely over the course of '14. Maybe as important and more important will be new partners we bring over the course '14. And maybe when I'm finished with this part of the answer, I'll let Paul add a little more color to that piece. But really what we saw in Q4 in Asia was some sequential deceleration. Deceleration, to make sure I'm clear on that, in e-commerce, in really a year-over-year decline that was obviously, unexpected. We saw weakness in general retail as well. That was headlined by a year-over-year decline in one of our larger customers in the region, and a little bit of weakness in DCC and IPP, where we had expected some growth in the installment payment plan products. I think when I think about going into '14 then, a couple of things really go in our favor, quite honestly the most straightforward one is the comparables are much easier. We have seen relatively stable underlying metrics as we exit the year, so transaction growth, for example, across the region. Relatively stable tickets and solid growth in transactions and volume in general should set us up for the kind of growth we're talking about, and we're not expecting anything other than solid but not spectacular growth across these same product lines I was discussing earlier, retail, e-commerce, DCC, IPP. And then we'll do a little bit of targeted repricing in markets that can support that over the course of the year. So all in, I think if you look at the way we exit '14, you're right, there's not a lot of great things going on in the Q4 of '14, but as we enter -- or Q4 of '13, excuse me, as we enter '14, looking for solid but not spectacular performance, and I think we're poised to deliver that over the course of the year.

So Tien-Tsin, this is Paul. I would add that keep in mind that Asia is 6% of our revenue. And we are committed to grow it. But the bigger story is that Asia should be a much larger percent of our revenue. So by growing it 10%, that's not, quite frankly, satisfactory. We have a -- and to be specific, I was asked, I think a quarter ago, how long is this going to take? Now there's no -- there's no guarantee on deals in strategic alliances and all the things we're working on. But we feel we have enough irons in the fire that -- I made a pretty bold statement that we would get something done. And I'm sticking to that statement. We are going to get something done. So we're going to grow Asia organically, but we have high expectations of something more dramatic in some exciting areas. And that's -- and I understand everyone needs to wait and see that. And we plan to deliver that.

Your next question comes from the line of Dan Perlin, RBC.

So I had a couple of questions. Can you start off by helping me kind of disaggregate a bit on the top line for fiscal '14, the guidance? This part of it that's pricing, this part of it's transaction, this part of it's products, but I would like to get a better sense because I hear David talking a lot about pricing, which sometimes it's much harder to grind out, versus the feeling that there's something better in the region or you've products got, you've got some partners. So if you could just kind of help me parse that a bit, I would appreciate it.

Sure, Dan. Happy to do that. And I think in regard to pricing, I'd point out, we're really talking about Canada there and the changes driven by the networks more than anything else on a worldwide basis. So if you were to disaggregate the way the markets are going to rollout or the way we think they're going to rollout over the course of the year, as you know the U.S. is an amalgam of a number of product lines. So in the U.S. we're expecting consistent growth from the ISO channel, but reflecting essentially the law of large numbers. That channel gets ever bigger, so on a percentage growth basis, it's not going to grow at the same rate it may have grown in '13, just as '13 didn't grow the same as '12. In the direct channel, you're familiar with our direct business there, it's going to perform solidly as it has for the last year or 2. No real change in trend there if you're thinking about sort of how should I take my model forward from '13 and into '14. That direct channel includes, of course, our joint venture with Comercia, which performed well in 2013, will continue to execute well in 2014. The gaming business we talk about from time to time is a very nice vertical play in the United States that generally hovers around high-single digit to low-double-digit revenue growth, which should perform again at that same level in 2014 based on our current expectations. We now will fully annualize APT, the acquisition from last year, and we're expecting that to continue to grow in the mid-teens with real operating leverage as well. So all in, in the U.S., we're talking about mid- to high-single-digit revenue growth and operating income or EBIT improvement in the United States as well. So those are the pieces of the U.S. and where we expect growth. When you think about the underlying metrics, while we don't provide forward-looking guidance on things like the operating metrics, we're really not looking for any fundamental sea change and how fast transactions grow or what happens with average tickets, hence what happens with volumes at all the United States. In Canada, we're looking for continued solid metric growth, so transaction growth, fueling volume growth, stable average tickets, and then that's the one market where I would really call out pricing because of what's going to happen from the networks. What already happened from one network, what happens again from the other network come July. So consistent performance of what we saw in Q3 and Q4 with underlying metrics that then results in mid-single-digit revenue growth in local currency. Now if you're doing your model, one thing to keep in mind is Canada's one place that'll likely get hit by currency in 2014. So mid-single-digit revenue growth in local currency there will be ameliorated somewhat by the effect of currency. So let's keep going east and we'll head to Europe, where in United Kingdom, same underlying comment I'd made in the other markets. In the United Kingdom, we have, as you're familiar, a couple of product lines, but the core credit and debit processing business we expect to perform in very similar fashion to the way it performs in 2013. So that's in local currency, mid- to high-single-digit revenue growth. Now that base business will grow and our International Acquiring business. We're acquiring cross-border. Card-not-present transactions will continue to grow well and help fuel that growth as well. In Spain, we're actually looking for, again, mid to high-single-digit growth, once again defying gravity in the Spanish economy with our partner, CaixaBank. Again in Spain though, I would say once more, transaction growth consistent with 2013, helping to drive that. With Russia, we've seen really accelerated high double-digit volume and transaction growth. We expect that still going into '14, but we've brought those expectations down just a hair. Again, the business keeps getting bigger, therefore, expect the exact same percentage growth. We take a couple of points off that as the business gets a little bit bigger, but the same kind of strong double-digit revenue growth we saw in 2013. And then the business in GP remains flat, so very consistent assumption as you're building your model for that business going forward. And then with Asia, it's really the answer I was chatting about with Tien-Tsin just a moment ago, which are that 2013 was a challenge, the comparables are set, the question becomes can we grow over that 2013 comparable with a next-to-better penetration with the existing products, improved distribution? And then can we see just a little bit more stable underlying metrics? And we think we're poised for that as we go into '14. So all in, I don't think there are a lot of surprises if pull apart the guidance with a little lower level of detail for you. It's mid- to high-single-digit growth in North America. It's international growth in total of mid- to high single-digits, which is an amalgam of an awful lot of really nice trends. And then a little bit of a haircut due to FX, adding up to the full range of 6% to 8% year-over-year on total company revenue level.

Okay. And then let me just ask one other one because I know that was a long answer, so then I'll then hop off. Paul, you talked about acquisitions. And it sounded like -- I mean you kind of hit it quickly, but you sounded like you were a lot more serious about it in the way you kind of presented it. So is that something that we need to be mindful of? And if so, is there a geography that you're hopeful and maybe more serious about going after?

Well, Dan, we have a pretty good pipeline, and they are in pretty much all of the geographies that we're involved in. But the question was about Asia. And I think what I said was that I can -- the reason we bought the other piece of the business from HSBC was in part to give us the flexibility to do some other deals. And we've been having -- that -- when did we do that transaction, David?

December, we closed it.

Okay. So we've been having -- we had some conversations prior to that date, but now we're very serious about it. And yes, we are very focused. So I would say that Asia is a primary candidate for us doing some new types of deals. Now there are some other opportunities around the world we're looking at as well. But Asia is a primary point of focus for us as we speak.

Your next question will come from the line of Roman Leal, Goldman Sachs.

Similar question on -- just a break out of all the different drivers, but just on the margin side. Can you give us -- can you perhaps disaggregate as much as you can the -- what's driving the margins? Specifically, I mean -- North America, international would be great, but especially in the international, what's the -- why not -- what's kind of handicapping the margin expansion in '14 there?

Yes, happy to share that with you, Roman. This is David. So if you take the pieces of margin in total for the company -- Let me do North America first. I'll spend a little bit of time on international. North America is the addition of APT. And as the law of large numbers hits with ISO, little less pressure on the ISOs than you may have seen, say, a year or 2 ago. And then the improved performance in Canada, as you well know, with the ongoing ISO pressure having our second largest business then creating a big margin challenge has been among the more difficult things to manage from a margin perspective for the last couple of years. So to have that asset turnaround in '14 as we expect makes all the difference, and then being able to see a flat to slightly increasing margin on a cash basis in North America. In international, you really have 2 stories not unlike the revenue story in Q4, quite frankly. The more mature markets, or the more established markets is probably a better phrase, particularly of Europe, Spain, the U.K., continue to drive operating leverage, continue to drive margins forward, continue to drive operating income growth. We also see Russia continuing to drive real substantial leverage, double-digit growth -- growth well into the double digits on the revenue side, obviously, translating into really nice income growth as well and a very solid Central Europe business. What happens though in the opposite direction is Asia. So with Asia, though we're expecting some solid revenue growth, or at least a return to growth in the mid-single digits, we really are not slowing down what I guess I might describe as investment in Asia for the long term. When you hear Paul describe the long-term opportunity of Asia, the opportunity for more partners, the opportunity to bring more partners in, what that says to us is we should keep investing, in a circumspect and appropriate manner, but keep investing in Asia, not starve it of investment, and keep an eye on the long-term growth opportunity. So we are investing in infrastructure improvements there for scalability. We are migrating India, a huge growth opportunity market for us, we think, long term, off of a legacy platform, operated by HSBC under our own front-end and back-end platforms, and we're looking to invest in other partnerships across the region. So what you end up with is then operating income and hence growing much slower than revenue. And as a result, a pretty good-sized drag on margins overall for international that then are sort of offset by Europe and then to the extent you feel a little bit of FX here and there, that would be the reconciling item probably to anything you have in your model. If you then pop that up to the total company between those 2 regions, you've got something but we're expecting margins to be slightly down including security. That again is -- the ISO, the APT, the Europe and the Asia, with security then, you can do your own math, obviously, off the prepared comments. But security, obviously, is taking that margin backward on the order of 70 basis points. So you have some slight to modest margin expansion were it not for the security in total at the total company level.

Okay, that's helpful. And then, Paul, the new buyback authorization, maybe help us think through the timing -- the potential timing of that. Is that going to be a balance between what you're seeing in Asia and other parts of the pipeline? Any color on the potential timing on that buyback will be helpful.

Okay, Roman. I can't be specific as to timing other than I think we have a long track record of saying that we have authorizations and then executing on them. And I would just ask you to rely on our past behaviors. However, our first use for our cash and our leverage is to do deals, and accretive deals in important areas. But we feel that we can carry out both of those objectives or we wouldn't have asked the board to authorize what we did.

Yes, I think maybe -- this is David. I'll add a little more color on that. Let us finish the previous authorization over the course of this quarter, and we'll come back based on judgment about the pipeline and timing as to what pace to embark on the next authorization. But as Paul said, quite rightly, I think we have a track record of executing them when we announce them. And we do believe we have the resources to both execute -- really to execute the entire strategy we described to you going back to January and the first priority of supporting a long-term growth and business expansion with ongoing, routine, share repurchases complementing that.

And your next question will come from the line of Dave Koning, Baird. David J. Koning - Robert W. Baird & Co. Incorporated, Research Division: I guess first of all, I just wondered international cash EBIT was down, I think, 7% year-over-year. And I don't remember you really addressing that in the prepared remarks, but that's down a little more than usual, because it usually grows pretty well. Maybe you could just talk through that for just a minute.

Yes, David, it's David. I'm happy to add more color. For the quarter, it's really 2 big drivers. It's Asia, which is down as you might imagine given the color a little earlier on Asia. So revenue growth, as you can see on the face of the income statement, is down. We have not arrested spending in Asia. So operating income is down. In fact, operating income would be down sort of proportionally with a greater effect then on revenue given that we're still spending on the infrastructure and on some of the migrations over there in Asia. At the same time then, we have very solid performance across the board in Europe that gets clipped by currency. So between Asia and currency, there's really your delta between what you may have expected or what we may have hoped to report for international overall versus what we did report. David J. Koning - Robert W. Baird & Co. Incorporated, Research Division: Okay. And then just secondly, did the elevated security cost kind of going into next year that are going to run through the kind of normalized earnings, is that going to be kind of nonrecurring as we look out, or is that something that you expect to be ongoing?

Yes, I would describe that as a new run rate for a revised security posture for the company. So to be painfully clear, we don't expect another increase of $17 million in 2015. $17 million represents the new baseline added -- $17 million added to whatever other security we already had represents a new baseline that we would hope to actually scale. We've implemented a ton of tools, lots of new managed services. We've worked hard on perimeter defenses, internal monitoring, reporting all the things you can imagine, leveraging partners, increasing headcount where appropriate, all of that again is, I would say, is a new baseline from which we then hopefully scale over the course of '15 and beyond.

And, David, this is Paul, that's quite frankly, why we called it out because it is a step up.

Your next question will come from the line of Jason Kupferberg, Jefferies & Company.

Just wanted to see if we can get a little more granular on the margins. I know we're talking about "slight year-over-year decline," but should we be thinking of that as more on the order of like 20 bps or 40 or 50 bps?

Yes, Jason, it's David. I think in that range, for us slight is -- I hate to parse the word slight, but it's really not 100 bps. It's less than 50 bps. It's in that kind of range.

Okay. Understood. And then what are you modeling for Canadian spreads in fiscal '14 as well as transaction growth?

Yes, so in '14, then again we don't parse forward-looking metric expectations, but what we are expecting is transactional growth and, what I would call, core spread declines, very similar to what you saw in the second half of this fiscal year, which we reported to you, which is -- we just did a quarter with 3% transaction growth and about 4% core credit spread decline. So that's the underlying metric for the outlook for Canada for '14.

So just to make sure I'm clear on that. So 4% with a slight compression in Q4, but presumably you exited the quarter a bit better than that after the price increase, right?

That's correct. So I'm going to parse words, and I apologize for it in advance. That's why I call it the core credit spread. That's the underlying assumption what the base would do before you brought into that what is the pricing impact going to be.

I got it.

Jason, it's Jeff. I would just add to that, that without trying to parse it even further, when we separated it out that way, there's the core spread as David described, and then we always do assume that there's pricing attrition. So we don't assume any pricing changes continuing in perpetuity.

And your next question will come from the line of Greg Smith with Sterne Agee. Gregory Smith - Sterne Agee & Leach Inc., Research Division: Just to be clear, Dave, how much is remaining on the $300 million buyback, the amount you said you'd complete this quarter?

Sure, Greg. So let me reconcile that for you. I appreciate your asking. I'll go all the way back to the beginning to be -- hopefully to be painfully clear. The original authorizations we started last fiscal year was $300 million. We did some open market repurchases of about $13 million around the second quarter. We did our accelerated share repurchase, which we announced in January and closed in the fourth quarter to the tune of $125 million. Then we did some more open market repurchases to the tune of $38 million in the fourth quarter. So as of May 31, as we exited the quarter, we had about $125 million left. And as you might imagine, we're on our way to completing that piece of the authorization over the course of the first quarter of 2014. Gregory Smith - Sterne Agee & Leach Inc., Research Division: Okay. And then, obviously, that is in the guidance but none of the incremental $250 million buyback?

That's exactly right, Greg. Gregory Smith - Sterne Agee & Leach Inc., Research Division: Okay. I guess, Paul, do you want to just -- can we get your view on European interchange, potential regulation, and how you see that maybe playing out for Global Payments?

Sure. So, Greg, first of all, it's going to play out over a long period of time. I think we all know this is years. But at the end of the day, and not to boil this down too simplistically, but at the end of the day, complications are not bad. Downward pressure in interchange is typically good for all acquirers, quite frankly. And I'm not saying that would give us an opportunity to raise prices or anything necessarily. It simply takes some pressure off of us because the merchants total discount rate is reduced rather dramatically, the pressure in our spread, quite frankly. Now there are some discussions about transparency. Quite frankly, our deals are incredibly transparent today. So we're not worried about any of that. So the short answer is it's a good thing for us. There's a lot more chapters to be played down on this. The only kind of fair case you could make would be would you get interchanged to a level that banks would be discouraged from issuing cards? I would just tell you from our personal experience and in some markets that we're not involved in like Australia. If you look at where interchange levels were and how many cards are in the market, and then a significant reduction in interchange and how many cards in the market, I would tell you in Spain, there's actually more cards. Our partners actually issued more cards. So there's still a case that they can make a -- they can make a quite nice living. And the last thing I would say is that it doesn't mean that the consumer doesn't pick up some piece of this, in Australia, for example. I think MasterCard is trying to hit the EU maybe a little too heavily, so says someone in the Journal today. But I kind of get where they're coming from, sentiment-wise. I mean, this is the balloon, right? You push on it one end, it's going to pop out somewhere else. So long and short of it, it's good for us.

And your next question comes from the line of Glenn Greene, Oppenheimer. Glenn Greene - Oppenheimer & Co. Inc., Research Division: Dave, maybe could help me out. You had a lot of prepared comments and you talked about North America or specifically U.S. growth that's 6%, which we all know kind of slowed. And you talked about a few dynamics there. Can you kind of walk through that again? And more importantly, is this sort of a one quarter phenomenon, and do we kind of bounce back? And then I have a follow-up.

Yes, I think Glenn, the way to think about that is all these fees -- the new fees have all annualized by the time we got to the fourth quarter. And then the biggest play in any given quarter in our revenues is what do the ISOs do with their own fees? We don't control it. Quite honestly, other than reporting revenue growth, we really don't care about it. It doesn't provide any profits, so that's always a swing. So I think Q4 was lower than you should expect in any given Q4 as a general rule with the big swing, obviously, always being those fees from the ISOs. As we look forward, what we're saying for the full year for the U.S. is mid- to high-single-digit revenue growth, which reflects the law of large numbers and the ISOs in general and then really nice growth in APT, in gaming and solid performance in our direct channels. So as we sit here at $1 billion plus of revenue in the U.S. overall, mid- to high-single-digit revenue, it's a pretty nice number. Do I expect to do better than 6? Yes, in a lot of quarters I do. And then the ISO fees at any time could swing that back towards 6 or 5, obviously, mid allows an awful lot of room in that range. But we want to make sure we talk about Q4 here. Because Q4 is usually a big seasonal revenue growth quarter for the company. I think Q4 '14, we should see decent seasonal growth again. But again those fee's swings could cause it to drop a few points at any given time. Glenn Greene - Oppenheimer & Co. Inc., Research Division: Okay, and then I -- it probably relates to the North America margins as well, which actually were better than what we were looking for despite the revenue mess and relative to our numbers in U.S. and Canada. Is it the same phenomenon? I mean, ISO is driving somewhat better margins there. And the other question related to North America margins is how much of a contribution was APT to the margins?

Yes, it's a great question, and, yes, it is a part of it. It's always a mix of a number of things. But each margin conversation in a quarter, particularly in North America, starts with how much ISO pressure you're feeling. And anything that slightly reduces that makes it a little bit easier for us to operate. And then APT is more than doing the job we expected of it when we closed it in October, which is obviously, quite helpful in the underlying numbers as well.

Your next question comes from the line of Bryan Keane, Deutsche Bank.

Just following up on the North American margins. I think you said, David, that they'll be up year-over-year, and I don't think we've seen that in a long, long time. So I guess I'm just struggling. It sounds aggressive to me. Can you just help me feel better about that in fiscal year '14?

Be happy to, Bryan. I think that for North America, to parse it into its pieces again, we will get a full-year benefit and very nice growth from APT inside the United States. We should see, again, law of large numbers, ISO revenue growth slow down a bit. So that headwind that starts every quarter for us should be a little less challenging. That's on top of a U.S. business, where EBIT grew in 2013 to begin with, because this is part 2 of the explanation. Canada by definition was going backward in 2013. It goes forward in 2014. So flipping Canada around makes as big a difference as anything in North America in 2014. And to your point, it's been some time since we've seen this. It's been some time since Canada's headed in this forward direction.

And, Bryan, it's Jeff. I would just go back to what we said in January at our Investor Day, stabilizing Canada is an important part of what we're trying to achieve toward the end of fiscal '13 going into '14. That coupled with the investment in APT and the actions that Dave described are big parts of the reason why we expect the margin to do what Dave described in '14.

So, Bryan, and to finish the pieces, you've got the U.S., the Canada, and then remember the technology investment that increased in 2013, and that increase doesn't recur. The cost, obviously, is still inside the run rate, but that elevated level of increase doesn't recur. So all in, with North America then, those are the pieces of where we expect to see the opportunity for flat to maybe increasing margins for the first time in a while. Then the final piece of this is that the security investment is going to appear in the Corporate segment because it's an investment for the total company. So hence, those are the moving parts of North America and then the one piece that you may have been wondering about from reconciling item perspective.

What about FX? Because I would think that the Canadian dollars is going to weigh on you and weigh on that margin in the quarter throughout the year?

Yes, that's incorporated so -- great question, Bryan. In our prepared comments, we talked about the opportunity for neutral to a slight headwind overall given FX for the full year for the company. Our outlook for that, given the very sources we try to use, is for the dollar to strengthen against the Canadian dollar a little bit and then weaken a hair against some of the European currencies, so that all in -- and then be neutral against some other European currencies, so that all in, you've got this opportunity in total for neutral to a slightly -- a slight headwind from FX. But the idea of an FX headwind in Canada is incorporated in the North America outlook.

Okay, that's helpful. Just lastly, Paul, just a follow-up on some of the EC regs that are out. I guess I was under the understanding you guys bundled some of the merchant acquiring in Europe. So an unbundling kind of what they're pushing at, I think, would have an impact on you guys.

I'm not going to agree with you, quite frankly. I think if we're talking about that level of reduction -- by the way, that is correct. For smaller guys, we do, indeed. So let me just say that you are accurate. For larger guys, not necessarily. In fact, I would say most usually, not at all. They have a discrete pricing. It's typically over interchange and assessments, and it's explained as basis points or euro cents per transaction or pence per transaction. Now for the smaller guys, it would be transparent. Their -- it's already highly competitive. Those rates, I think, are pretty good. But once again, the overall rate goes down. So if you're a small merchant, you know all the aspects of that. I think you're going to look at the end result of a much lower rate, and I think that's good. I really do. But I think we check back with each other in 2 years and we'll see, maybe 3.

Your next question comes from the line of Craig Maurer, CLSA. Craig J. Maurer - Credit Agricole Securities (USA) Inc., Research Division: I was curious -- I have 2 questions. What -- first, what will la Caixa bring to your Brazil effort that's been installed? As best I can tell, they don't really have a presence in Brazil or infrastructure there. So concerning the branch level selling that goes on there, I'm not quite sure what they bring to the equation other than money. Secondly, if China continues down the road, are they more open -- a more open situation for outside players in the payments infrastructure? Does that help or hurt you if, say, someone like First Data with huge resources could go in there unencumbered?

Okay. Well, let's -- this is Paul. Let me start with the Brazil question. I'm going to ask Jeff to pick a piece of that and throw it back to me for China, if you would, Jeff. So on Brazil with CaixaBank, they have a number of significant and, in many cases, these are direct investments and possibly even board positions with a number of significant players also in Brazil that could be potential customers for us. Secondly, they have a bunch of technology that makes up a lot of sense that will help accelerate some of our product delivery. Thirdly, and I think it -- to be a little bit disingenuous, Craig, if I didn't say the money doesn't matter, it does. They bring a partner that will help us make appropriate investments without being as consumed with the impact from quarter-to-quarter to really get the full benefit. I mean, this is -- this is clearly 1 plus 1 equals 3. And in terms of the distribution, I would tell you, we're up and live. We have -- we're being in a fair number of merchants per day right now. I mean, fair number. And it's -- we're building this thing pretty much faster than we thought we would. So -- and it does not preclude us, and this is very important, it does not preclude us doing more with other financial institutions in terms of added distribution. In fact, you could argue la Caixa or CaixaBank is not encumbered because of what you just said, so they will also help us in that regard. So I think this is nothing but good news. Jeff?

Frank, it's Jeff. I would just add to what Paul said on that topic. Now la Caixa and CaixaBank has relationships with other financial institutions with multinational merchants in markets not just in Brazil but around the rest of Latin America. So if you go back to Paul's prepared comments, it's important that this is focused in Brazil. But we're also looking at the picture in the rest of Latin and South America, where CaixaBank has many relationships, both on the customer as well as on the financial institution side. Craig J. Maurer - Credit Agricole Securities (USA) Inc., Research Division: Before you move on to China, is there -- has the privatization of Redecard given you an opportunity to go after some of the banks that were or still are affiliating through them?

Craig, it's Jeff. The answer is absolutely. So we've seen a sea change in the Brazilian marketplace in the last year, so coming out of the Itau purchase of Redecard. I think other large banks in market recognize that they're after the same book of business, from a banking point of view, that Itau is after. So the receptiveness that we've gotten since that deal was announced and certainly closed has gone up quite a bit versus where it was when we first started in that market 2.5 years ago. And I think we'll see more of that down the road.

Okay. So let me talk about China, Craig. So the question was if China -- and we think by the way, they will. If China makes it easier for others, other players, non-Chinese players, to be involved in their markets, is that good or bad for us? I think that anything that reduces the level of regulation and opens up the gates a little more fully is good for us. Now we clearly have first mover advantage. But we are -- we do have some encumbrances. I mean, we are the only non -- to our knowledge, the only non-Chinese company that can acquire in renminbi today. But we haven't enjoyed the full measure of that, and part of it is some of the regulations that we are burdened with. Now we're also uniquely positioned with CUP. We are the member of the larger board of their international organization in North America. We're the only member, in fact. And that's a big deal. So we have unique relationships. We have first mover advantage. And clearly, others are going to get in and attempting to get in, but I think that is more good for us than bad for us than that.

Your next question comes from the line of Brett Huff, Stephens.

I just had one question. You talked a lot about India last quarter and a little bit more this quarter as an interesting target market where your penetration is fairly low. Can you just sort of paint a picture of how -- what would a JV there with a bank look like, or just kind of give us a sense of how that would work? And is it expensive? Is there a lot of competition for those JVs? Kind of just give us a sense of how that looks.

Okay. I'll speak kind of notionally. So a JV -- typically, it's -- we have a 51, they have a 49, although we're open to different structures, us having more potentially, even a 50-50. It depends though on what we're trying to accomplish. In terms of is it expensive? I think anything that's attractive in India is going to be fully valued plus some. I think the -- I think they are very smart operators and understand the value of what they have and understand the opportunity a JV with a significant player would provide. So yes, I think you'd pay off for that. It doesn't mean it's not going to be cash accretive. I think all deals we do are cash accretive. But it's all I can say on that.

Your next question comes from the line of Steven Kwok, Keefe, Bruyette & Woods. Steven Kwok - Keefe, Bruyette, & Woods, Inc., Research Division: I was wondering around -- I know you've given guidance around how we should think about EPS for the next quarter, but I was just wondering are there seasonality with regard to the operating margin for each of the different segments?

Yes, Steven, this is David, there are. And typically, what you'd see is stronger margins really for each of the 2 segments in Q2 and Q4, with the lower margins being reported in Q1 and Q3. In Q3, in particular, our February quarter kind of crosses over the year end in a number of markets, usually being the weakest both from an EPS as well as from a margin perspective. Steven Kwok - Keefe, Bruyette, & Woods, Inc., Research Division: Got it. And then finally, with regards to the additional charge I was taking on the processing preach, I was -- are there other charges that's going to occur in 2014? I was just wondering when we'll see the end of that.

Right. We expect a little bit of modest spill over into Q1, and then that's the end of it.

Your next question comes from the line of George Mihalos of Crédit Suisse. Georgios Mihalos - Crédit Suisse AG, Research Division: Just wanted to go back to Brazil for a second. Has anything changed in terms of how you think of that region from the perspective of strategic importance as kind of maybe gone down a little bit on your list of things to do?

George, it's Jeff. No, it hasn't. I actually think the CaixaBank announcement should highlight that we expect to increase our strategic focus on -- in Brazil. As Paul mentioned, we started operating in that region. As we said previously in the fourth quarter, fiscal '13, so we're live with customers now, which obviously, is a key milestone for what we're doing. We think that the rationale behind the CaixaBank deal will allow us to accelerate the growth of that business, make additional investment, as Paul described, and bring many of the leading-edge products and technologies that CaixaBank has in Spain, in many cases, with us in partnership into the Brazilian marketplace. So I actually see it as quite the opposite. It also adds, George, the ability to look at additional markets in Latin and South America beyond Brazil through their relationships. I view that as additive to our investment in Brazil. But I think it means that we feel very good about where we are there, and we're very pleased to expand our partnership with CaixaBank into that market. Georgios Mihalos - Crédit Suisse AG, Research Division: Okay. And can you just remind us what the expense drag from Brazil was from an investment standpoint in '13? And now with Caixa coming in for 50% of it, those expenses will no longer hit the operating line, right? They'll be -- they'll go below the line, am I thinking about that correct?

Yes, you're on it right, George. So we really didn't parse it out fully. It is about $0.04 for the year is the way to think about it of pure expense. What's interesting about that is as we go into '14, what we're looking to do with our partners at CaixaBank is actually amp up that investment. As you get live, you might imagine, you have expense in front of revenue. So you're hiring salespeople, you're getting product out, and then you're bringing the revenue in through the distribution channels. So what you should really expect is you'll see -- we closed it probably at the end of Q1, so maybe some business as usual kind of Q1, and then we'll be back to when we close as to whether there's any effect. But it's quite possible you'll never notice it in the face of the P&L and we really won't chat much about it other than your core second point, which is what's going to change from a geography standpoint. Well, Brazil likely, by that time, will no longer be in the North America segment. It will roll through, will deconsolidate, and you'll see it in income, but you won't see it in the pieces above the operating line.

And that concludes the question-and-answer portion of today's conference call. I'd now like to turn the conference call back over to Mr. Garcia for closing remarks.

Thank you, operator, and thank you, ladies and gentlemen, for your interest in Global Payments and for joining us today.

Thank you for your participation on today's conference call. You may now disconnect.