Global Payments Inc. (GPN)

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Global Payments (GPN)

Q1 2013 Earnings Call

September 27, 2012 5:00 pm ET


Jane M. Forbes - Vice President of Investor Relations

Paul R. Garcia - Chairman and Chief Executive Officer

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

Jeffrey S. Sloan - President


James F. Kissane - Crédit Suisse AG, Research Division

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

Roman Leal - Goldman Sachs Group Inc., Research Division

Glenn Fodor - Morgan Stanley, Research Division

Kevin D. McVeigh - Macquarie Research

Brett Huff - Stephens Inc., Research Division

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

Ashish Sabadra - Deutsche Bank AG, Research Division

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

Daniel R. Perlin - RBC Capital Markets, LLC, Research Division

Glenn Greene - Oppenheimer & Co. Inc., Research Division



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

Jane M. Forbes

Thank you. Good afternoon, and welcome to Global Payments Fiscal 2013 First 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, September 27, 2012, which may be located under the Investor Relations area on our website at

Now I'd like to introduce Paul Garcia. Paul?

Paul R. Garcia

Thank you, Jane. And thanks, everyone, for joining us this afternoon.

We met our expectations for the first quarter of fiscal 2013, and we are on target to achieve our full year financial expectations. Revenue grew 9% in the first quarter to $590 million, resulting in cash earnings per share of $0.87. On a constant currency basis, revenue and cash earnings per share grew 12% and 3%, respectively. I'm pleased to note that the 2 previously announced acquisitions, namely the U.S.-based Accelerated Payment Technologies, or APT, and the purchase of HSBC's 44% ownership interest in our Asia-Pacific joint venture, are both expected to close in the second quarter. We also anticipate increasing our borrowing capacity by up to $850 million, which David will take you through in just a moment.

I think the benefits of the Asia-Pacific transaction are obvious, as it allows us to execute our long-term expansion strategy. As APT was just announced in August, it represents a significant investment. I'd like to spend a few moments discussing the strategic benefits of this acquisition.

APT is an innovative provider of fully integrated technology payment solutions for small to medium-sized merchants. This deal allows us to add a very profitable, defensible, high growth, direct distribution channel. APT markets its products through a network of 700 value-added resellers, or VARs, covering 30 verticals. Integrated payment solutions are a tremendous growth area for small to medium-sized merchants which, of course, is our sweet spot. These merchants value customized solutions that streamline back-office operations like scheduling, inventory, record management and billing, to name a few. APT seamlessly integrates a payment module into software solutions for vertical markets, including dental, medical, pharmacy, specialty retail, automotive and veterinary. Growth will be fueled by ongoing organic trends, adding new merchants via existing VAR partners and through establishing new VAR relationships. Importantly, once these relationships are established, the business tends to be very sticky, resulting in low attrition rates.

As we have had a long-standing relationship with APT and process approximately 90% of their volumes, there is little to no integration risk. In summary, APT has sustained excellent margins and a loyal customer base while leveraging industry-leading technology. We look forward to welcoming the APT team to Global Payments.

I'll now turn the call over to David. David?

David E. Mangum

Thank you, Paul. As we expected, currency changes were a headwind during the first quarter on a year-over-year basis. For the total company, currency changes negatively affected revenues and cash earnings by about $16 million and $0.04 per share, respectively, with the most significant impact due to movements against the euro, Canadian dollar and the British pound. North America Merchant Services delivered revenue growth of 13% in the quarter, driven by U.S. transaction growth of 12%. Canada's revenue declined 8% in local currency on a year-over-year basis. This reflects ongoing pressure on spreads, partially offset by transaction growth of 3%. Canada delivered about what we expected from an income contribution perspective.

For the quarter, North America cash operating income, or EBIT dollars, were $71.4 million, a decline of 4% primarily due to Canadian performance, an unfavorable Canadian exchange rate and an increase in technology spending, partially offset by profit growth in our U.S. business. The resulting operating margin in North America was 16.7%.

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