Global Payments Inc (GPN) — Q1 2016 Earnings Call Transcript

Thank you. Good morning and welcome to Global Payments Fiscal 2016 first quarter conference call. Our call today is scheduled for one 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 and any subsequent filings. 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, adjusted net revenue and free cash flow which are non-GAAP measures. For a full reconciliation of cash earnings, adjusted net revenue and other non-GAAP financial measures 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 and our trended financial highlights, both of which are available in the Investor Relations area of our website at www.globalpaymentsinc.com. Now I'd like to introduce Jeff Sloan. Jeff?

Thank you Jane and thanks everyone for joining us this morning. We are delighted to report an exceptional start to fiscal 2016 with strong first quarter performance that exceeded our expectations across our markets. We are now raising our expectations for this fiscal year. For the quarter, we delivered net revenue growth of 8%, expanded margins by 150 basis points and grew cash earnings per share by 25%. Notably each of our regions reported margin expansion, notwithstanding the impact of foreign exchange headwinds. This performance reflects the continued progression of our long term strategic vision coupled with relentless focus on everyday execution. We believe that we have the right people in the right positions executing the right business model around the world. Now for more detailed highlights. We are very pleased with the performance in our North American businesses which was driven by our fifth consecutive quarter of double digit organic revenue growth in our U.S. direct channels. In Europe we delivered substantial organic revenue growth in the U.K. fueled by solid execution. Our e-commerce business performed ahead of our expectations and in September Realex released a new bundled offering in the U.K. further demonstrating our commitment to investing in areas of exceptional future opportunity. We also saw double-digit volume and transaction growth in Spain, meaningfully outpacing the market and highlighting the strength of our partnership with CaixaBank. We look forward to expanding this partnership when the Erste Bank joint venture closes later in fiscal 2016. Asia produced stable organic revenue growth for the quarter. We also closed the BPI transaction in early August which will help to drive stronger organic revenue growth over the long term given the attractive secular trends in the Philippine market. Finally, Ezidebit continues to perform well in Australia and New Zealand. As you know, the U.S. market adopted the EMV protocol effective October 1. We have years of expertise bringing EMV to our markets and we therefore bring substantial advantages to our domestic and multinational customers in the United States. For example, we recently partnered with Visa in Canada to enable the first mobile contactless solution for not-for-profits using EMV and point-to-point encryption in that country. We look forward to extending this type of technology to other EMV markets. In the United States, we have developed EMV solutions for our integrated, direct, mobile and gaming lines of businesses. As we have discussed previously, our Edge Shield and Global Shield products combine EMV with encryption, tokenization and NFC. We believe these and our other value-added products and services will allow us to capture share across our businesses. EMV adoption in the United States has and will continue to catalyze the rate of technological change in our businesses. To that end, we announced in September that we are offering Android Pay and Samsung Pay to our customers in the United States. We also support Apple Pay in both the United States and the United Kingdom. The rapidly changing nature of payments technology underscores the advantages of our model as we are capable of enabling new products and services in short order across markets globally. Global Payments stands at the crossroads of a rapidly changing worldwide payments market that is increasingly defined by technological differentiation and global breadth. We target markets with higher rates of growth and margins, leveraging our scalable technologies and unified operational structure to create superior returns. Over the last few years, we've invested $1.75 billion across our businesses to accelerate growth and efficiently returned $1 billion to our shareholders. Yet, we retained substantial capital flexibility to achieve our goals. Of course, more to come on these topics in a couple of weeks. Now I will turn the call over to Cameron.

Thanks, Jeff, and good morning, everyone. I'm also very pleased with our strong first quarter performance which meaningfully exceeded our own expectations. Despite the significant negative impacts of foreign currency translation, we produced impressive revenue growth, margin expansion and cash earnings per share increases over fiscal 2015. Total company adjusted net revenue for the first quarter of fiscal 2016 was $537 million, reflecting growth of 8% over the prior year. Assuming we owned Ezidebit, FIS Gaming, Realex and BPI in our current and prior first quarters or normalizing for their effect, constant currency net revenue growth was 11% for the quarter. Operating margins for the quarter expanded 150 basis points to 30.5% and cash earnings per share increased 25% to $1.57. North American net revenue growth was 8% for the quarter with operating income growth of 9%, including the effects of significantly unfavorable currency trends in Canada. Despite these impacts, North American margins expanded by 20 basis points. U.S. net revenue growth was 16%, reflecting strong organic growth of 10% from our direct channels, coupled with the addition of the FIS Gaming business that contributed 6 percentage points to our U.S. growth rate. Canada's local currency revenue grew in line with expectations for the quarter, but the weak Canadian dollar unfavorably impacted North America net revenue growth by several hundred basis points. Net revenue growth in Europe was 4% in U.S. dollars, with margin expansion of 280 basis points. Adjusting for unfavorable currency exchange rates, European constant currency net revenue growth was 22%. This was primarily driven by accelerated organic revenue growth in the U.K. and continued strong fundamental growth from our business in Spain. The addition of Realex also contributed to the strong local currency net revenue growth in Europe. Asia-Pacific revenue grew 30%, driven by mid-single-digit organic revenue growth trends, in line with our expectations, the Ezidebit acquisition and the BPI transaction, which closed in August. Operating margins in our Asia-Pacific segment meaningfully expanded largely due to the acquisition of Ezidebit which will annualize in October. We generated free cash flow of approximately $86 million this quarter. We define free cash flow as net operating cash flows excluding the impact of settlement assets and obligations, less capital expenditures and distributions to non-controlling interests. Capital expenditures totaled $17 million for the quarter. Since the date of our last call, we repurchased an additional 550,000 shares for $16 million. Our current share repurchase authorization capacity is $342 million. Our total available cash including working capital at the end of the quarter was approximately $200 million. In late July we successfully completed a refinancing of our debt facilities to further expand our capacity to $3 billion, which represents an increase of $750 million from our prior capacity. Our new facilities are comprised of a $1.75 billion term loan and a $1.25 billion revolving credit facility. In addition to being more cost effective, this refinancing provides incremental capacity to ensure we are well capitalized to pursue our growth initiatives and capital allocation strategies. Further, in August, we entered into an additional $250 million notional amount interest rate swap to hedge a portion of our variable interest rate exposure. Cumulatively, we have now hedged a notional $750 million of our outstanding variable rate debt portfolio. Turning now to guidance, we are raising our fiscal 2016 expectations despite the incremental negative impacts of foreign currency translation. Relative to our previous outlook, our current foreign currency assumptions anticipate stronger FX headwinds for the year, largely due to further weakening of the Canadian and Aussie dollars, as well as the ruble. As a result, we continue to expect our fiscal 2016 net revenue to grow 6% to 8% from fiscal 2015, and range from $2.06 billion to $2.10 billion. Absent the impacts of incremental foreign currency headwinds we would have expected net revenues to trend towards the higher end of this range. Nonetheless, we are increasing our cash earnings per share and operating margin expectations for the full year. Cash earnings per share are now expected to grow 14% to 17% over fiscal 2015, and range from $5.77 to $5.92. We also now believe cash operating margins will expand by as much as 50 basis points in fiscal 2016 on a constant currency basis. Lastly, I'm pleased to announce that for the first time in 10 years our board has approved a two-for-one common stock split payable on November 2, to shareholders of record as of October 21st. I will now turn the call back over to Jeff.

Thank you, Cameron. I want to remind everyone that we will be hosting an Investor Conference in Atlanta on October 20th. We look forward to providing further detail in our sessions regarding our vision to accelerate transformative growth across our markets. We hope to see you there. Jane?

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

Great, thanks. Good morning, guys and congrats on another nice start to the year.

Thanks, George.

Was hoping we could dig in a little bit on the strength in North America. I know you've now combined the U.S. and Canada. But Jeff, I think you said you had another quarter of double-digit direct growth. I think you guys were looking for 9% to 11% growth coming into the year. It seems like you did better than that. How are you feeling about that going forward and any sort of pricing initiatives that may have been put in place in Canada recently?

Sure, George. It's Jeff. I'll start and I'll ask Cameron to add some more detailed color on your question. First, I feel very good about where our North American businesses are today. In the United States first, we saw a continuation of the trends and you're right on what you said about our prepared remarks, a continuation of the double-digit trends and organic net revenue growth in the United States, George, for the fifth consecutive quarter that we really saw across last year and we feel very good about the performance in each one of our businesses. First, in our integrated business, we continue to see mid to high double-digit revenue growth in that business, which has been consistent in terms of our expectations over the last year or so. We also have done very well with a number of our partnerships including our Fidelity gaming transaction that closed on June 1st, and I think as Cameron said in his remarks, we're very pleased with the execution of that acquisition one quarter into the closing of that transaction. So sitting here today we see a lot of strength in our U.S. businesses consistent with what we described in July and really what we saw most of last fiscal year. As relates to Canada, really more of the same. Our goal has been a stable and visible Canadian business. We continue to see that. In fact, we've had some of the better transaction growth in the last quarter or so in Canada that we've seen in quite some time and that's against an economic backdrop that's been relatively flat. Nonetheless, our businesses continue to perform very well in Canada, putting aside the FX impact that Cameron alluded to. So I would say, George, it's really more of the same. I see this as a continuation of momentum that we had towards the back half of 2015 and all of 2015 but the back half of 2015 heading into the 2016. Cam, you want to comment on any more of the detail?

Yes, George. I'll give you a couple specific metrics maybe to focus on. If you look at the North American business as we noted in our prepared comments, it grew 8% for the quarter that was about 12% on a constant currency basis. Canada was about a 400 basis point headwind as a result of the weak Canadian dollar relative to the U.S. dollar. The U.S. direct channels grew 10%, FIS gaming added about 600 basis points as I noted in my comments. That 10% low double digit organic growth in the U.S. business is consistent with the trends I think we posted over the last probably five or six quarters and obviously is our expectation going forward, kind of high single low double digit for organic growth in the U.S. business as we report to the balance of the year as well. As Jeff noted Canada was kind of low single digit in line with our expectation on a local currency basis despite what I think we all know a weak macroeconomic environment with Canada in recession in the first quarter of our fiscal 2016. So I'd say all in all a very good performance for the North American business.

And George this is David, one bit of color, you asked about pricing in Canada. Canada is driven by stable credit metric trends. We are actually seeing very nice growth as Jeff pointed out a moment ago offset by very manageable spread situation. We’re very happy with the start. Actually we’re off to a great new sales start in Canada as well this year showing OptBlue among other products in Canada. So we’re really pleased with the start in Canada this year is to repricing - there is always a little element of measured pricing in the results in the markets like that but there is nothing new or different going on in Canada at all.

Okay, great. Really appreciate the color there. And just to follow-up with the liability shifting now haven't been reached, will you be taking this opportunity to maybe use a bit of a stick approach for some of the merchants that are now looking to upgrade their point of sales technologies or anything you’re thinking about, sort of repricing a portfolio for the laggards? Thank you.

George, this is David again. Right now we’re focused on industry adoption and migration. As you know, it's early days. We're a few days into this. At this moment, very little migration has happened. You’ll see statistics expanded about with different levels, but the reality is we had the low single digit level of penetration from a merchant perspective except to that being the odd big box merchant who may have gone in the last six weeks to three months or so. So right now we’re really focused on what will our partners on moving through our merchant base whether there is viable business case to go ahead and move quickly. We got everything fully certified as you might imagine the basics are complete with all our solutions are compliant and as important as anything we bundled EMV with PCI compliance, point-to-point encryption, and with tokenization to security solutions we’re looking forward to working on merchants to implement those to drive growth in a more secure ecosystem overall. To your question about pricing, really driving as to thinking of migration adoption right now. Let's fast forward a little while, come back with its little bit later and we think through and it's just much further penetrating what you do about laggers in order to security ecosystem, but it's really having that conversation.

George, this is Cam, the only thing I would add to that is just as David highlighted, we're really focused on adoption and as a result you wouldn't - there shouldn’t expect to see any sort of pricing elements were priced in our guidance for the balance of the year. So with the focus internally being on migration and supporting our customers, we haven’t really reflected anything from a pricing point of view in our expectation.

Great, thanks.

Thanks, George.

Hi, this is Ashish Sabadra, calling on behalf of Bryan Keane. Let me add my congratulations as well. So just quickly on Europe, we saw some further acceleration and growth there moved up from 19% constant currency last quarter to 22%. How should we think about the momentum going forward if you could just provide some more color on that front?

Sure. Jeff, I'll start and I’ll ask Cameron to provide some additional detail around your question. So we’re very pleased with where we are in Europe. We think this is a very favorable time to be investing in that business. For example, we acquired Realex in March to expand our omni-channel offerings into Europe. I referenced in my prepared comments or bundling of our Realex gateway solution with our acquiring solution in the U.K. market which is a part of our initiative toward omni-channel. So I think the way to think about Europe is just a quarter - very, very good sales execution which both Cam and I talked about. We couldn’t be more pleased with our business in Spain as we alluded to in our prepared remarks. We saw continued double digit volume in transaction growth in Spain that’s also been helped by a heightened expectation of better GDP growth and low unemployment in Spain. So I think we’re really firing on all cylinders as it relates to our business in Spain and we continue to invest in our business. So we think that the adoption of the single European payments area which has been coming for quite some time and is partially here but we fully rolled out starting in the back half of our fiscal year is an opportunity for us to continue investing in capital shares. So what you’re seeing now is really the fruits of several investments but also the fruits of further investment in our sales channel primarily in the United Kingdom business but also in the Spanish business and that's before we get to the closing of the Erste joint venture which we expect to be as I said in the back half of fiscal 2016. So I think we’re really right where we want to be in our European business. It’s nice that you can see that in the results. Cameron, do you want to provide more color?

Yes, I will just add a couple of things. First of all, the double-digit constant currency revenue growth is our expectation for the year for Europe and so I think we continue to expect to see the similar trends like we've seen over the last few quarters, I think in Europe on a top line revenue growth perspective. As Jeff highlighted that would be augmented in back of the year with the addition of the Erste transaction. I will remind you, however, that’s not reflected in our guidance today. So we do anticipate a nice headwind kind of rolling into the back half of the year from Erste, which is not reflected in the guidance as well as benefits from pricing changes and regulatory changes in the U.K., which is reflected in our guidance.

That's great. My second question was going to be on the international margins. Thanks for providing the details by Asia-Pacific and Europe. So on Asia-Pacific, we saw some pretty good margin expansion there this quarter but the margins are still lower than the company average, I was just wondering if you could provide some color on what you think about the sustainable margins in Asia-Pacific going forward. Is there room for further margin expansion there?

I think first of all the margin increases you saw year-over-year were driven by a couple of things. One is we obviously have the Ezidebit transaction that we closed in the middle of October last year. So in Q1 of this year that was a meaningful benefit to margins in Asia. I would say last year Asian margins were weak and a little bit by the occupy central activity in Hong Kong which reflected an environment there that had lower margins than we would typically see for our traditional Asian business before the addition of Ezidebit. I would say going forward we’re looking at Asian margins now that are roughly around the corporate average and I would expect that to continue. I still think we do see opportunity for margin expansion particularly as we grow the Ezidebit business which is a higher margin business than our traditional Asian business, as well as the additional benefit we expect to see from BPI over the balance of fiscal 2016 as well. The only somewhat minor headwind to that is what we see is a relatively weak macroeconomic environment in Asia driven by sort of a commodity glut in China, the weak China economy. It obviously has a dampening effect on the overall macroeconomic environment in Asia. So that will be a bit of a headwind to the performance there. But I do expect to see continued good margin performance as well as margin expansion although probably muted by the macroeconomic environment.

Thanks. Thanks for the color.

Thank you.

Thank you. Let me add my congratulations as well. Could you - my question is around Realex and the strategy that sort of follows from Realex. Could you elaborate on how you intend to integrate it and potentially use that as a means to penetrate other parts of Europe?

Sure, it's Jeff. I'll begin, and David will provide additional insights. Firstly, we are very pleased with our new partners at Realex. Unlike most partnerships, we were fortunate to have a three-year relationship with Realex, which allowed us to evaluate its performance before we officially partnered. As a result, we have gathered considerable data on effective market strategies prior to acquiring the business last March. As I mentioned earlier, we recently launched their new bundled product, which combines the Realex gateway with our merchant acquiring operations in the UK, and soon in Ireland and other parts of Europe. Reflecting on our omni-channel strategy, our perspective is twofold. Firstly, when we engaged in the Realex transaction, we recognized that our share of the cross-border multinational business, especially in Europe for card-not-present and e-commerce transactions, is quite small. To address that, we believe we should capture a larger share of the market, which is organically growing at mid to low double digits, given our capabilities and positioning. Secondly, we anticipate that the market will increasingly blend distinctions, particularly in Europe, due to the emergence of the single European payment area and the use of common currencies. Eventually, we foresee customers disregarding the differences between card-not-present and face-to-face interactions. Therefore, we need to own all necessary capabilities. We already have a robust face-to-face business in several European countries, and we believe that integrating card-not-present functionality will significantly enhance our omni-channel business. Looking at our competitors, which we'll discuss in a few weeks, organizations like Atian, Stripe, and Braintree have shifted towards card-not-present business models while attempting to expand into card-present territories. We consider ourselves well-positioned in card-present markets and, with the inclusion of Realex and our existing assets, a strong card-not-present business as well. Combining these strengths gives us a significant competitive edge in the omni-channel market in Europe, allowing us to capture growth and gain additional market share. David, would you like to add anything further?

Yes, let me add a little bit for you Ashwin, and pull apart the pieces a little bit of what Jeff said. So, first off as I said, we are very pleased, the business is performing fairly financially as we wanted and the integration is going very well. It looks like the bundle because that's where we've been creating incremental value and driving incremental growth actually on a global basis with this type of product set. So the bundle itself, it's for enterprise customers available obviously for multinationals, as Jeff said, it's also focused on small-to-medium enterprises operating within their individual markets or cross borders which of course is going to be increasing trend particularly in Europe when we think about the stuffed as well as the local nature of the transaction that happen in that area. So, with the bundle we give our U.K. customers a single relationship, covers all of their payments needs including e-commerce bundled and face-to-face, merchant services or the gateway just simply bundled with merchant acquiring along with reporting fraud management, all those kinds of things you'd expect in one package solution where that single relationship covers your entire suite of needs whether its e-commerce, face-to-face, fraud, et cetera. So the thing to think about relative to adjust that is that's targeted to small-to-medium enterprises, enterprise-level customers, but also the developer market, as you well know that's where Stripes made a tag and as Jeff, said quite correctly we have the assets to compete with Stripe, with adding all the others, as well as bundling truly integrated face-to-face acquiring in any market around the world. So being able to deliver that out of the box on a global basis is unique, it just began to roll out in the U.K. in September week, announced that a couple of weeks ago. We're really excited about them taking in around the world to drive accelerated growth, and we'll talk more about that just in a couple of weeks.

Absolutely love that. Thank you for that color. The follow on question is with regards to the higher margins. Based on some of your comments so far it seems as though the bulk of that margin improvement is sustainable and not related to one-off factors. Is that correct to read? If you could kind of go through the elements of margin improvement, that would be helpful.

Cameron here. I'll start, and Jeff or David can jump in later. In terms of our expectations, we remain optimistic about margin expansion for the business. We mentioned this extensively during the July call. Our current model projects margin expansion of over 50 basis points each year. In the first quarter, we achieved a notable margin expansion of 150 basis points, and our guidance for the rest of the year indicates an increase of 50 basis points on a constant currency basis. There will always be ups and downs in any quarter. If we look at the last three quarters of fiscal 2016, we faced some challenges, particularly due to the annual impact of the Spanish regulatory changes that started in September and the integration costs associated with FIS Gaming, Realex, and BPI. These are the obstacles we expect in the latter half of the year. On the positive side, we anticipate benefits from the U.K. and European regulatory changes, which will mainly affect our U.K. operations, along with ongoing growth as we execute our strategy, which we believe will enhance margins over time. Overall, while there will be fluctuations in any quarter, we maintain a strong outlook for margin expansion in the business. We are still not at our desired margin level, which is above 30%, and we firmly believe there is significant potential for growth up to 50 basis points annually in the coming years.

Yes, I would just add to that, Ashwin, it's Jeff. Our job is to grow margins. We guide that as a company, we have a track record now, I believe that by doing that we expect margins to grow. I think Cameron is right, in any given quarter related to FX and pluses and minuses, they can vary a bit, but our focus is on growing margins. The thing about the $750 million that we talked about in our prepared remarks about investing, those investments find large winds of businesses that are in markets that are faster growing than the market in general that are historical markets and have better margin opportunities. You combine that with the unified operating structure that we have also talked about in our comments, investments remain our technology platforms and the incremental margin on each transaction especially growing at the rate that we're growing at is going to be accretive to the overall margin profile. So we expect to continue to grow margins and add to the strategy of the company.

That’s great to hear. You got to keep on rocking. That's good. See you in a couple of weeks.

Hi, this is Michael Landau, in for David Togut. For fiscal year 2016 and 2017, should we expect PSD2 regulations in Europe to have a material impact on global European revenue in earnings and could this regulation impact your Realex strategy?

So I think, Michael, it's Cameron. As we've mentioned a couple of times today, we anticipate that the implementation of the new regulations in December will provide a positive boost for us in the latter half of the year concerning the Payment Service Directive initiatives that were approved last year. We've factored that into our guidance, and we expect it to continue benefiting us as we move into fiscal 2017, at least for the first half of that year. However, like any regulatory changes, these effects are temporary. As we experienced with the Durban regulations in the U.S. a few years back, similar changes in Spain have shown that benefits diminish over time, and the market adjusts as these advantages are incorporated into pricing over a 12 to 18 month period, depending on the market conditions. Ultimately, while the benefit will be temporary, we see it as a significant advantage as we approach the latter half of fiscal 2016 and the first half of fiscal 2017.

Understood. And then, can you provide an update on New European Bank partnerships and M&A deals. Perhaps what stage you are in with those conversations? Thanks.

Sure, Michael. Well of course we announced in July our partnership with Erste Bank along with CaixaBank, which we expect to close in the back half of 2016. And as we've been saying for the last period of time, we expect to do more of those transactions as the regulatory environment encourages financial institutions to think about partnerships and as the economic picture particularly as it relates to rates, which we view as an opportunity in Europe allows us to invest more economically in the immediate term for a longer term return. So, we continue to look at and have discussions with a number of banks in continental Europe about partnerships, and we hope to do more of those. As we've said for a period of time now the number of requirements we have are first that is the right type of partner for us, and the second, is that to provide attractive returns for our shareholders. So, with those two things being said, we hope to do more transactions, we have more discussions underway. Those are hard to peg toward the timing, but we do think that in general deals we get more deals. So, we certainly have seen a pickup in discussions post the Erste Bank announcement a couple of months ago and we hope to bring more of those to market assuming to meet the criteria I just laid out.

The only thing I would add to that is obviously our appetite remains very high to continue to do these types of transactions. I think our balance sheet supports it, we have ample capacity to do so as Jeff noted in his prepared comments. Notwithstanding the amounts that we've invested in acquisitions, as well as returning capital to shareholders over the last few years, we retained ample capacity to continue to advance our strategy through both organic and inorganic growth. So this is an important element of that and something we're working very diligently to try to bring forward.

Great. Thank you.

Hi, guys. Thanks for taking my questions. Just wanted to follow up a bit more on the 50 basis points of operating margin improvement. Can you just break out by region around what you expect the improvements to be for this year? Thanks.

Yes, Steven, it's Cameron. I'll maybe start and then I'll ask Jeff or David to jump in if they have any particular added color they'd like to add. Typically we haven't guided around each individual segment in terms of what our expectation is for margin. We are really focused on expanding margins at the total company level. And as I'll remind you, I mean we're managing a portfolio now 29, soon to be 30 markets around the world. Not every market is going to perform terrifically every quarter, and that's certainly not our expectation. So part of this is managing a portfolio that ultimately results in overall margin expansion for the company, that's our goal and that's our objective as management as Jeff highlighted earlier. As we sit here today, certainly we see North America continuing to drive margin expansion for the overall company, driven by that double-digit organic growth in our direct channels particularly the higher margin businesses like our integrated OpenEdge business here in the U.S. market that continues to grow in line with our expectations in the mid-teens, and obviously performs at a level that helps to drive overall margin expansion for the company. Europe on a U.S. dollar adjusted basis, we expect to continue to grow for the year as well or potentially be flat depending on what currency does, but if we see margin expansion in Europe overall it will likely be relatively minor edge - again FX is going to play a part in tampering that a little bit. And I've discussed Asia a little bit earlier, we do expect to continue to see margin expansion in Asia largely driven by the growth in the Ezidebit business, which is a higher margin business as well as the addition of BPI, which we think obviously improved the scale in that region and helps to drive margin expansion somewhat tampered by the overall weak macroeconomic environment as I mentioned before. So, end of day we're really managing overall as a corporate margin expansion target and we're managing the individual portfolios within the composition of the company to achieve that, and that's our objective in any given year.

And Steven, this is David, maybe from purely a business perspective to compliment what Cameron said, we're very confident in the manner which we're executing actually around the world right now, whether it's Europe, the Asia description Cameron gave or North America. As Cameron said quiet rightly, a lot of this is headlined by North America, where when you think through a stable Canada with the conditions we're describing earlier when we were answering George's question, we feel very good about that, a little execution ground with our team there and our sales team in Canada, and the United States is of course that fills the largest piece of the business. The headline of the course OpenEdge, we are very confident in our trajectory and performance there. This is actually our first year with the fully integrated sales force operating with the same tools, same lead management marketing CRM and sales automation tools all driving highly incremental growth as you drive extra new partners and you drive new merchants and obviously just the organic same store sales are fantastic in that business. The gaming integration is going very well, that will obviously support the way Cameron described our North America trajectory quite strongly, and really the rest of the business, the direct business is growing very well and even indirect pieces are performing just as we expected. So, again from a purely business perspective we're executing very well around the world particularly in the largest markets that really support the description Cameron gave you.

The last thing I'll add Steven just to round up the conversation entirely is we continue to invest on our operating environment. We talked fairly extensively about the evolution of this business towards the unified operating company structure. We continue to invest in achieving that, that will help drive incremental leverage scale on a global basis that is supported through overall corporate margins in the aggregate, and that's something we're very focused on and look forward to discussing more specifically in a couple of weeks.

Got it. And then as a follow up just to trail down a little bit on the quarter and then given that we do have September that's complete already. Were there any differences in terms of the growth rates into quarter and then any preliminary thoughts on how September was? Thanks.

Yes, it's a little early I think to comment on September, to be honest with you, Steven. As we see the biggest thing that I'm looking at day in and day out, are the fundamentals of the business I think continue to be very strong. And certainly I don't see anything in September that would cause me to feel any differently relative to what we saw in Q1. The thing that I got to bed looking at when I wake up looking at every morning is currency. And the volatility we continue to see in currency is just staggering. So, currency is something we're working very hard to manage as you noted in our guide for the back half of the year – as the back three quarters for the year we are absorbing incremental currency relative to what we anticipated as recently as July. We've seen the Canadian dollar weaken by 5%, 6%. We've seen the Aussie dollar weaken by roughly 7%, Rubles weakened over that same period of time. So if you look at our total revenue guide for the year, we maintained our $2.06 billion to $2.10 billion revenue guide for the full year up 6% to 8%. If we reflect back to July, we noted that that 6% to 8% growth was really 9% to 11% on a constant currency basis. Well that's now really 10% to 12%. So we're absorbing another point of FX headwinds in our revenue guide and still maintaining that 6% to 8% FX adjusted growth rate for fiscal 2016 and I think that's quite an accomplishment. I mean I really think it speaks to just fundamentally how well the business is performing that we can continue to absorb this FX headwind the way that we have and still produce headline numbers that are very attractive. Ultimately that's going to turn and work in our favor, but I think we're well positioned to continue to work through fiscal 2016 and absorb it and move on.

Great. Congrats on the quarter and thanks for taking my questions.

Good morning, guys. This is Ryan Cary calling in for Jason. Touching on OpenEdge, we've been hearing even more bullishness coming from the industry as it relates to growth prospects for the integrated channel. As it appears to increase verticalization of software solutions that's opening up additional runway, it sounds like this is consistent with what you've seen in the OpenEdge business in the market. So, I was just wondering, was this the principal driver behind the increase in the longer-term topline outlook you outlined last quarter, and could we actually see growth above that mid-teens level that we've spoken about for the full year?

Yes, it's Jeff. I'll start it and then I'll ask David to comment more specifically on the details around OpenEdge. I think going back to the July guide, heightening our net revenue growth over the cycle, obviously OpenEdge is the largest part as we've talked about in July of our U.S. business today and of course it's also the largest direct piece of our business. So there is no doubt as a mathematical matter that it's a very important contributor to our confidence level in raising our targets. But I think it's important to note that the overall U.S. direct business still grew 10% organic in the most recent quarter in last four quarters prior to that also grew in double digits, so while the remainder of the businesses in the U.S. on a direct basis are not growing in the mid to high double digits, I think it's fair to say as we've said in the last couple of quarters that our targets of those business is well in excess of market growth. So our non OpenEdge direct businesses are probably growing in the mid to high single digit area and OpenEdge of course is in the mid to high double digit area. So I think we're pleased with all those businesses not just OpenEdge, and all those things went into our discussion around what it was like the company to be on a cycle basis. David, you want to talk a little bit more about the OpenEdge?

Yes, I’d be happy to. I think Ryan you put your finger on something that we recognized some time ago when we began the investments in integrated payments. If you go back through a few years ago. The idea of marrying technology to distribution, marrying a payment to a technology solution that creates a more compelling value proposition and at the end of the day a stickier solution is something we've been driving for quite some time. It's what's fuels the growth that Jeff just described both in terms of the sales, again the compelling value proposition, the leverage of working with partners on integrated solutions. It also fuels lower attrition rates. So combined you have this amazing growth profile over and above with the terrific growth profile from our co-direct businesses. I think of that as a tip of the spear for global payments growth going forward and maybe our opportunity to accelerate growth when we go and think beyond the United States, think beyond just OpenEdge into other places we can marry technology, deep vertical expertise and payments functionality to a really compelling solution, really frankly on a global basis every time.

Great, thanks. And kind of digging on the U.S. side of the business a little bit more, can you talk about the U.S. transaction growth in the quarter and maybe just deconstruct into direct and indirect, as well as what part of it is inorganic. And also what is assumed for transaction growth as part of the U.S. expectations for the full year?

So, I would say the transaction growth trend we saw on the quarter in the U.S. has been pretty consistent although we’ve seen over certainly most of fiscal 2015, probably mid-single-digit transaction growth. I'll remind you, our transaction growth numbers don't include our gaming business. So it's not going to pick up the inorganic elements of FIS gaming that we added during the first quarter. But if you look at the growth trends we're seeing, again it's kind of mid-single digits from a transaction point of view that's helping to drive an overall growth in revenue on an organic basis of about 10% for the direct channels in the U.S. market. On the in-organics – on the indirect side, the ISO business it performed pretty much in line with the expectations that we've had for the last several years on a net revenue basis. It grew kind of low to mid-single digits. I'd say transaction growth was similar in that business over the quarter or so, again, relatively consistent with what we've seen for probably the past couple of years with that business overall.

And Ryan I'm sorry, Jeff. Just not to put too fine a point on this, but when we add color to these descriptions, OpenEdge or something else, these are all organic growth numbers with the exception as Cameron said of the gaming FIS which actually is not in the transaction metrics to what he just gave color. So when we're talking about mid-teens transaction growth, mid-teens volume growth and mid-teens revenue growth to high teens in OpenEdge, all of that's organic. I would just add that increasingly in our industry and especially in our business we're looking at additional sales of value-added products and services that while it may be tied to transactional rates of growth, I view as points of differentiation. So talk a lot including today, that over the last year about OptBlue for example in the United States market and now since June – the end of June in the Canadian market, of course, we've had releases in September and a year ago now for Apple Pay in the US and the United Kingdom. But also Android Pay and Samsung Pay in the last couple of weeks as the EMV has been adopted and now we've gone EdgeShield and the Global Shield as it relates to the US business. So I think the way you have to think about it is obviously transactions are important to how our business is operating, but we exited fiscal '15, as I think we said in our July call, was the single largest number that I can recall of new products and services that we've introduced into our ecosystem worldwide, but including Europe in particular in the United States and of course through September and through the end of June did the same thing with additional products and services since May. So it's important to look at transactional trends for all the obvious reasons. But it's also important to ask about how you guys are doing in additional value-added products and services and of course in a couple weeks we'll talk more about that. But that's a meaningful measure to how we've been able to increase the rate of revenue growth in the United States.

Thanks for taking my questions.

Great. Thanks. Great, great job. Is there any way to think about obviously you were able to maintain the revenue guidance. FX we know, but clearly the macro slowed down and you were able to absorb that. Is there any way to think about how much stronger it would have been, just given - trying to underscore how durable the model is given what's been a pretty tough macro environment as well?

Yes. I think the way we try to characterize that Kevin is, we indicated that absent the incremental FX headwinds, our revenue would have been - our revenue expectation for fiscal '16 would have been toward the higher end of the range that we had previously provided that $2.06 billion to $2.10 billion. So that's probably the best metric I could point to, to sort of give you a sense as to what revenue might look like absent the implications of FX. The other way to look at it as well is what I mentioned previously. If you go back to what we said in July we expected to deliver that $2.06 to $2.10 billion, which reflects 6% to 8% growth over last year, that's 9 to 11 on a constant currency basis at that time, its now 10 to 12. So we're absorbing about 400 basis point of FX headwind now for the full year relative to what we thought would be 300 at the beginning of the year. So that gives you a little bit I think of a sense as to what the business would have performed or how the business would have performed absent both the FX we anticipated in July, as well as the incremental FX we're now absorbing as well.

Kevin, I would just add to what Cameron said that, we're really just finishing – just finished up the first quarter. So I also think you have to realize that as we guide toward the rest of the year as Cameron mentioned, looking at fairly volatile FX environment and clearly as Cameron just indicated the majority of any impact has really been FX, not the macroeconomic environment. But sitting here in the first quarter if you look at our track record, I think we like to be in a position where we say that we've got the balance just about right, looking out at the remainder of next year. So I wouldn’t – if we were sitting here in the third quarter in fiscal 2016, we would probably be having a similar conversation, but the conversation with a little bit more pointed detail about the impacts. We've got three quarters to go, and in that context, we want to make sure that we continue the trend that we've seen over the last year and a half.

Understood. That's helpful. And then just switching gears, in terms of - should Visa Europe change hands and ultimately the Chinese market open up to kind of MasterCard and Visa? Does that open up incremental opportunities for you folks or is it kind of net neutral?

Yes. So Kevin, its Jeff. Listen those things are nothing but good news for us. So as we said before, I think the ability of our partners in our ecosystem to invest in their businesses, to innovate, create new products and services, expand into new markets is an important part of our success. It's not just for us, it's true of the industry. But it's an important part of our success. So we're big believers in those kind of technological investments, and we are able to show how we've been able to catalyze on that across a number of markets. So I don't know what's going on in Visa Europe beyond what we all see in the press which you can see as well. But I would say if the philosophy is to drive additional acceleration of growth by Visa into Visa Europe, if the philosophy is to drive additional products and innovation and really drive additional card adoption and additional technological innovation, I think that's very good news for Global Payments and probably also very good news for our broad partners. I think a very similar thesis is true in China. If that market opens up the way the Chinese government has described, it's a very good business and relationship in China and mainland China are today and we would expect that to benefit not just Global Payments but a number of the other partners in the ecosystem. So if you step back for a second and you ask what are some of the macro trends that are really driving some of the results we've seen across our company, the collapsing of barrier as it relates to doing business across borders, the lowering of costs of acceptance, the acceleration of technological investments through people like Apple and Google and Samsung and American Express, those are all very good things for our business and what you just cited are two additional examples of things that would be very good for us.

Awesome. Thanks.

Thank you.

Hi. This is actually Jeff Chen filling in for Jim. Thanks for taking my questions. I was wondering if you guys could quantify how much attrition rates in the direct customer business has come down over the last two years and how much of that you attribute to improved business cycle or integrated payments or other factors perhaps?

Yes, Jeff. I'll start and give a little bit of broad color in terms of those trends and I think Dave's going to drill down into detail particularly in the North American markets. So I would say when we looked at this before, in general two thirds of your attrition for Global Payments, I'm sure it's true of our peers too really comes from the business cycle. So the vast majority of folks who don't stay with us over quarter periods of time is reflective of the fact that they're no longer in business and that tends to be the principle issue. The other third is split between price and kind of service and other things. So the vast majority of stuff relates to the economic cycle. You also have the related issue, of a more difficult cycle, you have less and fewer new business small business formation. So you see both of those issues when there's an economic slowdown. That's generally how the math tends to play out. My guess is it's very similar for our peers. Dave, you want to talk about the…

Yes. I mean, the core attrition is really consistent around the world. You asked specifically about the United States, it's actually very consistent there over the last couple of years, as you might imagine we track this diligently. What has changed a little bit to your point is our mix. So with more integrated payments businesses the overall attrition in the United States has dropped a little bit just based on the weighting of bringing more and more integrated merchants with the less likelihood of them leaving over a price functionality product, in fact quite the opposite they say because of price quality, product and functionality. So other than macro issues or individually going out of business, we really don't have very much attrition at all in that integrated business. That's obviously brought down to overall U.S. attrition a bit. But if you go through the other channels, whether it's director or even frankly the pieces within the ISO channel but also obviously our gaming business, attrition is really quite low, but also quite consistent.

Thanks. And just returning to the JVs for a bit, given that regulators are beginning to encourage the partnerships like you said, have you guys seen any more incremental competition for these relationships?

I would say it's always competitive. So smart global financial institutions have a bunch of alternatives. I like to think it's linked Global Payments, but of course in the real world it's not. So I think we - I know we assume that all of our potential partners may have choices be it very competitive, and that really hasn’t changed at the end of the day. So I like to think and I think our track record shows that we bring a lot of things to the table from an ability to actually show that we have been able to create value with our partners over the broad periods of time, our ability to execute, our ability to cross-sell, ramp up sales and penetrate into new markets. I think we have some distinctive advantages but I don’t think we ever fool ourselves thinking that it’s not competitive or we don’t want to put our very best foot forward each and every time and that really hasn't changed.

I mean we work very hard, we work very hard to obviously position ourselves as the partner’s choice and our ability to continue to expand partnerships like we have with Caixa as we have now partnered with them in Central Europe, in Eastern Europe through the years of transaction. I think it is indicative just how well some of those partnerships have gone and how effective we are actually partnering with some of these financial institutions. So, although they are competitive we do work very hard to make sure that if it is a situation that we find attractive and the opportunity is compelling to us that we are doing everything we can to prevail.

Thanks for taking my question.

Good morning, thanks. Couple of questions. First, could you be more specific on the contribution OptBlue is making to top line growth in North America and potentially, if you roll that out not only in Canada but across the Atlantic. And secondly, I know this is a bit of an abstract question, but could you comment on the European court's decision to eliminate the Safe Harbor Act and if that, if you can envision that having any impact on payment processors or companies that operate out of U.S. in Europe. Thanks.

Sure, it’s Jeff, I’ll start with the second question first, and I’ll ask David to comment on OptBlue and principally North America. So, on your question about the European court, firstly they really talked about the safe harbor which came out the other day and which concerns over the safe harbor. Global payments we believe today complies with the directive. We were relying on the safe harbor, that with some of the issue the other day. So, we believe we are in compliance with the base directive. We don't think that directly that we’ll have any significant impact on the way we do business. Now there are a bunch of third parties that vary by market that will have to digest the opinion and those third parties may or may not be relying on the safe harbor and that’s something that will have to be worked through. But as it relates to us directly, we don’t expect any impact and what the EU court ruled on the other day.

Yes. So then relative to OptBlue really around the world is a focus on your question, we’re obviously not going to break out the incremental revenue contribution of OptBlue. You should know though and I’m sure you realize this, it’s a nice piece of the organic growth story but really it’s a piece of an overall story that Jeff touched on earlier which is we’re rolling out new products on a consistent basis, therefore it can be difficult to purely model this which is transactions, trying to spread to get you to revenue. We’re rolling out value-added products in every channel. We already have the value proposition I mentioned earlier in OpenEdge. Now we’re going to add OptBlue on top of that to drive a little more growth deeper into the double digits and that’s really what we’ve been able to do across all of our United States channels. Sales have been terrific and in fact, we are actually seeing volume increase to the ISO channel now through OptBlue. That’s really the power of the distribution network we’ve built, the ability to pump out new products on top of these existing core transaction volumes.

I’m sorry, I just wanted to follow up. Do you - like some of your peers expect to see significant growth over the OptBlue contribution at the end of the calendar year?

You mean, grow over issues, no, we don’t at all. In fact, this is now a core part of the transactions, we then process from there. So it becomes a part of just same-store sales as we go forward including the opportunity to go and continue to penetrate our base. It’s not as if we exit calendar 2015 fully penetrated with AmEx OptBlue and I would say, far from it. We have a long way to go. We would probably describe it, it may be the fifth inning in the United States and that’s not true of all of our channels. Some of our channels are in the third inning, couple in the sixth, that’s why I mentioned earlier, we’re beginning to see an uptick even in the ISO channel which is incremental net revenue and net profit to global payments with each sale. So we feel very good about the trajectory in the United States and the long-term trajectories result of that product and the other products we are delivering. In Canada, just to finish up the part of your first question, it’s very early, just launched in June. Now remember in Canada and with the other markets if you think around the world, you have to start with what AmEx has penetration overall in the market, therefore what can the contribution be. We’re very happy today with the progress. Our sales folks have hit every milestone in Canada that we'd expect in the early days its available nationally and so we expect that to be a part of Canada’s stability and modest growth story. In fact it just gives us more confidence about the Canada you’ve heard us talk about for several quarters now as we roll-out around the world, what you may find and you’ll find this probably in the U.K. is OptBlue will replace existing programs in some markets. So some of the incremental opportunity may be muted, but there is an incremental growth opportunity in each market as we roll this out globally again in our unique global distribution platform in our unique technology platforms.

Thank you. And just one additional if you could comment on where you think Europe is in terms of the progress made across the entire regulated area in cutting interchange levels. We know that some countries have been far more progressive than others and where you think we are in that process?

Yes, I would say we are in the very early innings of that process, of course Spain as Cameron alluded to in his comments, really adopted the interchange changes and that is annualized as of September 1 of this year 2015. But with that exception, by and large we’re in the very early innings, the way the policy directive is played through in the EU is that while it’s country specific in general we expect most of that to begin in earnest in the back half of fiscal 2016 which for us is starting in December, at the beginning of our back half of 2016. And then we will see what the pace of change is country by country thereafter. But I would say we’re in the fifth or sixth inning as David said in OptBlue we are really in the first or second inning in the case of the European rate reductions.

Okay. Thank you very much.

Thanks very much everybody for joining us this morning and your interest in Global Payments.