Global Payments Inc. (GPN)

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Global Payments (GPN)

Q3 2011 Earnings Call

March 31, 2011 5:00 pm ET

Executives

David Mangum - Chief Financial Officer and Executive Vice President

Paul Garcia - Chairman and Chief Executive Officer

Jane Forbes - Vice President of Investor Relations

Jeffrey Sloan - President

Analysts

Brett Huff - Stephens Inc.

Robert Dodd - Morgan Keegan & Company, Inc.

Christopher Shutler - William Blair & Company L.L.C.

Bryan Keane - Crédit Suisse AG

David Koning - Robert W. Baird & Co. Incorporated

Glenn Fodor - UBS

Daniel Perlin - RBC Capital Markets, LLC

Moshe Katri - Cowen and Company, LLC

Kartik Mehta - Northcoast Research

Darrin Peller - Barclays Capital

Steven Kwok - Keefe, Bruyette, & Woods, Inc.

John Williams

James Kissane - BofA Merrill Lynch

Timothy Willi - Wells Fargo Securities, LLC

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to Global Payments Third Quarter Fiscal 2011 Earnings Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to your host, Vice President of Investor Relations, Jane Elliott. Please go ahead.

Jane Forbes

Good afternoon, and welcome to Global Payments Fiscal 2011 Third Quarter Conference Call. Our call today is scheduled for one hour. Joining me on the call are Paul Garcia, Chairman and CEO, Jeff Sloan, President, and David Mangum, EVP 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 as 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 normalized and cash earnings for third quarter fiscal 2011 which are not in accordance with GAAP. Management believes these results more clearly reflect comparative operating performance. For a full reconciliation of normalized and cash earnings to GAAP results in accordance with Regulation G, please see our press release for an issue of an Exhibit to our Form 8-K, dated March 31, 2011, 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?

Paul Garcia

Thank you, Jane, and thanks, everyone, for joining us this afternoon. I'm happy to report strong revenue growth of 15% to $456 million as well as normalized earnings per share of $0.63 for the third quarter as anticipated. We continue to expect strong fourth quarter results as well and are poised to deliver our full year revenue and earnings estimates.

Now, for the highlights of the quarter and some recent events. I am pleased with the initial performance of our joint venture in Spain, which is on track to deliver $25 million to $30 million in revenue for fiscal 2011. As we reported during our last conference call, we plan to pursue sales strategies similar to those which we successfully employ in the U.K. Accordingly, we have begun the process to add over 50 sales people over the next few quarters. When combined with the "la Caixa" brand and 5,000-plus branch footprint, we expect to drive significant market expansion and long-term growth. We are obviously delighted with the partnership we have formed with "la Caixa".

Speaking of the U.K., I'm pleased to announce that we have completed the migration of our U.K. merchant payment processing platform to the Global Payments back-end platform. This was a remarkably complex, multi-year process that affected over 145,000 merchant locations and added 13 currencies to our payment processing functionality. Concurrent with this migration, I'm also happy to report that we are now fully operational for all U.K.-related customer support functions in our Philippines call center. North America delivered strong revenue growth in the quarter, with U.S. and Canadian transaction growth rates of 20% and 7% respectively.

Our International segment produced another quarter of strong results, driven by the addition of Spain, continued strong growth in Asia and solid core performance in Russia, Central Europe and the U.K.

Lastly, we continue to make progress in our efforts to enter the Brazilian market, and we'll update you as further developments unfold.

I'll now turn the call over to David.

David Mangum

Thank you, Paul. North American Merchant Services revenue grew 13% for the quarter, driven by U.S. Merchant Services revenue growth of 15%. U.S. results reflect continued strong growth from our ISO channel. Our expectation for low-double-digit revenue growth from the U.S. in 2011 remains unchanged.

In local currency, Canadian revenue was flat with prior year, and we expect similar performance for the full year. Consistent with our expectations, North America Merchant Services' normalized operating margin was 19.1% for the quarter as compared to 20.8% in last year's quarter, with EBITDA was up modestly over 2010.

International Merchant Services' revenue increased by 20% compared to last year. Operating margin increased to 28.2% for the quarter compared to 27.4% and now incorporates the margin-dilutive effect of Spain. Asia-Pacific growth slightly exceeded our expectations. Based on current trends, we expect revenue growth in the low 20% range from Asia for the full year. And given these results, excluding the addition of Spain, our annual expectation for overall International revenue growth in U.S. dollars has increased to mid-single-digit percentage growth.

Our total normalized company operating margin from continuing operations for the third quarter was 17.9%, down from 18.5% last year. Excluding the addition of Spain, our overall company normalized operating margin expectations remain unchanged for fiscal 2011.

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