Global Payments Inc GPN
Q3 2012 Earnings Call Transcript
Transcript Call Date 04/02/2012

Operator: Ladies and gentlemen, thank you for standing by, and welcome to Global Payments' Conference Call. At this time, all participants are in a listen-only mode. Later, we will open the lines for questions-and-answers. As a reminder, today's conference will be recorded.

At this time, I would like to turn the conference over to your host, Senior Vice President of Strategic Planning and Investor Relations, Jane Elliott. Please go ahead.

Jane M. Elliott - SVP Strategic Planning & IR: Good morning, and welcome to Global Payments' conference call to discuss the unauthorized access into a portion of processing systems. We are now also going to discuss fiscal 2012 third quarter earnings and this call replaces the conference call previously scheduled for April 4.

We will pause after our prepared remarks under security incidence and take your questions, resuming with our prepared remarks on earnings about half way through the 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, Senior Executive Vice President and CFO.

Before we begin, I'd like to remind you that some of the comments made by management during the conference call contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to vary, which are discussed in our public releases, including our most recent Form 10-K. We caution you not to put undue reliance on forward-looking statements. Forward-looking statements made during this call speak only as of the date of this call.

In addition, some of the comments made on this call may refer to certain measures such as cash earnings, which are not in accordance with GAAP. Management believes these results more clearly reflect comparative operating performance. For a full reconciliation of cash earnings to GAAP results in accordance with Regulation G, please see our press release furnished as an exhibit to our Form 8-K, this morning, dated April 2, 2012, which may be located under the Investor Relations area on our website www.globalpaymentsinc.com.

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

Paul R. Garcia - Chairman and CEO: Thanks, Jane, and good morning every one. In regard to the security incident, I am very pleased to inform you that we are making significant progress in defining and rectifying the event. The Company believes that fewer than 1.5 million card numbers may have been stolen and that the theft is confined to our North American processing system.

Importantly, investigation to-date has relieved that the theft involved a Track 2 card data only. We do not believe, a Track 1 card data was taken or that cardholder names addresses, social security numbers for consumer banking information was obtained by the criminals. In addition, based on the forensic analysis to-date, network monitoring and additional security measures, we believe that this incident is contained.

Visa has removed us from the PCI compliance list pending the results in resolution of our work. Upon reflection, this was not unexpected and we are focused on a remediation measures necessary for full and timely PCI reinstatement. It goes without saying that we are providing uninterrupted service 24-hours a day to our customers around the world as we speak.

I cannot stress more vehemently that this does not involve our merchants, our sales partners or their relationships with their customers. Neither merchant systems, nor point-of-sale devices were involved in anyway. It is also important to emphasize that consumers are completely protected if any exposure were to arise. The card issuing institutions have well established and highly effective procedures to protect their customers.

Consumers, as always, are encouraged to be vigilant by reviewing their statements and reporting any suspicious activity to the card issuing institution. To that end, we have established a consumer website for enquiries which will operational later this morning. The website is www.2012infosecurityupdate.com.

Operator, we will now take questions regarding the security incident.

Transcript Call Date 04/02/2012

Operator: Jim Kissane, Credit Suisse.

James Kissane - Credit Suisse: Paul, how quickly do you think you'll be back on Visa's approved processor lists? Just a follow-up, I mean, you’re calling it unauthorized access as oppose to a breach, what’s the fine-line between unauthorized access and breach, if you can provide a long sight there?

Paul R. Garcia - Chairman and CEO: In terms of when will we get our rock back record of compliance? So, I would say that prior to the event – we can say breach and prior to the breach, I think, the synonymous is really the answer to your second question. Prior to the breach, we received report of compliance and then after the breach we were removed. I think, it’s a little bit like a Joseph Heller novel, Catch-22, I mean, you are compliant prior, if something happens by definition longer and therefore that’s not totally unexpected, the important things we are open for business in processing transactions. Now, how quickly can we get back that is something we are absolutely focused on and we are working around the clock literally and we are working collaboratively with all the associations to get that rock back and quite frankly there'll be expectation that will happen as expeditiously as possible. This is somewhat nascent in that. Remember this was self-discovered, self-reported no one came to us, no one said there is records of all kinds of incidents out there with cardholders reporting incidents and banks having concerns, none of that happened. We found this, we reported it within hours. The investigations are still continuing. So, there are parts of this, Jim that we still need to resolve and buttoned-up. Those actually contained best of our ability and opinion. It's actually contained – we have some work to do to give us the associations to get this rock back. So, long windy answer to saying it's going to be as soon as possible, we are working very diligently, but I think it's going to take a little time, yeah.

David Mangum - Senior EVP and CFO: Jim, this is David, maybe a little bit more color and branding. We can't put a timeframe specifically on this, what we need to do is complete the investigation portion of this process and then identify and perform any required remediations at that point and we'll do just that, that's our plan.

James Kissane - Credit Suisse: Are you aware of any fraudulent transactions on the accounts where the data has been stolen?

Paul R. Garcia - Chairman and CEO: No, Jim, we are not.

Operator: Glenn Greene, Oppenheimer.

Glenn Greene - Oppenheimer: I guess, I just wanted to get some clarity on the timeline of sort of when you discovered this and it sounded like from your press release on Friday, it was early March and there was some indications of the breach actually kind of happened late January. So just be helpful just get some clarity around the timing of events?

Paul R. Garcia - Chairman and CEO: So, a couple of things, Glenn, first of all this is an ongoing federal investigation right, they are trying to get the bad guys here. So I can't be terribly specific, and I will tell you there is a lot of rumor in any window out there which is not helpful to anyone and most of it incredibly inaccurate. But I can tell you this approximately three weeks ago, we identified that cardholder data may have been taken, literally within hours of that discovery we contacted Federal Law Enforcement and the Card Associations. So we jumped on this instantly. Now in terms of other timelines I just cannot be specific truly about that.

Glenn Greene - Oppenheimer: Then just in terms of types of cards is it, was it Visa MasterCard or was it beyond that other branded cards as well?

Paul R. Garcia - Chairman and CEO: I think it's the major brands and in pretty much in proportion to how they are used by the consumer.

Operator: David Togut, Evercore Partners.

David Togut - Evercore Partners: Can you give us a little bit more insight as to how much time it will take actually to rectify the issue?

Paul R. Garcia - Chairman and CEO: David I wish I could and we just clearly realized that's something we need to do as quickly as possible and you can be assured that we're working very collaboratively with the associations and quite frankly they have every desire to have us, buttoned this up as quickly as possible too. So, they are pulling on the same end of the rope as we are, but they have to make certain that every single thing that we say is fixed is fixed they have to tick and tie that's not days, it's longer than that regrettably. We don't think it's months, but we have work to do here and I'll promise you this, we will keep you guys informed in this.

David Togut - Evercore Partners: Just as a quick follow-up, you said that no – none of GPN's merchants and none of those merchant's customers were affected. Does that suggest that the breach occurred through an (ISO) or if it's not your merchants or customers, I mean where did the breach actually occur?

Paul R. Garcia - Chairman and CEO: David, I'm so glad you gave me chance to answer that because I want to really hit this hard. This was not a merchant breach, this is not an ISO breach, it's literally nothing to do with those guys, literally nothing to do with them. This is something that happened in the subset of our North American processing system. A handful of servers in reflection – a handful of servers as compared to significant numbers that we have and after combing each of these, we had security measures in place to caught it and now we're going back with the fine tooth called with a number, I mean multiple forensic experts, leaders in the field, to go through every single aspect, every single server, every single piece of data, to make certain that we didn't miss anything. That's what I'm talking about it's about. But it was at our systems, it's nothing to do with the merchants. Their relationship with their customers, our sales partners, financial institutions they do business with us, nothing to do with them, nothing period in the story. We have no more so than if they take U.S. currency and as the currency devalues or they accept a card brand and they have a systemic issue, it's nothing to do with them.

David Togut - Evercore Partners: Does this suggest, you'll have to step up R&D or system spending as a result?

Paul R. Garcia - Chairman and CEO: If the answer is are we going to spend even more amount of money quite frankly on security, the answer is yes.

Operator: Julio Quinteros, Goldman Sachs.

Julio Quinteros - Goldman Sachs: Real quickly on the – I guess I'm thinking more about the competitive response to this. So, presumably in the ISO channel world and your part of the world where you guys are actively competing, there is going to be playbook out there that says you guys are breached. How do you keep your ISO's, especially for larger ones from (indiscernible) at this point, what guarantees you guys have in contract terms that this isn't some type of a material adverse clause where they could actually start considering looking at other merchant processor relationship at this point.

Paul R. Garcia - Chairman and CEO: Let me answer that and I think Jeff probably want to mention something as well. So, firstly I would say, I an incredibly heartened by the competitors who – I am talking about people that, you recognize who compete with us, who have given the every assurance that they will make certain that they won't do anything that would inappropriately take advantage of this situation. Quite frankly, I would say we all did the same when other occurrences have happened with other processors. I made those same assurances to those guys. We are all in this together, all of us; the card issuers, the banks, the merchants, the acquirers all in this together. No one wants to try to capitalize that. I mean, there might be rogues, but let me tell you, they are the outliers and they are wrong. Secondly, we’ve gotten similar responses from our customers. They said look, we know we’re going to get through this. We have a long relationship with your company. We feel very good about everything you are doing and – we like some more product now and again, I mean, that’s the kind of business as usual kind of comments you get which quite frankly a very heartening as well. So, now, (indiscernible) to say that, I can guarantee that there will be no fallout here, but because this is a significant thing we are working through. But so far I would say, we’re very, very encouraged by the response.

Jeffrey S. Sloan - President, Global Payments Inc.: I would just add on to what Paul said earlier by saying what he said a minute ago, which is there is absolutely nothing at our partner level, nothing at the ISO level with our bank portfolio partners with VARs or any other similar distribution partners that was impacted here. So, what that really means at the end of the day there is no need to replace, for example, point of sale equipment or anyway we operate with our partner. So, my experience really the thing that you tend to be most concerned about in terms of disruption to our partners businesses is disturbances at the point of sale, disturbances from an operating point of view and what happened is what it is, as Paul described, at the end of the day the end point relationships between their partners and their merchants and the merchants and their customers was not impacted by what Paul has described and I think that's probably the best way to think about how our partners have thought about it to-date, that's how I view it, but that's also been my experience in having conversations with them through the weekend.

Julio Quinteros - Goldman Sachs: Just any incremental expense associated with this presumably all going to be in fiscal '13 since we have one more quarter to go here in fiscal '12?

David Mangum - Senior EVP and CFO: This is David. When we can size it, we're in the early stage of investigation, we'll be back with what we have, we'll be able to size it reasonably estimated on any losses and expenses. Anything we are doing right now relative to investigation where expensing is a period cost in Q4 we don't have an event to take a charge in Q3 so we (indiscernible) on that and then I think if we refer back to David Togut's question any investments you'd see will take a turf into the FY'13 I think that's part of point to your question.

Operator: Bryan Keane, Deutsche Bank.

Bryan Keane - Deutsche Bank: I guess, my first question have you guys experienced anything like this, I am sure on the smaller scale in the Company's history?

David Mangum - Senior EVP and CFO: The answer is no, we have not. I mean, that's some of the misinformation quite frankly. There was a rumor out there that we were aware of the data intrusion a year ago. The answer is no, that's not, this is the first incident we hope this is the last. I think one of the answer Bryan this is an ongoing process and we get better and stronger every day and I think one of the reasons we're getting assurances from our customers is they know that, we will be even better at the end of this process and that they will be with someone who is very strong and very tested. So that's why it's going to take while again to rock as we have to demonstrate all of that. No there was no other incident and if there were quite frankly we would have reported it.

Bryan Keane - Deutsche Bank: I assume the criminals probably try to attack multiple networks and somehow they got through on GPN. Is there any, do you know exactly what it was that, that was the weakness on your guys side?

Paul R. Garcia - Chairman and CEO: So I would say that this speaks to the ongoing nature of the investigation. I don't think you can assume anything you just said in the first part. I think that there is attacks that happen every day against lots of people and I think we are -- we have contained it, so you can be sure that we have all the necessary measures to protect ourselves and that starts with, where do you think the intrusion happened. But I can't really be more specific and I certainly can't speak to anything that is happening to anyone else as we speak.

Bryan Keane - Deutsche Bank: Then lat one for David I assume a lot of these costs we will have a separate broken out number, there would probably be some one-time charges from this and maybe some ongoing expenses I think that's what people are trying to get at, just your thoughts there?

David Mangum - Senior EVP and CFO: I think that's right Bryan. We'll call these out and make sure they are clear to you. Again just to sort of repeat what I said in the answer of Julio's question, we can't right now reasonably estimate what the charges/losses might be related to the incident. When we get to the point where we can reasonably estimate, we'll obviously record and accrue and disclose, so you're on exactly the right track when we get to that point, we'll be back to you guys.

Operator: Jason Kupferberg, Jefferies.

Jason Kupferberg - Jefferies & Company: Just wanted to clarify the situation with Visa a little bit further. I know your press release yesterday said that you are still actively processing for all the brands, but you obviously are trying to get the rock back there. So, what exactly is the situation? I mean are you still able to process for Visa, or do you have to wait to actually get the rock back here?

Paul R. Garcia - Chairman and CEO: Jason, there's two questions there. Number one is are we processing transactions with Visa. The answer is absolutely positively yes. Of course we are. We have millions of merchants around the world who are processing Visa transactions as we speak. We'll continue to process Visa transactions as we speak. In terms of getting the rock back, we are going to do that as expeditiously as humanly possible. I think our merchants and our customers understand that this will make us even stronger and if people were to leave and go to another processor and God forbid something happened there and where they go to another processor, I mean PCI gets better and better and better. This will make us all better. This will help PCI be better. This will help us be better. This will make everybody more secure. We're all in this together and Visa, (that's according) the other brands, absolutely understand that and we are working with them and they are working with us and we're all trying to get ahead. What we shouldn't forget is these are thieves, these are bad guys, these are people who are working day and night to try to hurt all of us and all of us together have to do our best towards them and that’s what we are focused on.

David Mangum - Senior EVP and CFO: So, Jason, David, I'll add a little more color to that too. We are all a little over three weeks into this process, we have to complete the investigation portion of it, identifying the things that require remediation and perform that remediation. We do expect to just, what Paul said, do that as expeditiously as possible, so we have to complete our work.

Jason Kupferberg - Jefferies & Company: So, in the mean time what are the implications while you wait to get the rock back?

David Mangum - Senior EVP and CFO: Jason, I think, that’s an excellent question. I think it’s unclear, I would say this, it does not – nor would anyone suggest that this would stop us from processing transactions. I think what was mentioned earlier is true, we could give our partners some pause that they are doing business with somebody who experienced a breach, regardless of whether or not there is rock impounded, if someone experienced a breach and that’s why we are working very, very, very, very hard on fixing all of that.

Jeffrey S. Sloan - President, Global Payments Inc.: Jason, it’s Jeff. I would just add that, as you know in our business we have long-term relationships with customers, as David rightly said, as we continue our work, whatever needs to be remediated and done to these and your network satisfactions ultimately will be done. So, these are long-term relationships with lot of technical infrastructure around it. I think people understand what that means in terms of day-to-day operations and for now, clearly, through Friday and starting today around the world, it's business as usual.

Jason Kupferberg - Jefferies & Company: Then just to come back to sort of the investigation and the remediation which I understand you can't be precise in terms of how long this will take, it sounded like it’s not days, it’s not months, so people are going to say okay, maybe it’s weeks, and you can debate how many weeks. But is it, it will be resolution of that remediation over the next X number of weeks are given say that will then allow you guys to reasonably estimate the charges and costs associated here, I mean, that's how we should thinking about the sequence of events.

Paul R. Garcia - Chairman and CEO: So, Jason, let me say this. Personally, I think, you started extremely well. We understand there are two things hanging over us, right, getting this right back and identifying the exact one-time charge associated with this. Now, we are very best to see both of those happened as quickly as possible and I think – it's still developing, still going on and there is cost in eight weeks time to get hands around all of that but we are trying to do that as quickly as possible. If you push me I would say may be the rock comes before the charge comes, probably in that order but hopefully it's as soon as possible.

Operator: Glenn Fodor, Morgan Stanley.

Glenn Fodor - Morgan Stanley: Your confidence level that the 1.5 million account figure represents the upper end of the range. I know this is the moving target and it's variable, but there is a big difference from '10 and refreshing but how can we (concentrate on a) range bound how much this can move here?

Paul R. Garcia - Chairman and CEO: So, you can be sure that we worked very hard on that and we looked at every piece of that we could possibly look at and then allowed ourselves some expansion. We are trying to do this in a way that puts our hands around it we don't have complete clarity of information. So, I have to come up a number that we all believe is reasonable, we all believe this number to be a reasonable limit. We obviously understand if this would go beyond that we'd have to deal with that and of course we would, but that's not our expectations. It's because of a lot of work and effort that we came up with that. So we have high degree of confidence in that number and if that were to change materially of course we would be out to you guys with that information.

Glenn Fodor - Morgan Stanley: You guys have a lot going on internally as far as (flat) consolidation and data center reshuffling, could this impact any aspects of your strategy there?

Paul R. Garcia - Chairman and CEO: I would say the answer is no this is what we're trying to do. We have almost 4,000 people in our company, we have probably a 100 who are focused on this and with the rest of the people are running their businesses and signing up customers and operating their data facilities, etcetera. Now I would be disingenuous that this didn't wasn't distracting and everyone in this room has clearly been working around the clock on this item and quite frankly we'll continue to and that's going to be a little distracting and you can only do this much in one day. So it does mean that some hours that we could have spent product innovations etcetera we pushed that off, but we want to get back focused on that as soon as we can and the rest of the company is already focused on it. So business as usual sounds a little trite, but we're trying to make that just exactly what that is business as usual.

Glenn Fodor - Morgan Stanley: Then just last question you said you've made changes and there still more changes to be made, I mean is that something where the networks will come in and help advise you on what needs to be done so you can fall back into compliance, that's my question is how much as has been done already I mean was it just the plug the leak and is it a whole lot more work to have the ongoing patch if you will?

Paul R. Garcia - Chairman and CEO: Well that's another excellent question. So Glenn, let me just say a couple of things, which is not typical in these scenarios. Remember, we self-reported this. We determined it ourselves and then we came to us. I think there is a kind of – that's great, you guys did that and that's the way these things should work. Now, how did they get in the first place? That's not a good thing. So, we absolutely recognized then a simple responsibility for it, just detecting it early is a good thing, but it doesn't necessarily – it doesn't forgive us from trying to stop it altogether. So we are focused on that aspect of it. The associations are working collaboratively, what they've been terrific to-date, they have forensic experts that are working collaboratively with us, to get this done and we will work arm-in-arm with them until it's resolved.

Operator: At this time, I will now turn the call over to Paul Garcia, for earnings commentary.

Paul R. Garcia - Chairman and CEO: Thank you, operator. Let me thank you, when we go to questions on the earnings, obviously we'll continue to entertain questions on the data breach. So, if you feel you want to ask some more of those, absolutely. We just wanted to get this out of here too, because as we said, we're running our business, we are pleased with our results and we want to share them with you and give you an opportunity to ask some questions about that as well. Okay, so now for Q3. We did have strong revenue and cash earnings per share performance in the Q, both resulting in 17% growth over prior Q3 to $534 million in revenue and $0.83 of cash EPS. Our revenue this quarter also included a partial benefit from the three acquisitions we announced last quarter. These collectively added about one percentage point to total company revenue growth and these acquisitions are all in target financially for the quarter. Let me just remind you, what those three were – they included the merchant business with more than 6,000 merchants from Alfa Bank, increasing our footprint in Russia, it was HSBC’s merchant acquiring business in Malta consisting of about 4,000 merchants and portfolio of approximately 9,000 U.S. e-commerce merchants for CyberSource. For the third quarter, North America delivered revenue growth of 15%, driven largely by our U.S. ISO channel with continued solid performance from our gaming and direct businesses. Although Canadian transactions grew 6% on a transaction basis, Canada did not meet our internal expectations and posted a revenue decline of about 5% in local currency and it’s primarily due to spread compression. Our international segment produced another very strong quarter with revenue growth of 23% fueled pretty much by all regions across Europe. Asia's revenue grew at a somewhat slower rate at 8% in part due to an intentional exit from a major airline processing relationship. We exited that relationship. I'm very pleased to announce and a lot of you have been waiting for this – I am very pleased to announce that we have received formal approval to process China UnionPay renminbi transactions in much of Guangdong Province and consistent with the manner in which China UnionPay defines its geographic regions. So, it’s not all of Guangdong, but it's cities like Guangzhou. This is a region with 80 million people. So, this is probably covering 60 million of them. We continue to focus on expanding our renminbi merchant acquiring capabilities to all of PRC and we are making progress. For the current fiscal year we anticipate Asia's revenue growth to be about 10%. I’ll now turn it over to David. David?

David Mangum - Senior EVP and CFO: Thank you, Paul. North America merchant services revenue growth of 15% was fueled by U.S. transaction growth of 13% and also the positive effect of the debit legislation changes. North America revenue growth was negatively affected by Canadian performance and unfavorable Canadian foreign currency exchange rates, and as a result North America cash operating income or EBIT dollars were down 1% for the third quarter over prior year. For fiscal 2012, our expectation for the U.S. remains unchanged at mid-teens revenue growth. We now expect Canada revenue to be about flat to as much as 1% up over last year in local currency. Our international segment delivered strong results. International cash operating margin increased to 37.2% compared to 35% in the prior year. We continue to expect full-year revenue growth for fiscal 2012 in U.S. dollars to be about 30%. For the quarter, we generated free cash flow of $56 million, this includes about $17 million in first time cash distributions to our bank partners in Spain and Asia excluding these distributions free cash flow would have been $73 million for the 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. During the quarter, we spent $36 million on capital expenditures a substantial portion of that on data center and network infrastructure initiatives. Our third quarter tax rate based on the face of the income statement was about as expected at about 28% on both the cash and GAAP basis. We continue to expect our full year tax rates to be about 29%. During the quarter our year-over-year basis currency changes had a slightly unbearable effect on each of GAAP and cash revenue and earnings by about $5 million and $0.02 per share. We continue to believe the aggregate effective currency will likely be about neutral to slightly positive to our earnings per share for fiscal 2012 compared to 2011, due to the general strengthening of the U.S. dollar to-date and our outlook for the rest of the year, fluctuations in exchange rates in particular, rapid further strengthening of the U.S. dollar could cause variances to our outlook. In closing, we continue to expect seasonal improvement across our global markets, along with some incremental new business in our U. S. card, gaming, and greater giving channel to drive sequential benefits in our fourth quarter. Now I'll turn the call back over to Paul.

Paul R. Garcia - Chairman and CEO: Thank you, David. Based on our current outlook and assumptions, we continue to expect our annual fiscal 2012 revenue to be in the range of $2.15 billion to $2.2 billion, reflecting 16% to 18% growth and our cash earnings per share in the range of $3.50 to $3.58, reflecting 14% to 16% growth over fiscal 2011. We now expect GAAP diluted earnings per share range of $3.10 to $3.18, representing 19% to 22% growth over the prior year and reflecting planned cost savings initiatives in the fourth quarter. Excluding the impact of the debit legislation in our recent acquisitions we plan to expand cash operating margins in our core business by as much as 50 basis points for the total company for fiscal 2012. Operator, we'll now go to questions.

Operator: David Koning, Robert W. Baird.

David Koning - Robert W. Baird: First of all, just in North America, you mentioned, EBIT was down just a bit year-over-year. I'm wondering if you can give us kind of the size of Durbin, so that we can get a thought of what maybe core EBIT was down and then kind of how you see that playing out? We had a few – only three to four good quarters of growth and now it's kind of turned the other way, maybe you can just give us a little commentary on that?.

David Mangum - Senior EVP and CFO: David, this is David. Relative to the debit legislation, when we were together last quarter, we talked about it adding on the order of $40 million of revenue in certain earnings and we incorporated that in the guidance. So I think what we can do for now is give you a little more color on that. We're not going to parse Durbin any further in terms of actual performance and I'll come back to that again in a moment for a couple of interesting reasons. But I would tell you, Durbin's roughly on track, probably a little ahead on the revenue side, but what's become very interesting is we mentioned to you a couple of times on the way to the actual implementation of Durbin and then even in that first quarter that we saw it would be transitory and we're indeed seeing evidence of that in the market as we speak. Evidence in that we're seeing behaviors, even from some of our partners that suggest that Durbin has a sound influence in some ways that – we've didn't anticipate. For example, fees, we've seen ISO's charge annually for certain months of the year that occurred in this quarter, were not repeated and our suspicion of course is that's in light of any debit legislation benefits and it really shows the markets still being our partner, still being quite circumspect and making sure that all the proper economics are being returned to the proper places as a part of this. So it's very difficult to even think about parsing the legislation at this point. So I think we'll stick with -- we incorporated in the guidance last quarter. It's a little ahead in and of itself on the revenue line, but when you start looking at the overall market, I'm not certain we can even say that with absolute definity.

David Koning - Robert W. Baird: Then just on the EBIT side, I mean, do you expect declines to continue and then quickly on just the breach does that affect your ability to make acquisitions or buyback stock?

Paul R. Garcia - Chairman and CEO: In order, I think, that we expect EBIT growth in North America in Q4. We expect to see our Q4 expectations obviously imply fairly typical seasonality frankly around the world, in the markets where we're used to seeing that would include U.S. and Canada. So, all-in we expect nice growth in Q4 in North America, obviously nice growth abroad in order to achieve the levels we’re talking about when you look at doing the math of the guidance for the fourth quarter. Relative to capital planning, our priorities remain the same, while we work our way through the investigation and just to go back to the earlier questions, we got to work our way through the investigation, work our way back to any of the remediation required on the rock and that's been a question several times that would take whatever time it takes, we can’t define that right now, but we will keep you posted as we go through the process. So, as we work our way through that, I think, you may see us be a little circumspect about the deployment of capital and think about our resources. That does not mean, we’re not open for business, not continuing the same path and the same priorities, but perhaps a little more circumspective about substantial outlays at any given time and we’ll be back to you on that as things evolve.

Operator: Tien-tsin Huang, JPMorgan.

Tien-tsin Huang - JPMorgan: Just on Durbin just parsing through which your answer to David's question. Does it imply that the margins were little bit worse than you expected, I know it was running well ahead of what we had modeled, but I am curious if it’s just in the 20 basis point impact range understanding that it’s tough to parse through the details?

Paul R. Garcia - Chairman and CEO: If you try to isolate it, Tien-tsin, you'd say, hey, if revenues are over performing and it's coming from the ISO channel, by definition the headwind is a little north of what one might have modeled.

Tien-tsin Huang - JPMorgan: Right, but still in that range are we talking about a significant difference there?

Paul R. Garcia - Chairman and CEO: No, we are still in that range and that's why quite frankly we are not going back and re-parsing. We said it was the core business would expand its margins on the order of 30 basis points, excluding the three acquisitions as well as the legislation, we are still on track for that and we are still on track for the resulting net opportunity for expansion as well and plus or minus a few basis points and no reason to parse that for you.

Tien-tsin Huang - JPMorgan: The Canada piece the spread compression will be worst than what we expected so what's driving that is it just a competitive change going on there or is it perhaps tied to some of the regulation that's happening there, just curious?

Jeffrey S. Sloan - President, Global Payments Inc.: Tien-tsin, it's Jeff I'll take a stab at Canada, of course, David can add as well. I would say that spread compression continues. I think it is a very competitive market. We are actually relatively (indiscernible) with our volume growth in Canada as we believe that we are growing north of Canadian GDP, well, north of it as well as north of the – organic rate of growth in the Visa, MasterCard volume and transaction count in Canada. We have seen now the spreads outweigh that which is the genesis of Paul and David's commentary. I believe that's a function of two things, Tien-tsin; first, competition continues in Canada so I think it's a very competitive marketplace; second, at margin the Canadian economy did not get as high as the U.S. economy did in '07 and '08 it didn't get as well as the U.S. economy did in '08 and '09 but it hasn't recovered to same extent that the U.S. economic data has indicated that the United States has. So, if you think about, Tien-tsin, the richness of spread a lot of that is in the small to mid-sized business segment around the world but including in Canada that part has been impacted both by competition, as well as by the factors around the Canadian economy that we're seeing. So, we're pleased with buying growth, but the spread compression more than offsets what we're seeing in terms of market share movements.

Tien-tsin Huang - JPMorgan: Just one more Jeff if you don't mind just on the breach and I'll jump off. Just the million and a half cards obviously pretty small versus what we saw at TJ Maxx and Heartland, I'm, curious if is it fair to size the impact and we look at those as case studies to help just try and frame the impact I don't know if it's a linear relationship or not, but it seems like it's got to be pretty small in relation to the other initial impacts that we saw those two cases, is that fair?

Jeffrey S. Sloan - President, Global Payments Inc.: Tien-tsin I have to tell you that we really can't tell you that is fair at this point. I think we have to continue to size the investments and all the things we have to do to remediate it. We don't think we're coming back to you and saying it's more than a million and half cards, but I don't think you can take a dollar costs on someone else and put it towards this. If anything it could be much higher than that because of the smaller number, but still the cost associated, but I can say this, this is manageable. We will get through this. I will tell you that absolutely positively. Now it might be bigger than we like, but we're going to get through this. It's a one-time charge, we're going to better for it and we'll get through this and the sooner we can tell you the better and that's what we're focused on.

Operator: Greg Smith, Sterne, Agee & Leach.

Greg Smith - Sterne, Agee & Leach: Just back to Canada, is there anything you can view or are you changing your strategy it still seems like this was a pretty quick change in the spread compression?

Jeffrey S. Sloan - President, Global Payments Inc.: Greg, it's Jeff. I'll answer that and David and Paul of course can comment as well. The first thing I'd say is we continue to right size the business in Canada. So, we are taking expense actions to deal with the continued spread compression that we described, a few minutes ago. Number two, because the source off good spreads for us in any market including Canada is a small to mid-size business segment, we have put in place analytical programs to help us minimize attrition generally, but to minimize attrition in particular in the higher spread businesses and really look at the lifetime value of customers in that market and around the world. So I would say on the analytical side, those actions have been taken and should start to take effect this coming quarters. We're also looking at selective addition of sales personnel in those markets, where we have a sustainable spread and defensible technology advantage and we'll make selective additional capital investments where appropriate. So, I think our strategy hasn't changed in Canada. As I mentioned, in Tien-tsin's question, we're actually pleased with our volume performance relative to the market and our peers. But we just have to deal with the everyday reality of continued competition for spreads, as well as the economic environment in the marketplace in which we operate.

Greg Smith - Sterne, Agee & Leach: David, do you have the impact on currency on the revenues handy, in Canada?

Paul R. Garcia - Chairman and CEO: In Canada, specifically?

Greg Smith - Sterne, Agee & Leach: Yeah.

Paul R. Garcia - Chairman and CEO: I don’t know that we go country-by-country, but certainly the Canadian dollar hasn’t moved that much, so you can certainly work through way back to it, hang on one second, and I’ll see if I can give you some help there. I'll tell you, I'll just get back to you on that, but we’re not going to parse it by country, as you know, it was a negative impact, but at the end of the day not enormous this really is about the reasons Jeff's describing.

Greg Smith - Sterne, Agee & Leach: Another question, just on the data breach. So, the issue with Visa and not being PCI compliant, you can process transactions, but are you precluded from signing new merchants up. I mean, what does it really mean?

Paul R. Garcia - Chairman and CEO: This is Paul. So the answer is, we are not precluded from signing up new merchants, we’re literally signing them right now. I mean, we already had our day in Asia and I can promise you, they signed a lot of merchants. So that is not part of this. I think, Greg, as I said, this Catch-22 reference, I think, is a fair one. The associations, you had a breach, it’s difficult to say you are compliant. So, I think, we have to remedy that, but I would want to imply, this is without teeth, this is not a good thing, not to have your rock, and we’re very focused on getting that reinstated, take that very seriously. But it doesn’t mean we can’t process, it doesn’t mean we can’t sign merchants to be very, very, very clear.

Greg Smith - Sterne, Agee & Leach: But at some point if you are not compliant, what’s the ramification?

Paul R. Garcia - Chairman and CEO: I would say, no, I’d say if you ask me to speculate that, you know a year from now, we have major issues I think the associations have to protect themselves, but no one clearly is anticipating any of those.

Greg Smith - Sterne, Agee & Leach: Then just one last one, it maybe not the time to talk about this, but just broadly throughout Europe, given some of the dislocation with banks there have other opportunities popped up as far as potential acquisitions, I mean, anything we may see on that front.

Paul R. Garcia - Chairman and CEO: The answer is yes. So, I thought David answered that acquisition question superbly, but I would say that we do have a pipeline we are focused on it. We want to get deep breath here and get through all of this right now but we absolutely have some great opportunity including some internationally and just exactly what you said. So, stay tuned, we are hopeful.

Operator: Sanjay Sakhrani, KBW.

Sanjay Sakhrani - KBW: Quick question on Asia. I think the revenue guidance there also was little bit tempered could you just talk about what specifically drove that?

David Mangum - Senior EVP and CFO: Sanjay, it's David. So, for the quarter we posted 8% which is little southward we might have expected it. I think we pointed out in Paul's prepared comments that we did intentionally exit a major merchant relationship in Asia that was a reasonable airline for whom we were processing with full indemnity from a bank partner. The indemnity expired and we were unwilling to proceed without a reserve. So, that took the edge off some of the growth and it will again in Q4. If you marry that to couple other thoughts so we are looking at about 10% growth overall. Remember, we've had on full-year basis to grow over challenges, particularly last quarter with the major merchant product launch, the nameless merchant from a year or so ago. So, if you marry that together you kind of get to this sort of 10% level. I guess, I'd remind everyone on the call that couple of points to growth in Asia for this quarter eight versus the 10 it's all of $700,000 of revenue inside of this company. So all in plus or minus for about where we thought we were in Asia, it's probably a little minus, your points fair and your questions absolutely fair. As we head into Q4 we're expecting a bit of an uptick in our DCC volumes and indeed our volumes overall. We may do a coupled of targeted repricing as well. So, we think Asia we're on track, we really weren't surprising, your questions fair, it's a little wide of what we might have hoped for Q3 and what we expected for Q3.

Paul R. Garcia - Chairman and CEO: Sanjay let me add some color this is Paul Garcia. The reality of Asia isn't that we generated a couple million more in revenue per quarter one way or the other. The reality of Asia I mean if it goes from 10 to 11 to 12 to 15, I'm going to be very disappointed. Asia is all about getting the real opportunity mind in China and this announcement about in Guangdong in Guangzhou is huge for us and it's going to take a while to materialize, but it is a very important flag placing. Ditto with India that's the other big market we're focused on expanding our presence there. So, that is the real excitement and juice about Asia and we're continuing to focus on delivering on that and I'm hopeful in a couple of years that's what we'll be saying. We just have continued expansion in all these geographies.

Sanjay Sakhrani - KBW: I completely understand and then just one follow-up on the breach. I hate to beat the dead horse, but I just want to make sure I understand it's not being Visa compliant issue. I mean is there any liability kind of impact from a liability increase or anything like that financial impact related to that? Then also have you gotten any clarity from how MasterCard expects – from MasterCard on how they expect to respond?

David Mangum - Senior EVP and CFO: Sanjay this is David. I think we'll warp up liability into hopefully one conversation in the future when we've completed the investigation and we know how all these pieces come together. We obviously don't know that right now, hence, we can't quantify, can't reasonably estimate. I guess just to be really painfully clear this is not in our expectations for the year on a GAAP basis, so we backed you on that. When the time is right, we have to roll all of that up into one conversation at that time.

David Mangum - Senior EVP and CFO: I would say clearly not being PCI compliant has financial liabilities and that's the part of the number that we'll quantify eventually, thinks sooner the better. So okay -- MasterCard, the answer is what's the –MasterCard's expected and there's other card brands here involved too. I would say that it wouldn't be unexpected to have MasterCard take similar action. We're working hand in glove with them, you can be sure and they're primary interest is just to be very thoughtful and very thorough and they are doing that.

Operator: Dan Perlin, RBC.

Dan Perlin - RBC: Just got a few on the breach and one on the quarter. Can you confirm that the (bens) have been shut off for the 1.5 million cards?

Paul R. Garcia - Chairman and CEO: Meaning the…?

Dan Perlin - RBC: Well I want to say deactivated?

Paul R. Garcia - Chairman and CEO: Well, no, we can't. Dan, I really don't know how to answer that. I think that the card issuers, tipped deal with this in all manners of way, right, they look for any fraudulent activities and it's very important to understand that, that doesn't necessarily translate. I mean having someone's number doesn't translate to that being a fraudulent transaction it means they have access to it. It doesn't mean it results in a fraud activity or cards being issued or any of that and we don't know that. That's developing, of course we're responsible for that and we will absolutely stand tall and pay that. But how the banks handle that, really not banks necessarily, the card issuing institutions handle that is really up to them, but I will tell you, they have time proven, really thorough ways of doing it. Consumers regrettably have cards replaced all the time, it’s just kind of matter, of course, in this industry, I mean it’s a dangerous world out there. They do a superb job of doing this for the consumer, protecting the consumer completely, and we’re going to play our role to make sure all of that work seamlessly.

Dan Perlin - RBC: Just to clear, you always are on the hook for the replacement cost?

Paul R. Garcia - Chairman and CEO: Absolutely, we should be. We absolutely are on the hook for that, as we should be and we stand tall to do that at any point, that’s our obligation.

Dan Perlin - RBC: The act of processing a transaction as a non-PCI compliant require typically means Visa and MasterCard are letting fines on you. Is that happening currently?

Paul R. Garcia - Chairman and CEO: We’re going to talk about liability, all in one conversation we can reasonably estimate and size it. We will be back to you when we have that.

Dan Perlin - RBC: Can you remind us the size of your insurance policy around on the stuff is?

Paul R. Garcia - Chairman and CEO: Dan, we have insurance in place for events like this. But we have to know exactly what the pieces and the parts are and calculate it against the actual policies and work with our providers and our partners. So, when we have numbers we will be back to you.

Dan Perlin - RBC: Then in Canada, the transactions were strong, revenues down. We’re hearing that the ISO market in that region is heating up pretty significantly and the trend would suggest that. You guys have any thoughts around that?

Jeffrey S. Sloan - President, Global Payments Inc.: Dan, it’s Jeff. I’ll take that. So we’re pleased to have a number of ISO with us as partners in the Canadian market and we are adding more as we speak. So, we think that’s a good thing. We’ve been operating with a number of our partners out there for some time. So, I don’t think that’s new. If you go back to what David and I talked about a few minutes ago, about what’s going on in that marketplace, that is not driving the trends that we’re seeing instead it's just a very competitive market generally augmented somewhat by differential economic environment in terms of recovery relative to what you see in United States. But if you go back to what I mentioned our volume growth, our transaction growth is good in that market and if we can get more quality ISO partners out there that is absolutely part of our plan.

Dan Perlin - RBC: So, you think that with transaction growth you can have incremental margins in that business or are we going to have a similar problem to what we see in the U.S.?

Jeffrey S. Sloan - President, Global Payments Inc.: Well, I think, its order of magnitude different today in terms of the contribution of the ISOs in the Canadian marketplace versus what it is in the United States because very large national business, for example, either we purchase long time ago in Canada so it's a little bit apples and oranges. But I would tell you the way we think about, Dan, the tactical matter within the company is we welcome our partners to come up to Canada. So, I am not concerned about that issue in the near term nor do I think that's impacting the spreads that we described some time ago.

Operator: Chris Brendler, Stifel Nicolaus.

Chris Brendler - Stifel Nicolaus: On the breach front, I know it’s still early but is there any way you could characterize in terms of where the breach occurred in your systems, where that particular system was from the technology upgrade standpoint. I know you had the G2 platform and you invested a lot with this within G2 or is it outside G2 was it legacy system that was breached. Can you give us any color on that front?

Paul R. Garcia - Chairman and CEO: So, Chris, let me clarify couple of things. Number one, remember this was self-detected, so we – the loss prevention software we had in place that determined these types of intrusions actually worked, but it didn't work perfectly enough to stop them. So, partly it worked, partly it didn't and we are focusing on where that happened and remediating it, you can be sure of that. We're not going to share any specific details on exactly other than it's confined to North America, it's a number of servers based, and there's a massive number that we're (implicated) and that's all we can say on that. Probably, Chris, honestly, this is an ongoing Federal investigation and we got to let them do their work.

Chris Brendler - Stifel Nicolaus: So, I guess just related question, the North American operating margin was down this quarter and with the security issues you can find in North America, I was just wondering if you had any strength of, are we looking at a little lower margin in North America for the near-term as you spread theory issues as well as the turn in the marketplace? If you can just give us little some more color in even (indiscernible) issues on the North American margins and also the impact if you had a U.S. transaction number and how the core business is doing in the U.S. relatively how from a transaction count?

David Mangum - Senior EVP and CFO: Chris this is David. I'll start with where we were before. We're not in a position to quantify the impact of the incident. When we are, we'll talk to you about it. Obviously in Q4 with the new sales, the new merchants we're boarding for gaming, the uptick we see seasonally in greater giving, we're expecting EBIT and margins to tick up nicely in North America in Q4. If you want to project forward, without quantifying, because we're not in a position to do it, it's fair to say incremental investments say in 2013, or something along those lines. Once we're through with our investigation, through any remediation at all, revolves around anything we can quantify for you relative to the incident. Many of our IT investments do indeed hit the North American merchant services income line so it's fair to think about it in that way. But until we can quantify either of these, the impact of the intrusion much less of the ongoing investment levels, I can't give you a great quantified answer. But from the color perspective I think you're thinking about the geography of the income statement in the right way.

Chris Brendler - Stifel Nicolaus: Now on the transactions I saw I think we had 13% transaction growth in U.S. last quarter or I used OpEx (caught) that number for this quarter?

David Mangum - Senior EVP and CFO: Yes, it was 13% again, Chris.

Operator: At this time, we have reached the allotted time for questions-and-answers. I will now turn the call back to Paul Garcia, for closing remarks.

Paul R. Garcia - Chairman and CEO: Ladies and gentlemen thank you very much and we appreciate your interest in Global Payments.

Operator: Thank you. This concludes the conference. You may now disconnect.