Global Payments Inc.
Q1 2015 Earnings Call Transcript

Published: 2 Oct 2014

[Operator:]

Ladies and gentlemen. Thank you for standing by, and welcome to Global Payments Fiscal 2015 First Quarter Conference Call. [Operator Instructions] And as a reminder, today's conference call will be recorded. At this time, I would like to turn the conference over to your host, Executive Vice President and Chief of Staff, Jane Elliott. Please go ahead.

[Jane Marie Elliott:]

Thank you. Good morning, and welcome to Global Payments Fiscal 2015 First Quarter Conference Call. Our call today is scheduled for 1 hour, and joining me on the call are Jeff Sloan, CEO; David Mangum, President and COO; and Cameron Bready, 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, which are subject to risks and uncertainties discussed in our SEC filings, including our most recent 10-K. These risks and uncertainties could cause actual results to differ materially. We caution you not to place undue reliance on these statements. Forward-looking statements made during this call speak only as of the date of this call, and we undertake no obligation to update them. 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 filed this morning. The press release is also available in the Investor Relations area of our new website, at www.globalpaymentsinc.com. Now I'd like to introduce Jeff Sloan. Jeff?

[Jeffrey S. Sloan:]

Thank you Jane, and thanks, everyone, for joining us this morning. We are delighted with our performance for the first quarter which represent a terrific start to our 2015 fiscal year and further demonstrates the continued success of our focus on solid business execution and disciplined capital deployment. For the quarter, we delivered strong revenue growth of 12% to $705 million. Cash earnings per share growth of 22% to $1.22 and operating margin expansion of 10 basis points. Our North American business contributed better than expected results for the quarter, both in the United States and Canada. U.S. results were driven by consistent execution across our direct channels including the addition of PayPros. Canada also reported strong performance in local currency with 8% revenue growth and stable business fundamentals. Our international business performance reflects solid results across most of our markets, with particularly strong revenue growth in Spain and our eCommerce channel. These results also include favorable currency rate trends in the quarter for the British pound, sterling and the euro as anticipated. Importantly, we have also made tremendous progress transforming Global Payments into a unified worldwide operating company with an emphasis on direct sales and product innovation while continuing to enhance our core technology platform. Recognizing that today’s merchant is increasingly connected in an OmniChannel environment, we are dedicated to providing our merchants an edge in terms of technology, and value added payment solutions. Our efforts to combine APT and PayPros into a single integrated solutions business, which we have rebranded as OpenEdge, are further evidence of this commitment. OpenEdge helps software developers and merchants by delivering secure and personalized payment solutions. Aligned with our overall strategy, OpenEdge is driving payments innovation, adapting, scaling and simplifying how payments are processed across platforms and point of interaction in an increasingly complex landscape. Consistent with my comments over the past year, we have also remained focused on expanding our worldwide footprint and adding direct distribution in key strategic markets. To that end, I am delighted with our agreements to require Ezidebit that we announced last month. Ezidebit is a leading integrated payments company focused on recurring payments verticals in Australia and New Zealand. Much like our OpenEdge business in the United States, Ezidebit markets its product to a network of integrated software vendors and direct channels to numerous vertical markets. This acquisition will expand our worldwide footprint and provide us with technology enabled direct distribution in Australia, one of the largest economies in payments markets in the Asia-Pacific region. In addition, similar to our expansion of OpenEdge technology into Canada, we intend to offer Ezidebit services to other Asia Pacific regions where these types of solutions do not presently exist. We are also very pleased to have entered into a strategic agreement to acquire Fidelity National Information Services gaming business that we expect will significantly expand our direct distribution in the North American Gaming Vertical. This transaction is complimentary to our existing gaming business and will expand our suite of innovative products and services. By combining our gaming businesses, we can cross sell our full suite of products to their more than 250 flagship locations and enhance our value proposition while leveraging their industry leading scale and capabilities in risk management. We expect significant operational synergies when the transaction closes towards the end of our fiscal year. Both of these transactions represent an attractive use of our capital and are expected to contribute meaningfully to our ability to deliver on our financial expectations over the coming years. I am confident that we have the financial flexibility and capacity to continue to pursue a well disciplined corporate development roadmap, reinvest in the business and efficiently return capital to shareholders. These are not mutually exclusive initiatives and combined will continue to drive attractive shareholder returns. Now I will turn the call over to Cameron.

[Cameron M. Bready:]

Thanks, Jeff and good morning everyone. It is a pleasure to be speaking with you today and to be a part of the Global Payments team. As Jeff noted, our 2015 fiscal year is off to a strong start with better than expected business performance and the positive effect of our recently executed share repurchases driving earnings growth for the quarter. Before I summarize our segment details, I would first like to remind you that we operate payment solutions businesses in multiple geographies in various stages of payments evolution. Each of these markets has its own dynamic economic and competitive environment which allows us to achieve certain portfolio diversification benefits while also driving some variability in our results. As such I would like to begin my commentary about providing a brief overview of the key drivers of performance for the first quarter relative to our expectations. In the United States, all of our direct businesses performed better than anticipated and we experienced continued business stability in Canada, while also benefiting from successful selective pricing initiatives. In Europe, our eCommerce channel in Spain also performed better than expected. This was partially offset by Russia, which underperformed our expectations. In addition our effective tax rate was slightly lower than our forecast for the quarter, largely due to our geographic earnings mix and tax planning strategies. Further, subsequent to our last earnings call, we completed $75 million of share repurchases that resulted in a lower average share count for the quarter. Lastly, overall foreign currency translation impacts for the quarter were slightly better than expected and contributed positively to our results. Now for the quarterly details. As Jeff noted, total company revenues for the first quarter of fiscal 2015 grew to $705 million reflecting 12% growth over fiscal 2014 and cash operating margins expanded by 10 basis points to 19.8%. Dilutive cash earnings per share increased 22% over the prior year’s quarter to $1.22. Our underlying business demonstrated strength during the quarter even after normalizing our revenue growth for the addition of PayPros. Assuming we owned the PayPros business in our current and prior year first quarters or normalizing its effect, total company revenue growth would have been 8% above our long term core organic growth expectations. North America segment revenue grew 12% for the first quarter with U.S. growth of 14% and transaction growth of 11% over the prior year. U.S. revenue and transaction growth includes the addition of the PayPros acquisition and normalizing for this our organic U.S. revenue growth would have been 7% on transaction growth of 4%. Canada revenue growth for the quarter was 4% in U.S. dollars with relatively stable spreads in low single digit credit transaction growth partially offset by an expected unfavorable exchange rate. North America cash operating income grew 13% to $89.3 million and cash operating margins were 17.7% better than we expected for the first quarter. International revenue grew 12% for the quarter in U.S. dollars. Europe delivered strong revenue growth of nearly 14%, fueled by performance in Spain and from our eCommerce channel. Asia Pacific revenue grew 6% in line with our expectations for the quarter. International cash operating income grew 12% to $77 million, and cash operating margins remained steady at 38.4%. Our effective tax rate for the quarter on a cash basis was 27.4%. We generated approximately $87 million of free cash flow this quarter which we define as net operating cash flows excluding the impact of settlement assets and obligations, less capital expenditures and distribution to non-controlling interests. Capital expenditures totaled $18 million for the quarter and our total available cash, including working capital, at the end of the quarter was approximately $265 million. Lastly, we repurchased a total of approximately 1.8 million shares during the quarter. Based on our results for the quarter as well as the anticipated closing of the Ezidebit transaction during our fiscal second quarter, we are increasing our expectations for fiscal 2015. We now expect reported revenue to grow 7% to 9%, and range from $2.74 billion to $2.79 billion. Additionally, we are raising our cash earnings per share expectations to a range of $4.65 to $4.75, reflecting growth of 13% to 15%. We also now expect core cash operating margins to expand by as much as 40 basis points in fiscal 2015. We are forecasting that North America revenue will grow at a high single-digit rate, with high single-digit revenue growth in the United States, and Canadian revenue growth remaining in the low single-digits in local currency. We continue to expect North America cash operating income to increase in the low double-digits compared to last year with cash operating margins expansion. We also now anticipate high single to low double digit international revenue growth in U.S. dollars. For Asia Pacific business we have raised our expectations for revenue growth to the high teens, which includes the impact of the Ezidebit acquisition. In Europe, we still expect mid single-digit revenue growth in U.S. dollars with slightly stronger performance in Spain and consistent performances from the U.K. and our eCommerce channels all on a local currency basis. Additionally, we have a slightly more tempered view of growth expectations for Russia which as a reminder represents less than 3% of total company revenue. We now expect international cash operating income to grow in the low double digits and cash operating margins to remain relatively stable compared to last year, partially due to the Ezidebit acquisition. Importantly, we now expect foreign currency translation to represent a more meaningful headwind to overall cash earnings per share for the full year and this is also incorporated into our expectations. Since providing our outlook for fiscal 2015 in July, we have seen an increased weakness in most of the foreign currencies to which we have exposure. As a reminder, our fiscal 2015 outlook reflects only the impacts of share repurchases that we have executed to date. We now have approximately $245 million of total authorization remaining for potential further share repurchases. In addition, upon closing the Ezidebit transaction, we expect to have approximately $850 million of capacity to fund future initiatives, including approximately $650 million of availability on our corporate credit facility. Lastly, given that we expect the FIS transaction to close towards the end of our fiscal 2015, we intend to fund this acquisition with operating cash flows and do not expect that they have an impact on our near term capital allocation plans or facility availability. I will now turn the call back over to Jeff.

[Jeffrey S. Sloan:]

Thank you, Cameron. For the past five quarters, we have delivered strong and consistent performance resulting from the ongoing successful execution of our strategic initiatives. We remain committed to driving sustainable growth in each of our markets and dedicated to creating value for our shareholders, partners, customers and employees. As the first quarter demonstrates and our increased fiscal 2015 expectations suggest we continue to anticipate another strong year. Now I’ll turn the call over to Jane.

[Jane Marie Elliott:]

Thanks, Jeff. Before we begin the question-and-answer session, I’d like to ask everyone to limit their questions to questions to one with one follow up in order to try to accommodate everyone in the queue. Thanks you. And operator, we will now go to questions.

[Operator:]

[Operator Instructions] And our first question comes from Ashwin Shirvaikar with Citibank.

[Ashwin Shirvaikar:]

Thank you, good morning and congratulations on the solid quarter there.

[Jeffrey S. Sloan:]

Thank you.

[Cameron M. Bready:]

Thanks, Ash.

[Ashwin Shirvaikar:]

My first question, normally you guys go through sort of a breakout of your – sort of give us more of a flavor of what's going into your underlying assumptions with regards to specific geographies and stuff like that, country level, details in Europe and such like. Could you do that work up again because when I look at how you raised your guidance you know like you said roughly half through the acquisition of Ezidebit, I’m assuming and the other half is basically the [beat] [ph] minus the impact of currency. So it seems like there’s possibly some elements of conservatism in how you are looking at your outlook?

[Jeffrey S. Sloan:]

So Ashwin, it’s Jeff, I’ll start. I think as we have said before we are sitting here at the end of the first quarter. So we are very, very pleased with where we are currently. We are very pleased to raise revenue margin and cash earnings guidance for the year, but we are at the start of the first quarter. And I think if you have seen us do historically we like to be in a position where we expect that as the year goes on, that we increase our confidence level around the continuing performance of the business. And I think that’s something you probably have heard consistently from us over time. And with that there I’ll turn it over to Cameron and perhaps Cameron you can take us little bit around the globe and just walk through some of the trending in terms about what we see the [titan] [ph] for the guidance.

[Cameron M. Bready:]

Sure. Ashwin, I’ll start by just noting that as you look at the outlook for the revenue guidance for fiscal’15, you know we are obviously incorporating the first quarter performance and the Ezidebit acquisition but the FX impacts that we have for the full year are fairly meaningful. For example, the Canadian dollar has weakened roughly 3% relatively to what we had in our July expectations and as you know that’s a particularly impactful currency given that our revenues are in obviously Canadian dollar and much of our expenses are in U.S. dollars given how we manage that business. But as you go around the globe, and I think I covered some of this in my prepared remarks, we continue to expect good fundamentals in the U.S. market. We’ve seen strong growth in our direct businesses on a revenue basis and we expect that momentum to carry through for the full year recognizing again however that we are in the first quarter. As you flip over to Canada, again, we expect a relatively stable environment in Canada which is what we experienced in the first quarter and we think that’s up reasonably well for the full year as well. In Europe, the U.K. business is generally performing in line with our expectations. Our eCommerce business, again is a little bit above expectations and we continue to expect good performance out of Spain, but that’s somewhat tampered again by what we are seeing in Russia. You know Russia continues to be a fairly meaningful headwind for Europe just particularly in light of the overall macro-environment in Russia; you’ve got the market there down 20% year-to-date, rouble is off 18% year-to-date and an all time low against the euro and certainly near an all-time low against the U.S. dollar and GDP estimates there are not good. So that clearly creates a little bit of a headwind for our European business. And generally in Asia, ex the Ezidebit acquisition, we are generally expecting fairly much consistent performance in line with our expectations and Ezidebit is obviously going to be added into that. And the last thing I would note just from a revenue perspective as we continue to accommodate our view of the ISO market, and our revenue growth continue to I think reflect what we have seen in that business which is obviously low single digit growth and we have accommodated the potential that that could degrade even a little bit further in the back half of the year or the back three quarters of the year. So when you roll all that together, you know we guided up at a midpoint basis about $40 million, we think that obviously given where we are, we are one quarter into the year is a reasonable outlook for the full year.

[Ashwin Shirvaikar:]

No, that’s just quite understandable. Thank you for doing that. I guess a quick follow up on Canada. Obviously good to see it as a stable business here, but as you roll out the APT offering in Canada, first of all I guess what sort of reception are you getting and is that a good solid enough potential that down the road you can maybe call Canada better than stable?

[David E. Mangum:]

Ashwin, this is David. The initial reception has been quite good for the rollout of integrated solutions which we now as you know rebranded OpenEdge on a worldwide basis particularly in North America. Initial reception is quite good. And you’ve put your finger on an important thing to watch for Canada over the coming years really. Initially this is the initial rollout of integrated solutions into one of our largest markets, so you won’t see a big change in Canadian trends, but certainly our hope is we can drive greater organic growth at high profit levels to the integrated channels and the initial signs are quite positive.

[Ashwin Shirvaikar:]

Thank you.

[Operator:]

The next question comes from David Koning with Baird.

[David J. Koning:]

Great job again.

[Jeffrey S. Sloan:]

Thanks, Dave.

[Cameron M. Bready:]

Thanks, Dave

[David J. Koning:]

And I guess just one other thing. Canada got quite a bit better sequentially. I mean it was 5% constant currency growth I think in Q4 and up to 8%, and you mentioned a little bit of pricing benefit. Is there something incremental, because I know we just thought it would start to decelerate with some of the MasterCard and Visa interchange adjustments and things anniversaried, but it actually seemed to pick up a little bit, so was there new pricing benefits?

[Jeffrey S. Sloan:]

David, it’s Jeff. I think it just continued good execution. You know we have a newer management team up in Canada in the last year. I think you are starting to see the fruits of that reinvigoration of the sales channel. We are very pleased with the new initiatives that we have in Canada and I would say you know financially for the quarter and outlook for the year, Dave that Cameron expressed that we have seen a higher retention rate and some of those actions that we had taken through I think good management up in Canada than we had seen historically. So I would say more stickiness Dave is probably one thing I would point to and better sales execution.

[David J. Koning:]

Okay, great. And then just my follow up. The FIS Gaming Acquisition, you know it sounds like a lot of revenue synergies so we should see growth there, but maybe you could just give us kind of the baseline annualized revenue and kind of margin profile so we start thinking about how that impacts fiscal’16?

[David E. Mangum:]

Dave, this David. I don’t think we’re going to walk in a lot of detail, but the base business we are buying is on the order of about $50 million business with margins that are accretive to Global Payments margins. We obviously expect the combination will drive even better margin expansion over time and maybe it’s worth doing a little bit of reset for everyone on what the gaming business is and isn’t within Global Payments. We don’t spend a lot of time talking about it, but just as a reminder it’s been in consistent mid-to-high single digit grower operating at margins higher than the company’s margins and it’s a very consistent business when you think of this theme of technology enabled distribution. This is a series of products, innovative products by the way, that are focused on a very specific vertical, gaming, and cash access on the floor in casinos. Our technology there helps casinos manage credit exposure, get cash onto the floor and really delight their most important customers. Fidelity does exactly the same thing, so we really love the idea of putting these two together, the ability to cross sell and the geographic expansion that comes with it, we are very excited about this transaction.

[Cameron M. Bready:]

And David, it’s Cameron, I would just note in addition to what David mentioned you know the complimentary nature of the business is very attractive to us. And then today the price that we are paying you know from our perspective is also very attractive. We view the effective purchase price of the transaction to be in the neighborhood of $180 million after taking into consideration the tax benefits that were realized through the transaction structure so we think that price relative to what we are getting and the complimentary nature of their business, our business what we do with that going forward is a very attractive use of our capital.

[David J. Koning:]

Okay. That sound great. Thank you, good job.

[Jeffrey S. Sloan:]

Thanks, Dave.

[Cameron M. Bready:]

Thanks, Dave.

[Operator:]

The next question comes from Glenn Greene with Oppenheimer.

[Glenn Greene:]

Good morning, nice results.

[Jeffrey S. Sloan:]

Thanks.

[Glenn Greene:]

A couple questions maybe just drilling down a little bit on the U.S. revenue trend. Can you just sort of help us understand a little bit more on the direct side components, how well integrated payments did? And then I mean I sort of guess my read through is integrated payments did better than expectations or the ISO drag has been not as bad as expected. And the follow-up related to that would be given the strong Canada results and North America revenue growth, U.S. revenue growth, I'm actually surprised margins weren't a little bit better in North America.

[Cameron M. Bready:]

Well I think its Cameron. And Glenn, I’ll start with just the revenue side of the equation. I would say for the U.S. business all of our direct businesses really performed better than our expectations in the first quarter and that’s really what’s driving from our perspective the overall performance. I would say ISO has generally performed inline with what we had anticipated for the quarter, and that’s largely why you are seeing kind of such strong U.S. revenue growth in particular integrated, the integrated channel which we now as you probably saw rebranded as OpenEdge. OpenEdge performed again slightly better than our expectations. We are continuing to make very good progress that in integrating APT and PayPros, and that has generated I think positive performance and momentum as we look to the last three of the year as well. As it relates to the overall margin we did see margin expansion year-over-year which again, I think is very much a good story for the U.S. business. As we look to the balance of the year we continue to expect to see strong margin improvement across the U.S. business and we do expect margin expansion for the U.S. business as well consistent with the outlook that we gave in July, obviously our confidence around that is little bit bolstered by the results we saw in the first quarter.

[Glenn Greene:]

Okay. And then, just a quick follow-up on maybe the growth in the margin profile for the Ezidebit business?

[Cameron M. Bready:]

Sure. Ezidebit as we mentioned before is a business that will be additive, again and accretive to the overall corporate margin. Its generally inline with what we across our international businesses, so as we look to the back three quarters of the year as well, we expect to see Ezidebit contributing a little bit to the margin improvement that we’re currently anticipating for the overall business.

[Jeffrey S. Sloan:]

And I would say Glenn, it’s Jeff, that the revenue growth we expect that business is slightly higher in line but slightly higher than our OpenEdge business is here in North America.

[Glenn Greene:]

Okay, great. Thank you.

[Jeffrey S. Sloan:]

Thanks.

[Operator:]

Our next question comes from Jason Kupferberg with Jefferies.

[Jason Kupferberg:]

Thanks, guys. Just a couple of sizing questions if we could. First off on OpenEdge, I mean, now that you’ve put [PayPros] together can you give us a sense of what percent of your total company revenue is OpenEdge and I think the growth rate there is still kind of low double-digits or so, if you can verify that and maybe we can just start there, and then just an update on the percent of North American revs and op income from the ISOs?

[Cameron M. Bready:]

It’s Cameron and I’ll jump in there. I don’t think we’re in a position today to [indiscernible] to sort of sizing of the integrated business relative to our overall North American channel or the entirety of the Global Payments. As you think about obviously the combination of those businesses going forward, we will get the revenue growth for that business more in the mid-teen range.

[Jason Kupferberg:]

Okay.

[Cameron M. Bready:]

We think it has very positive momentum kind of as we look again to the back three quarters of the year and going forward beyond that. So we view that as a mid-teen growing business and are very confident in that expectation. Can you remind the second part of your question?

[Jason Kupferberg:]

Yeah, just the update on the percent of North America revs and operating income coming from the ISOs?

[Cameron M. Bready:]

Yeah. We gave that number a few quarters ago, I believe, I don’t think we’re going to provide a specific update to that today, but I think it easy to assume that given the growth of the direct business in the intervening period that those numbers are less than probably what we quoted to you previously and continuing to decline. So, I think that’s a trend that we would expect as we move forward in time, but we don’t have a specific update to that today.

[Jason Kupferberg:]

And just last, the integration of the actual technology platforms for PayPros and APT, I know that’s an ongoing process. Should we be thinking that as a material source of cost savings once that’s completed? And should be thinking of kind of roughly end of fiscal ’15 for when that might be done?

[David Mangum:]

Jason; it’s David. We think it’s quite important to the integrated business to bring those technology platforms together. We’re not in a rush, we want to do it very well and serve our 2,000 partners around the U.S. and Canada very well. It is fair to think that around the end of fiscal ’15 will be well on our way to completing that integration, which will create very nice margin expansion opportunities for the integrated business. Now that would be within the greater context of the U.S. business and the North American than total Global Payments, so you won’t necessarily see it on the face of the income statement, but its part of running business very efficiently and very well that would be great for integrated channel.

[Jason Kupferberg:]

Very good. Thank you.

[David Mangum:]

Thanks.

[Jeffrey S. Sloan:]

Thanks, Jason.

[Operator:]

Our next question comes from Georgios Mihalos with Crédit Suisse.

[Georgios Mihalos:]

Good morning, guys. Thanks for taking my questions and congrats on the quarter. Maybe to start off on the U.S. side again, you spoke in the past about targeting mid-teens growth for the IPA solutions, it sounds like you need a little bit better in the first quarter. Is that fair to say that the growth rate accelerate a little bit in the first quarter?

[Cameron M. Bready:]

George, this is Cameron. I do think that it’s a relatively fair statement to say. We did see some acceleration of that growth in the first quarter. Again, I think that does set us up well for us to meet our overall expectations for that business for the year. But I think that is a fair characterization of the results thus far.

[Georgios Mihalos:]

Okay. And you’re affirming the long-term growth of the channel as mid-teens?

[Cameron Bready:]

Yes. I think that’s right. Yeah.

[Georgios Mihalos:]

Okay. Also curious, we’re hearing a lot about tokenization opportunities from a number of different payment providers. How significant could that be or will it be significant to Global Payments as you look out maybe a year or so? Is that something that could be meaningful to the U.S. operation?

[Jeffrey S. Sloan:]

George, its Jeff, I’ll start, I think you probably have seen our announcement last night with Apple Pay that will fully supporting Apple Pay here in the United States across all of our channels but in particular through OpenEdge, which is our integrated business. As you know, based on your question tokens of course are part of the solution as it relates to that mobile construct and we’re pleased to be I think an early user of the tokens that are use in that kind of solution. I would say more generally on the strategy side of what you said, we tend to view it as a combination of EMV tokenization as well as encryption and we think all three parts of that, George are going to be important for the ultimate solution. So I do think over a period of time that we will be incrementally do better in the United States market with all three of those as a package. Whether that would meaningfully influence our results, time will tell and you’ll have to see. I do think that the market will evolve toward a place wherefore the right merchant set and of course you saw us in OpenEdge and Apple with us last night, it will be a meaningful point of distinction, I believe for us. I would also say though in the case of tokens, while Apple is a very good example of an innovator and leading partner and a company who has done very well with what they’ve done to-date. I think it’s important to realize that there is still a lack of uniformity on what the right baseline for tokenization should be. So, for example, we hear on our side are using at least United States currently the EMV tokenization specs, but there are variety as you probably know George, mobile alternative specifications for tokens, some are at the issuer level, some of the acquirer level, et cetera. I think it’s going to be important for us as an industry to see some kind of rationalization and uniformity of specification, George for tokens really to have a meaningful impact on payments across all of us in the marketplace.

[Georgios Mihalos:]

Okay. So, it sounds like a bit of a wait and see on that. Last question from me, should we be thinking any differently about the tax rate for fiscal year ’15, any changes there?

[Cameron M. Bready:]

George, it’s Cameron, generally no, I think we’re still guiding towards a tax rate approaching 28% and it was 27.4% for the first quarter, so I think that’s generally in the ballpark of the overall guidance we provided for the full year. We maybe a little light of that, but we’re still guiding towards that approaching 28% level.

[Georgios Mihalos:]

Okay. Thank you.

[Operator:]

Our next question comes from Bryan Keane with Deutsche Bank.

[Bryan Keane:]

Yes. Good morning. I wanted to ask about the guidance coming from a slightly different angle. If I just look at the first quarter, you guys did about 12% revenue growth. How do we get down to 7% to 9% growth for the full year? What’s going to deteriorate the business even given the Ezidebit acquisitions going to be in there as well?

[Cameron M. Bready:]

Bryan, its Cameron, I don’t know that I would say anything that’s going to really deteriorate in the business, but for perhaps FX. And also I think it’s important to remember that PayPros annualizes in Q4, so that’s going to obviously have an impact on the overall annual revenue growth as well. So, now as I described earlier, I think when you look at the revenue guidance, we’ve obviously factored in the first quarter performance. We are including our expectations for Ezidebit. We are being conscious I think of the momentum we have going into the back three quarters of the year, but also recognize that it’s very early despite the fact we’re pleased with our overall performance thus far. And I think when you layer in FX on top of that and accommodate again for the ISO channel which again, we view as growth being relatively light in the low single-digit range and potentially worse, I think that kind of gets you to an overall 7% to 9% level. Frankly I’m less focused on the 7% to 9%, that’s really just math. I think ultimately when I’m focused on is the actual revenue numbers themselves. And I think again we guided the mid-point of $40 million, we think that’s a good place for us to be right now given for one quarter and for the year.

[Bryan Keane:]

How much was FX headwind going in, I guess, in the original guidance how many points and then how much is it now into when I look at this guidance, how many points of headwind is FX?

[Cameron M. Bready:]

We didn’t give a specific sort of estimate as to the FX impact coming into the year. We described it as a modest headwind, so you can use your own judgment as to what modest means. I think as we look to the balance of the year, we think it is a more meaningful headwind to the business and I’ll just note that if you get all the major currencies to which we are exposed, all but one, we have a more – we have a more negative outlook for those currencies for the balance of the year than we did in the July time frame and I would say relatively meaningfully more negative outlook. So I think that’s really what’s driving a lot of what you’re seeing from top-line revenue perspective is just that impact of FX.

[Bryan Keane:]

You do not quantifying the FX impact in the guidance?

[Cameron M. Bready:]

No. We’re not quantifying it specifically, no.

[Bryan Keane:]

All right, last question from me. Just on Russia now. What’s in the expectations? I guess, it was short of what you were expecting originally, but how much Russia revenue, what’s the baseline for the guidance now?

[Cameron M. Bready:]

Yes. As we committed earlier Russia represents about 3% of our total revenue for the company. So, I wouldn’t want to characterize performance as dramatically negative relative to our expectations, but it did fall little bit short. I think we’re really pleased with the job our colleagues are doing in Russia given the overall environment there and some of the highlights that I provided earlier as the where the ruble stands, where the overall macro and economic situation is, particularly where GDP growth is. But again we have a slightly more tempered view. We came into year with the tempered view and their view slightly more tempered than it even was in July for that business for the full year. And particularly when you layer on the impact of the ruble which has again continued to degrade significantly, performance expectations for that business are not particularly great right now.

[Bryan Keane:]

Okay. Thanks much and congrats.

[Jeffrey S. Sloan:]

Thanks, Bryan.

[Cameron M. Bready:]

Thanks Bryan.

[Operator:]

Our next question comes from Kevin McVeigh with Macquarie.

[Kevin McVeigh:]

Thanks. Just another follow-up, seems like nice increase to margins despite the FX. What’s striving kind of the boost in what’s obviously tougher environment overall?

[Jeffrey S. Sloan:]

So, I’ll start Kevin and then Cameron will add in to. I think the key thing from our point of view is that we’ve had very good execution in our direct channels. So if you start with the United States business, I think we are really firing on all cylinders on a direct basis in the U.S. business, of course, the direct business that are higher margin naturally than some of our third-party businesses anywhere in the world especially here in the United States. So, I think Kevin you start with good core direct sales execution coupled with investments and things like PayPros and while Fidelity Gaming will not tie into fiscal ’15 because its really closes at the end of the year, we also announced there Kevin as a higher margin business with better than industry rates of organic revenue growth similar to our own business. So I would say Kevin, good execution and then those things that we’re adding into our markets or more direct sales resources and more businesses with better than cooperate, average corporate operating margins. So, I think a conscious effort to have better execution, when we add something better products and services that drive additional margin.

[Kevin McVeigh:]

And then just, Jeff, without getting too granular, any sense of – what does the target become over the course of time for direct versus indirect?

[Jeffrey S. Sloan:]

Well, I think, Kevin, as a strategy matter without giving kind of a more granular answer to your point, what we like to do is just let those businesses grow as much north of the market as we can. Every month here we look at our rates of organic revenue or transaction growth in all of our markets versus what you see from the networks and what you see from our publicly reporting peers, those are bogeys and we try to exceed what we think those market rates growth are. If we go back to what Cameron said, if you look at the first quarter with our third-party ISO business growing in the low single-digit as Cameron mentioned. We view the organic rate of the market to be mid single-digits or better in the United States market. So we’re trying to exceed that Kevin, you could imagine what that might do to that mix over time.

[Kevin McVeigh:]

Understood. Thank you. Nice job.

[Jeffrey S. Sloan:]

Thanks.

[Cameron M. Bready:]

Thanks, Kevin.

[Operator:]

Our next question comes from Dan Perlin with RBC Capital Markets.

[Dan Perlin:]

I just wanted to go back and look to Europe a bit. I know you’re talking about FX headwinds being meaningful, but quantifying it. So, when we look at Spain, historically that’s been more a market share play I think. I’m wondering to the extent where do you guys stand in terms of that penetration and do you think that that can continue even in the face of what is going to be some? I think much more difficult purchasing power within that region? And then secondly, within the eCommerce channel, I think your major partner had a pretty significant announcement yesterday, I’m wondering Jeff, if you could just kind of philosophically think about and tell us what you’re thinking there? And then the last question I have, and then I’ll be quiet. Some of the networks have suggested that they’re going put on these digital enablement fees which are fees they’re going to charge to you guys. I’m wondering what extent you think you’re going to able to absorb those and/or pass them through in the future? Thanks.

[Jeffrey S. Sloan:]

Dan, it’s Jeff, I want to congratulate you first for getting three questions in there. Usually, I think usually we’re managed to limit you to two, so my congratulations on that, but certainly that’s a good question and certainly happy to address those. So let me start off with the Global Solutions business, which as you rightly said, we are very lucky and fortunate to have PayPal as one of our good partners in that business and I think as Cameron had alluded to in his prepared comment, we continue to see consistently very good performance in that business. What I would say is that I’ve said with other parties, third-parties over time that, we are only as successful in our businesses as our partners are successful. So if you think about it that way, Dan presumably rationale for eBay and PayPal is to enable additional success both eBay as well as at PayPal, and of course you’d have to ask them, but that is my sense and having read about it and having lived through this stuff before. As I said a minute ago the most success that they have we believe the more success that we as a good partner. We’ll have. So from that point of view Dan, I feel like that’s nothing but good news for them but also for our business and that is certainly my expectation. On the question about Spain, I think we continue to have very good execution in market share gains in that business. I would add that as you’ve seen around the EU and certainly from one of the networks. We also believe that we will benefit from continued regulatory change in the European marketplace. Spain was in affect this quarter, because it was effective I believe September 1st Spain earlier adopted their equivalent, Dan of some of the step up pricing actions for credit and debt. So, we have a lot of confidence in our colleagues and Spain. I think you can see that through the years of consistent performance. And we would expect that to be enhance not just through additional market share gains as we’ve done continuously, but also through some of the benefits that we experienced here in the context of Durbin that you’ll see some of that flow through in the context of SEPA. And then, lastly, getting to your third question about some of the announcements by the networks, I think in our business, the real key for us is the ability to provide additional values whether its Apple Pay, which we announced last night particularly through OpenEdge with the additional kiosk or announcement in our gaining business or the announcement with our partnership with Fidelity in their businesses. The key for us is to be able to offer more value-added products and services and we and our customers will then be the beneficiary of that. So to the extent for example, tokens become more readily expected as you’ve seen with some of the announcements we’ve made. If that provides more value and if there’s a way as part of that for us to share in that value participation, that’s terrific, if they don’t provide more value than I think that something that we and everybody else will have to think about. But sitting here today, Dan I view lot of the announcements that come out about newer technologies and new initiatives and the brands is being additive to the quality by reducing consumer concerns about fraud rates by reducing actual and perceived fraud, all that stuff is very good news for us and for our customers.

[David Mangum:]

And Dan, it’s David, just a little follow-on to that into the previous question. We have the ability to do tokenization today, point-to-point as well and for customers with the right terminals the ability to do an EMV as well. If you forward over calendar ’15 think of that is the opportunity for bundled solutions for more secure processing absolutely that’s adding more value to transactions which should provide the ability to price appropriately around that as well.

[Dan Perlin:]

Great. Thanks guys.

[Jeffrey S. Sloan:]

Thanks, Dan.

[David Mangum:]

Thanks, Dan.

[Operator:]

Our next question comes from Steven Kwok with KBW.

[Steven Kwok:]

I just have one quick follow-up, in terms of from an M&A pipeline, just wondering what are the – how is the pipeline going and then in terms of what are the some of the areas that you’re focused on that you feel that can enhance your operations even more? Thanks.

[Jeffrey S. Sloan:]

Thanks, Steven. It’s Jeff. So I would say, we still have good pipeline. I think you have to realize that I’d say that in the context of just having announced two acquisitions in the last two or three weeks. So as with all type pipelines they build and then hopefully over time you execute on some of those transactions and then you rebuild on. So, I like where our pipeline is today, but of course to the transaction Ezidebit and Fidelity, we have now announced. So, clearly those two are no longer in the pipeline, you have to keep that in perspective. Second in terms of areas of focus Ezidebit with Australia and New Zealand was an area of focus that we talked quite a bit about on the last number of conference calls, so we’d said key strategic objectives for us even is to expand our business in the Asia Pacific region, Australia, South Korea and Japan probably in that order were three markets that were not in, that we’ve really have wanted to be in and now we are very pleased to be in the Australian marketplace with the announcement of the Ezidebit acquisition. So I would say, if we could find additional opportunities in that market or in South Korea and Japan as new markets we’ll be very interested and we continue to look at those. But the markets that we’re currently in an Asia Pacific that we’ve said before they would want to be bigger in that’s still true. So for example, we are looking fairly closely at India, China, and the Philippines three markets that we’re currently in that we like that we’d rather be a bigger in if we have a choose, so I think those are still on the horizon. I would say, in the North American marketplace, U.S. and Canada we just announced Fidelity a day or two ago, so I think its fair to assume that there is lot more company of any size in the North American marketplace imminently. And then in Europe we continue to look, most of the things that we’ve seen in Europe we have passed on, we are very pleased with the current construct of our European business, but if we can find additional transaction especially in Continental Europe to example our GPE business in Prague, we would be very interested in those. But that’s nothing really new. We’ve been saying that for some time and of course, we’re also pleased to be in Brazil with our partners at Kisha. We would look to expand our Brazilian business if we can find the right opportunity as we have said for a while and we like to do same in the rest of Latin America in particularly in Mexico if we found the right opportunity. So it’s not really new Steven. I would say what is new for Ezidebit is really we’re now going to be upon closing in Australia, New Zealand, so that was key focal point of ours.

[Steven Kwok:]

Great. Thanks for taking my Questions.

[Jeffrey S. Sloan:]

Sure. Sure.

[Operator:]

Our next question comes from James Schneider with Goldman Sachs.

[James Schneider:]

One question, one clarification if I could, in relative to the 40 bps of operating margin expansion you’re expecting for the year, how much of that is being driven by the peer mix of the business with open edge and easy debit versus how much has been driven by kind of operational leverage?

[Cameron M. Bready:]

Jim, its Cameron, I wouldn’t give a specific estimate as how it’s being driven any particular aspect of the business. I think what it reflects overall was just the continuing improvement in the overall margin profile for the aggregate company. So of that’s driven by initiative that we has as Jeff mentioned in his prepared remarks to move towards a single operating company platform. Some of that driven by the improvements we’ve made in terms of adding new businesses to the mix that obviously come in at higher than our corporate average margin. And some of it I think is just overwite execution in lot of our businesses around the world, not going to spies at more specific to the net but I think its combination of those factors.

[James Schneider:]

That’s helpful. And then just a clarification on the follow-up, with respect to the channel it sounds like you are saying that in August quarter the ISO channel didn’t decelerate in fact maybe it was the same or little bit better than it was back in the may quarter, is that accurate?

[Cameron M. Bready:]

I think it was probably slow than it was in the May quarter. I don’t think the deceleration was dramatic; we still view it in the low single digit from a growth perspective. But as mentioned before our revenue guidance does contemplate the potential that could deteriorate a little bit more as we look to the back three quarters of the year. But it was probably a little weaker than we saw in the May quarter, but it wasn’t dramatic.

[James Schneider:]

Thank you. Operator

[Tien-tsin Huang:]

Great. Thanks. Good results, here. Just want to ask about Easy Debit and the revenue opportunity. I don’t really know that asset, its looks like recurring payments business, plus a gateway business, so what’s the mix and which piece more about?

[Jeffrey S. Sloan:]

Tien-tsin, its Jeff. I think we’re excited about first the opportunity get into in additional market in Asia Pacific, we’ve been looking for quite sometime as I said minute ago reaction response to Steven’s question about how we additional markets in Asia Pacific in particular in Australia which is a fourth largest economy in Asia Pacific and is about the same size, little bit bigger than the economy in Spain. So I think the first answer to the question is new market is an important thing that we’re focused on. I would think second in terms of your question about the construct of our Easy Debit I would think of it really very similar to what we call Open Edge APC and PayPros, so I think you should think about that way Tien-tsin in terms of your understanding of the business. The market in Australia is a little bit different than the market in the United States, there are decent to mean alternative payment schemes outside of the card brands in Australia so that has a meaningful part of the business, over at Easy Debit. So other than construct which is local schemes I think its very similar same types of channels. I think there are 60 enterprise software and integrator who are partnering with to get out the customer base. So the model you should be thinking about is one is very similar to Open Edge albeit in the Australian market.

[Tien-tsin Huang:]

Okay. I appreciate that. And just follow-up for Cameron, I guess is the quarterly cadence throughout the year for EPS, I think last quarter you said with last year, any updates to that?

[Cameron M. Bready:]

No. I think that expectation is still largely consistent based on our current outlook for the full year.

[Tien-tsin Huang:]

Okay. Great. Thank you.

[Cameron M. Bready:]

Thank you.

[Operator:]

Our next question comes from Andrew Jeffrey with SunTrust.

[Andrew W. Jeffrey:]

Hi good morning. Thanks for taking the question, nice quarter.

[Jeffrey S. Sloan:]

Good morning.

[Cameron M. Bready:]

Good morning, Andrew.

[Andrew W. Jeffrey:]

Cameron, just at the risk of beating a dead horse on the ISOs, can you just talk a little bit about cause and what’s kind of behind the modest weakness relative to initial thoughts on that channel, is that a global payments sort of consummated initiative or is there something external taking place in the market?

[Cameron M. Bready:]

I don’t know if there is anything more significant external taking place in the market place. I think it’s more of a commentary thing, largely from our perspective is to where our focus has been here over the last few quarters. Its’ clearly on growing our direct business, it’s clearly on growing OpenEdge, our integrated business and focusing on again putting our efforts behind what we do is more the long term future of our company which is the direct distribution model through those businesses that we have. So, I don’t know if I would read too much further into it than that, I think it’s just a fairly consistent commentary with what we’ve seen over the last few quarters around where our focus is and the result of that as I [reported] a few are -- overall financial performance.

[Jeffrey S. Sloan:]

Yeah, Andrew it’s Jeff. I would just say it’s a continuation in addition with what Cameron said financially at a high level, it’s a continuation of the trending that we probably have talked about in the last eight quarters or so which is, at the end of the day the third party business has really come through a period post [indiscernible] and a period of very high revenue growth in particular which of course has an impact on our GAAP reported revenues. And that is well now annualized. So I think what you are seeing is those unusual one time events which cause that channel to grow very very quickly for a period of a couple of years and this is by the eight consecutive quarter we are seeing the continuation of the same trend of lower growth in that channel. So I wouldn’t say it’s anything other than an extension of what you’ve been seeing for the last years or so.

[Andrew W. Jeffrey:]

Got it. All right, that’s helpful. And where is the through the pro forma operating leverage in the business, sorry financial leverage in the business today and what are you sort of comfortable with long term recognizing that you generate a lot of free cash?

[Jeffrey S. Sloan:]

Yeah, Andrew its Jeff. At a high level for me from a strategy point of view, we expect to see over the cycle as we let our July continuing on operating margin expansion. You know we made significant investments in our direct businesses, we believe those are growing at market rates or better. We just got you talking about our third party business and while there’s not a lot new there over the last two years, the truth is that is not growing from a revenue point of view at where the rate of market growth is. So the natural mix overtime and it continued good execution and new products and services and leveraging the technology of platforms globally is we’re doing generates our expectation that we talked about in July that we’re going to continue to see over the cycle additional operating margin expansion. That is supplemented by some of the deals that we have announced, so we are very focused on adding product services companies, distribution technologies that are additive to our margins. So the last two transactions we have announced, Ezidebit and now for that gaming [ph] are now we are growing better than the rates of organic market growth which we described that comment that David mentioned that margins that are better than our corporate margins. So I think from a strategic point of view, Andrew going back to July cycle based guidance, it’s a combination of good, consistent, direct execution in all of our direct channels globally augmented by when we do partnerships and acquisitions those are in assets that have good technologies, products and services, good distribution but that [have] allowed us doing a lot initially has better margins than in the first place. And I think utilize stuff together, and you should continue to see our expectation is continued expansion over the cycle on our operating margin.

[Andrew W. Jeffrey:]

Thanks.

[Operator:]

Our last question comes from Jason Deleeuw of Piper Jaffray.

[Jason Deleeuw:]

Hey good morning and thanks. I want to dig into the integrated payments channel just a more. I want to get a feel for the channel partners that you are working with, what percentage of their merchants already have integrated payments? I’m just trying to get a sense, like kind of the long term growth opportunity there. And then also, if you could just give us some color on now that you guys have been in this channel for sometime now especially with APT, what’s kind of going on from a competitive front, from a pricing front, are there any changes in this dynamics in that channel that you guys have noticed over the last year and a half?

[David E. Mangum:]

Yeah, Jason its David I’ll start and then let the other guys chime in as well. We have over 2000 partners’ across our integrated channels, servicing numerous verticals with meaningful presence in probably 50 or 60 verticals, channels. And when we think about the pieces of that solution, it’s the proprietary payment technology and highly secured solution as well. So when we look at the pieces of that we’ve been very successful with the mid-teens kind of growth that Cameron’s describing and then when you roll the sort of the rest of your question in thinking about pricing pressure we have seen very little incremental pricing pressure obviously merchant acquiring at highly competitive to link your first two questions together. But for us, fortunately from a growth perspective we have not quoted this number in sometime when we first announced these transactions, we told you these channels are maybe 25% penetrated. In other words, the merchant’s solutions being integrated with our software and our technology and the vendor’s software and technology may be 25% of those margins actually we are processing through an integrated solution. So we think we’ve got a long runway ahead for growth, particularly given that pricing trends are quite stable across the industry.

[Jason Deleeuw:]

Just the last one, do you think EMV helps accelerate their penetration rate or to give more merchants to integrate the payments?

[Jeffrey S. Sloan:]

Yeah, there’s no question. In fact if you link it to Apple pay and the marriage of tokenization point to point encryption, and EMV, we think we will drive faster adoption and get the merchant the end merchant as well as the ISV the software vendor, more excited about driving these integrated solutions throughout the base.

[Jason Deleeuw:]

Thank you.

[Jeffrey S. Sloan:]

Well thank you very much for joining us this morning.

[Operator:]

Well ladies and gentlemen, this does conclude today’s presentation. You may now disconnect and have a wonderful day.