Global Payments Inc. (GPN)
F1Q2011 Earnings Call Transcript
October 11, 2010 5:00 pm ET
Jane Elliott – VP, IR
Paul Garcia – Chairman and CEO
David Mangum – CFO and EVP
Jeff Sloan – President
Dan Perlin – RBC Capital Markets
Bryan Keane – Credit Suisse
Darrin Peller – Barclays Capital
Jason Kupferberg – UBS
Andrew Jeffrey – SunTrust
Kartik Mehta – Northcoast Research
Jim Kissane – Bank of America-Merrill Lynch
John Williams – Goldman Sachs
Tien-tsin Huang – JP Morgan
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Ladies and gentlemen, thank you for standing by, and welcome to Global Payments first quarter fiscal 2011 earnings conference call. (Operator instructions) At this time, I would like to turn the conference over to your host, Vice President of Investor Relations, Jane Elliott. Please go ahead.
Good afternoon and welcome to Global Payments fiscal 2011 first quarter conference call. Our call today is scheduled for one hour. Joining me on the call are Paul Garcia, Chairman and CEO; Jeff Sloan, President; and David Mangum, EVP and CFO.
Before we begin, I’d like to remind you that some of the comments made by management during the conference call contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to vary, which are discussed in our public releases including our most recent 10-K.
We caution you not to put undue reliance on forward-looking statements, as these forward-looking statements made during this call speak only as of the date of this call. In addition, some of the comments made today may refer to certain measures for first quarter fiscal 2011, which are not in accordance with GAAP.
Management believes these results more clearly reflect comparative operating performance. For a full reconciliation of normalized to GAAP results in accordance with Regulation G, please see our press release furnished as an exhibit to our Form 8-K dated October 11, 2010, which may be located under the Investor Relations area on our website at www.globalpaymentsinc.com.
Now I'd like to introduce Paul Garcia. Paul?
Thank you, Jane, and thank you to all to you for joining us this afternoon.
I am generally pleased with our quarter, which produced overall results as expected, and I am pleased to affirm that we are on target to achieve our full year financial estimates. Fiscal 2011 timing of results is somewhat unusual as we expect a more pronounced amount of our earnings per share to be generated in our fourth quarter. David will discuss both the drivers of these expected results, as well as our Q1 in more detail in just a moment.
First, the highlights of the quarter and some recent events. In September, we celebrated the launch of China UnionPay renminbi direct merchant acquiring in Beijing. A significant number of customers attended the launch, including many prestigious hotels in Beijing. These customers can now utilize one integrated point-of-sale application for Visa, MasterCard, CUP, JCB, and American Express.
We were honored to have senior CUP executives and representatives of the People’s Bank of China in attendance as well. We are justifiably proud to be the only western company acquiring renminbi transactions in the People’s Republic of China. We expect steady growth as we expand further in other Chinese provinces, and it is important to note that we currently process over $2 billion in annual CUP volume in Asia.
Speaking of our Asia-Pacific region, we had an excellent quarter, almost doubling operating income over prior year and increasing operating margin significantly. We believe that Asia will offer both accretive revenue and margin growth as we continue to expand throughout the region. We’re also on track with our global service centre, or GSC, in Manila, Philippines. This state of the art facility will initially handle customer support for a portion of our international operations, but it is poised to provide long-term cost effective worldwide services.
Our UK businesses, our Russian operations, and our US ISOs, our US Direct, and our US gaming businesses all performed very well in the quarter. With regard to the UK in particular, we are on track to complete our back-end migration by the end of third quarter fiscal 2011. This migration will provide overall service flexibility within our merchant operations and greater pricing capabilities.
This was the quarter we were to have completed the US G2 migration. As you know, G2 is our single front-end authorization platform, which offers efficiencies of operation from both a utility and a cost perspective. We have converted most of our Asian authorizations and tens of thousands of US customers to G2. We based our US migration plan on the execution in Asia, and on initial successful US testing. However, during final US testing we identified exceptions that suggested potential risk of a less than seamless migration for certain merchant and terminal types.
With the goal of ensuring that our merchant base has a perfect migration experience, we have expanded our testing window and have elected to migrate our largest customers and ISOs after peak retail season. Therefore, US G2 will most likely not be fully migrated until next fiscal year. We all are reaffirming our earnings expectation, which of course means that the anticipated $2 million in G2 savings will be covered elsewhere.
Moving on to Canada, I am pleased to announce that we have executed a Visa sponsorship agreement with a financial institution in Canada commencing in March 2011. We also continue to pursue our own bank and anticipate having multiple solutions for sponsorship in Canada. Our sales efforts are going well, and to that end we signed three large merchants, representing over a billion in annual dollar volume.
Now, turning to Brazil. Brazil offers a unique opportunity to enter a previously closed market. The Brazilian market is large with nearly a quarter of a trillion dollars in credit and debit card payments per annum, and this market is growing at approximately 20%. Until just recently, there were only two service providers, one for Visa and one for MasterCard.
A merchant wanting to accept a bank card had no choice but to call one of these providers. The Brazilian government, hoping to stimulate product innovation and competitive pricing recently mandated an end to the past duopoly. As there are initially no meaningful bank portfolios available, this is more of a Greenfield opportunity. Consequently, we are holistically building our Brazilian market presence. To that end, we acquired a leader with significant Brazilian payments experience, as we are in the throes of establishing our sponsorship, referral and operating partner agreements. We will provide more color on Brazil as well as global acquisition opportunities as they develop.