Global Payments Inc. (GPN)

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Global Payments (GPN)

Q2 2012 Earnings Call

January 05, 2012 5:00 pm ET

Executives

Jeffrey S. Sloan - President

David E. Mangum - Chief Financial officer and Senior Executive Vice President

Jane M. Forbes - Vice President of Investor Relations

Paul R. Garcia - Chairman and Chief Executive Officer

Analysts

Greg Smith - Sterne Agee & Leach Inc., Research Division

Wayne Johnson - Raymond James & Associates, Inc., Research Division

Ashwin Shirvaikar - Citigroup Inc, Research Division

Christopher Brendler - Stifel, Nicolaus & Co., Inc., Research Division

Jason Kupferberg - Jefferies & Company, Inc., Research Division

Tien-Tsin T Huang - JP Morgan Chase & Co, Research Division

Bill Carcache - Nomura Securities Co. Ltd., Research Division

David J. Koning - Robert W. Baird & Co. Incorporated, Research Division

David Togut - Evercore Partners Inc., Research Division

Timothy W. Willi - Wells Fargo Securities, LLC, Research Division

Glenn Fodor - Morgan Stanley, Research Division

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Global Payments Second Quarter Fiscal 2012 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 Elliot. Please go ahead.

Jane M. Forbes

Thanks. Good afternoon, and welcome to Global Payments Fiscal 2012 Second 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 January 5, 2012, 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 R. Garcia

Thank you, Jane, and Happy New Year, everyone, and thanks so much for joining us this afternoon.

I'm pleased to report that we are executing well across all of our businesses as evidenced by our solid results for the quarter. Second quarter fiscal 2012 revenue grew 20% to $531 million. Cash operating income grew 14% to $109 million. And cash earnings per share grew 13% to $0.86 for the quarter.

As you are aware, the debit interchange legislation took effect October 1, reducing interchange rates on most domestic debit transactions. Our strategy is to pass along a significant share of this benefit to our customers. Consequently, this legislation resulted in less than $0.02 of cash earnings per share for the quarter. However, we added nearly $15 million in revenue, primarily from our ISO channel. While it is still early, we consider even these results to be transitory due to the strong competition in the marketplace.

I am pleased to announce 3 targeted acquisitions, which will expand our international and eCommerce presence. First, we increased our footprint in Russia by acquiring a merchant business with more than 6,000 merchants from Alfa-Bank. Alfa-Bank is the largest private Russian bank by total assets and operates a network of over 300 branches in the market. This expands our existing referral network and overall sales distribution by adding over 20 new regions within the Russian Federation.

Secondly, we acquired HSBC's merchant business in Malta, consisting of nearly 4,000 merchants. We believe solid card usage trends will continue in Malta, primarily driven by its tourism sector and the government's continued focus on increasing card-based payments. Most importantly, this transaction demonstrates the ongoing strength and expanding nature of our global relationship with HSBC.

Finally, I'm pleased to announce that we have agreed to acquire the U.S. merchant portfolio of CyberSource from Visa. This transaction will broaden our U.S. eCommerce presence by adding over 9,000 merchants and it will expand our eCommerce strategy by augmenting our existing U.S. distribution channel. We expect this to close during our third fiscal quarter.

Now, second quarter highlights. North America delivered revenue growth of 16% in the quarter, driven by our U.S. ISO channel, strong growth from our Gaming business and solid performance from our direct channel.

Canada continues to perform as expected, delivering 4% local currency revenue growth, with transaction growth of 5%.

Our International segment produced another quarter of solid results, with revenue growth of 30%, fueled by all regions across Europe. These results include the addition of Spain, which continues to perform well, coupled with solid performance across Europe.

Asia's revenue growth was flat for the quarter, primarily due to the strong growth in last year's quarter related to an enormously successful product launch by one of our merchants.

I will now turn the call over to David. David?

David E. Mangum

Thank you, Paul. We are pleased with our second quarter performance and our outlook in this difficult macroeconomic environment. North America Merchant Services revenue growth of 16% was about what we anticipated, fueled by U.S. transaction growth of 13%, growth in Gaming and continued stable performance in Canada. As a result, North America cash operating income or EBIT dollars were up 5% for the quarter over prior year.

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