Jane M. Forbes - Vice President of Investor Relations Paul R. Garcia - Chairman and Chief Executive Officer Jeffrey S. Sloan - President David E. Mangum - Chief Financial officer and Senior Executive Vice President.

Georgios Mihalos - Crédit Suisse AG, Research Division Jason Kupferberg - Jefferies LLC, Research Division Gregory Smith - Sterne Agee & Leach Inc., Research Division David J. Koning - Robert W. Baird & Co. Incorporated, Research Division Timothy W. Willi - Wells Fargo Securities, LLC, Research Division Craig J.

Maurer - CLSA Limited, Research Division Tien-tsin Huang - JP Morgan Chase & Co, Research Division Andrew W.

Jeffrey - SunTrust Robinson Humphrey, Inc., Research Division Steven Kwok - Keefe, Bruyette, & Woods, Inc., Research Division Bryan Keane - Deutsche Bank AG, Research Division Roman Leal - Goldman Sachs Group Inc., Research Division Wayne Johnson - Raymond James & Associates, Inc., Research Division Daniel R.

Perlin - RBC Capital Markets, LLC, Research Division Tulu Yunus - Nomura Securities Co. Ltd., Research Division.

Ladies and gentlemen, thank you for standing by and welcome to Global Payments First Quarter 2014 Earnings Conference Call. [Operator Instructions] And 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..

Thank you. Good afternoon, and welcome to Global Payments Fiscal 2014 First Quarter Conference Call. Our call today is scheduled for 1 hour. Joining me on the call are Paul Garcia, Chairman; Jeff Sloan, President and CEO; and David Mangum, Senior Executive Vice President and CFO.

Before we begin, I'd like to remind you that some of the comments made by management during the conference call contain forward-looking statements that are subject to risks and uncertainties that could cause actual results to vary, which are discussed in our public releases, including our most recent 10-K.

We caution you not to put undue reliance on forward-looking statements. Forward-looking statements made during this call speak only as of the date of this call. In addition, some of the comments made on this call may refer to certain measures such as cash earnings, which are not in accordance with GAAP.

Management believes these results more clearly reflect comparative operating performance.

For a full reconciliation of cash earnings to GAAP results in accordance with Regulation G, please see our press release furnished as an exhibit to our Form 8-K dated today, October 1, 2013, 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 thanks, everyone, for joining us this afternoon. We delivered strong results for the quarter, growing revenue by 7% and cash earnings per share by 15%.

In addition, we are raising our cash earnings per share expectations by $0.05, as a result of our commitment to repurchase $100 million of our stock via an accelerated share repurchase program.

We are confident that Global Payments is positioned to deliver sustainable growth over the long term by continuing to focus on expanding our global market position and executing on our commitment of returning capital to our shareholders.

We have an enviable market position and the necessary resources and talent to continue to prosper in the ever-changing payment space. As you know, effective today and after 14 very rewarding years with the company, I'm relinquishing the role of CEO but will remain through our fiscal 2014 as Chairman. It has been an honor to lead our company.

I am very confident in the company's prospects and Jeff's ability to lead it. Our board and I feel strongly that Jeff is the right leader at the right time and his proven track record of both Global Payments and in the financial services industry warrants that confidence.

I look forward to working closely with Jeff to make the transition as smooth as possible. Now I'd like to introduce you to Global Payments' new CEO, Jeff Sloan.

Jeff?.

Thanks, Paul. First, I'd like to say a heartfelt thank you to Paul, the Board of Directors and our employees for all of their support and encouragement. I am honored and humbled to be here today. I have known Paul for many years. He has been a wonderful mentor to me, and I look forward to continuing that relationship.

Global Payments is an organization of highly talented people with a fantastic culture. And while Paul had set the bar very high, I'm committed to building on the positive momentum that he has created. Now for quarterly highlights. I am pleased to report that North America delivered strong results, both in the United States and Canada. The U.S.

was driven by terrific performance in our APT business and strength across our other channels. As we discussed in last quarter's earnings call, our ISO channel continues to contribute growth to our top line. But the rate of growth has slowed, reflecting in part the law of large numbers and the timing of fees that ISOs charge to their customers.

However, much of the ISO's revenues are pass-throughs to us and have no effect on operating income. As anticipated, Canada delivered strong performance in the quarter, reflecting organic growth, market-based pricing changes and stabilizing spreads.

We anticipate closing our joint venture in Brazil this month, and we look forward to working with CaixaBank as we focus on signing new global customers and driving innovative products into the Brazilian market.

Our international results reflect strong performance across Europe, with particular strength in Spain and Russia and improved results in our Asia business as expected. Finally, we remain committed to completing additional strategic acquisitions, both in existing and new markets. Now I will turn the call over to David..

Thanks, Jeff. We're off to a good start to the year with nice business performance and a slightly lower-than-expected tax rate, adding to our first quarter cash earnings. North America revenue grew 6% with U.S. revenue growth of 5% on transaction growth of 9%.

In Canada, transactions grew 3%, credit spreads were stable for the quarter on a year-over-year basis, and we reported revenue growth of 10% in local currency. We remained on track for mid-single-digit annual revenue growth in local currency.

North America cash operating income grew 11% to $79 million, with cash operating margin expanding by 90 basis points to 17.6%. We continue to expect full year cash operating margins in North America to be about flat to slightly increasing. International revenue grew 10% for the quarter in U.S. dollars.

In local currency, Europe delivered solid revenue and transaction growth in all markets, with Spain and Russia benefiting from favorable secular trends and new product launches. Asia-Pacific revenue grew 3% over last year.

International cash operating income of $69 million grew 6% compared to last year, with cash operating margin down 140 basis points, primarily due to business mix in Europe and performance in Asia. This was about what we expected, and we continue to expect stable international cash operating margins for the full year.

Currency trends were about what we expected for the quarter, and we continue to expect foreign currency effects to be about neutral to a slight headwind for cash earnings per share for the full year. We continue to expect both GAAP and cash effective tax rates to approach 29% for the full year.

For the quarter, our total company cash operating margin was 19.7%. This includes over $4 million of the anticipated full year $17 million incremental security spend. Excluding the security spend, total company margins would have increased to 20.4%. For the first quarter, we generated free cash flow of $59 million.

We made our annual distribution to CaixaBank for our Comercia joint venture, which reduced our free cash flow by just over $9 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 noncontrolling interests.

Capital expenditures were about $20 million for the quarter, and we continue to anticipate our full year capital expenditures will total about $90 million. Our total available cash, including working capital at the end of the quarter, was $276 million.

During the quarter, we repurchased a total of $144 million worth of shares, $125 million of which completed our July 2012 authorization. $19 million of repurchases related to our July 2013 $250 million authorization. And in the next few days, we plan to enter into an accelerated share repurchase plan for up to $100 million.

As a result, we are increasing our annual fiscal 2014 cash earnings per share expectations by $0.05 to a range of $3.98 to $4.05, reflecting 9% to 11% growth over fiscal 2013. We are maintaining our annual revenue expectations of $2.51 billion to $2.56 billion, reflecting 6% to 8% growth. And now, I'll turn the call back to Paul..

Thank you, David. I have enjoyed working with all of you and have appreciated your candor and support during these past years. Although we have accomplished a lot, I firmly believe that Global Payments' future has never been brighter. I'll now turn the call over to Jane.

Jane?.

Thanks. [Operator Instructions] Thank you. And operator, we will now go to questions..

[Operator Instructions] Our first question today comes from the line of George Mihalos from Credit Suisse..

Paul, all the best. It was great working with you..

Thanks, George..

And congratulations, Jeff..

Thanks, George..

So maybe just to start off, nice to see the margins trending in the right direction. Within the North American business or within the U.S.

business, can you break out the revenue contribution that is non-ISO direct in the growth trends that you've seen there?.

George, this is David. I'd be happy to do that. And they're really quite consistent with what we expected when the year started. So we have an ISO channel, that as you heard in our prepared comments, growth is slowing a little bit, really due to the law of large numbers and the timing and sequencing of when ISOs choose to see their customers.

So that channel continues to grow transaction in the double digits and with revenue growth below that, depending again on timing of the fees and just as, again, the law of large numbers. So if you go to the rest of the channels, the APT business is really carrying a lot of the water for us this year, just as we expected.

Remember last year, we didn't own APT until October. So we're getting the benefit of that in this quarter and that will begin to annualize.

But even when it annualizes, we'll be looking at very nice mid-teens kind of revenue growth from APT, everything we expected from that business with the opportunity to actually add growth to it on a global basis over the years.

Then if you go to the rest of the channels, the check and gaming, the gaming business, you remember historically having covered us for some time, still chugs along at very nice levels, high-single-digit kind of growth levels.

Our direct business, very solid business, and that's the combination of our joint venture with Comerica, as well as our core direct base. So the legacy direct base of Global Payments, that moves along in a nice sort of mid-single-digits pace as well. Our Greater Giving business, low double to maybe high-single.

And then the indirect business, which is kind of the final reconciling piece of really legacy portfolios buried in us as well as buried in other processors, they have a different trajectory but small enough that it doesn't really affect the overall. The end result of which is what you see today.

We're reporting really maybe, more importantly, what we continue to expect for the full year, which is mid- to high-single-digit revenue growth on an annual basis..

And then just, Jeff, going back to your comments on the acquisition pipeline.

Can you talk a little bit more, maybe geographically and particularly with some of the new markets that you mentioned, you could be looking to get into?.

Yes, sure. George, I'm happy to do that. So we continue to have a full pipeline, and we balance that pipeline against what we think to be appropriate return of capital to our shareholders, which touches on the accelerated buyback that Paul and David mentioned.

I would say a big part of what we do in terms of pipeline, George, depends on where the opportunities are as we are really looking globally for targets. Right now, we're spending a fair amount of time in Asia. I think Paul touched on that previously.

We're also spending a fair amount of time in Latin America and in North America and a little bit of time in Western Europe. So it really depends on where the deals are.

We have a fairly full pipeline but we thought the right thing to do at this point, balancing that versus return of capital, was to move ahead with the $100 million on the buyback relative to the $250 million..

Our next question comes from the line of Jason Kupferberg with Jefferies..

Just want to add my congratulations to both Paul and Jeff and wanted to just start with a question on the U.S. And obviously, overall, North American operating margins were great to see here this quarter, but we continue to see that gap in the U.S., specifically, with transaction growth eclipsing revenue growth by a bit. Saw the same thing in Q4.

Just remind us of the drivers of that dynamic.

Should we expect that to continue at a similar spread during the rest of fiscal '14?.

Jason, it's David. You'll probably not going to love this answer, but it can move around a little bit at it has historically. You're correct. It's fairly consistent Q4 to Q1, and let's recall the drivers of that. It's transactions across the market. But the real driver is the timing of what's going on with the ISOs.

And so while logically, the relationship between transaction growth and revenue growth should be consistent, unless something were to happen to pricing trends, something along those lines, I can tell you from a metrics perspective, there's almost nothing happening with average tickets and almost nothing happening with spreads in our U.S. business.

So in fact, you point right back to the ISOs when you're comparing these quarters to each other and say, "Okay, when did they charge which fee?" And depending on that timing, and then the overall pace of growth they're seeing as their growth slows a bit, you sort kind of have that relationship, which is again quite logical.

You asked a great question, but it sort of vary from what you might expect to be the norm. So I think, the reality is you should not be surprised if you see more quarters like this but also the occasional quarter, where that revenue growth and transaction growth are very consistent with each other because some fees were billed during that period..

Okay, understood. And Paul, you've always been great to opine on industry trends and implications of changes in the space. So as we think about the possibility of a Durbin 2.0 becoming reality, if we do see another significant cut in U.S.

debit interchange, as well as a potential requirement for the dual-signature networks, should we assume that your industry in general and Global Payments specifically would benefit materially, albeit perhaps on a temporary basis from these regulatory changes as was the case after Durbin 1.0?.

Jason, it's hard to argue with just how articulately you put that. I think that -- I think you captured all of it. I think you -- I think some will benefit more materially than others. I think we're all going to be balanced. But we've always said, and as you well know, moving interchanges are good things.

Interchanges going down are very good things, and it is temporal. I mean, you don't get to have it forever and ever, but it's a nice inflection point. And you're right, that's a very positive development for us and everybody in our space..

Our next question comes from the line of Greg Smith with Sterne Agee..

Thought we would have heard about some additional distribution deals in Asia.

What's kind of the update? What are you working on in Asia?.

we are very focused on that, and we have the guy that runs our worldwide business living in Asia. He is focused on it every day. Jeff and I are heading over in 30 days. So we're all over it..

Okay, great. And then just to make you opine on something else, the PayPal's acquisition of Braintree.

Just -- is that an area that APT can play in? And what are your thoughts there?.

Sure. Greg, it's Jeff. I'll start, and then Paul and David, of course, can jump in. So those are slightly different businesses. APT is really a card-present business. So you think about what we talked about in January, Greg, which is dental offices, veterinary offices, auto dealers, that kind of thing. Those are almost all, by definition, card-present.

As I understand it from Braintree and PayPal announcement, that was largely card-not-present, so if you go a little bit closer, Greg, to the Visa CyberSource announcement and the card-not-present gateway versus necessarily what APT does. So that's kind of the first piece, Greg, in terms of how those line up.

I think on the second piece though, and I think to get the gist of your question, I think on the second piece, it does make us feel very good as we've already, as David already described, in the integrated solutions market. So one thing I think they do have in common is how do we all think about value propositions and integrated solutions.

I think Braintree was a step in that direction, too. So I think it does make us feel very good in addition to the numbers David described in executing our strategy through APT, Greater Giving and our own bar business here in the U.S..

And Greg, I would add that our relationship with PayPal has never been stronger. They briefed us on this. They let us know what opportunities could develop because of this deal they did. And to that end, we are focused on expanding our relationship, and they are focused on expanding our relationship. So we're very bullish on PayPal..

Our next question comes from the line of Dave Koning with Baird..

And congrats, again, on the transitions. My first question is just Canada. Usually, that's one of the first questions on the call. I think we were at the -- about fifth. But it was so strong this quarter, and I guess I'm wondering, is that -- it sounds like it's not sustainable.

But maybe, was there something in Q1 that's not sustainable? And maybe as part of the reason you're guiding to mid-single digits for the full year, just that it's hard to keep the price-increase impact as we go further down the road?.

Dave, this is David. First, I'd like to thank you all for not asking about Canada until the fourth question. So I wouldn't regard the performance of Canada in the first quarter relative to the rest of the year in any way as sort of a precursor of something falling off later in the year, in fact, quite the opposite.

I think when you think about Canada, realize that the comparables last year don't have some of the price changes that start to happen in Q4. Realize too that the history of Canada is what it is. And we're looking to have a very successful year in Canada and certainly, very successful relative to what we posted the last couple of years.

So I wouldn't look at Canada as anything other than we're off to a very strong start, on track for our goals. You could accuse us of being somewhat conservative where revenue will end up in Canada. But we're at end of the first quarter, and we'll keep running with Canada.

Maybe what is important is anything about Canada, maybe more than just the price changes, because remember some of that's assessment-driven anyway, is that the core underlying trends in Canada have stayed consistent with the last couple of quarters. Remember we started talking about this really with the February quarter of last year.

More stable credit spread trends and they declined in each of the last 2 quarters of fiscal '13 on the order of 4%. Now they're roughly flat year-over-year in Q1, married to ongoing transaction growth and, again, back to the prepared comments, transaction growth was 3%, the same as it had been in Q4, gives us something we can manage.

So I would not suggest you look askance at what may happen with Canada the rest of the year relative to just posting a very good start to the year in Q1..

And just, I guess, a follow-up would just be that the U.K. would be the other big, very profitable market and just wondering, one, growth seems like -- because Europe growth was so strong, I mean, was the U.K. also strong and then some people often asked is just, could the U.K.

ever turn into Canada, if there was very transparent pricing? Do you see that ever happening?.

So I'll take this on maybe in reverse order. There's already very transparent pricing in the United Kingdom. The competitors and we, as long -- as well as anyone who watches the industry has taken care of that. A lot of that started happening in the order of 2 or 3 years ago.

Probably most important prospective for the United Kingdom is it has had a level of complexity in interchange and now assessments for years that Canada never had prior to the big pricing change as you recall from calendar 2008.

And that, as you recall, without going through the history of Canada again, was the setup for the more challenging macro and micro situations in Canada over the last 3 or 4 years. With that said, our U.K.

business, remember, operates sort of a couple of different product lines that kind of came out of or emanated from our original joint venture with HSBC going back to '08 and '09.

It's the core credit business, which, as you say, is highly profitable and tends to chug along, married to our debit business and cash advance, the rest of the products you'd sell to merchants in a card-present, to use Jeff's description of APT kind of environment, that business chugs along.

And then within that business as well is what we call Global Solutions, which we used to refer to as International Acquiring. This is the e-commerce business we run over the card-not-present, cross-border business.

And that's driving an enormous amount of revenue growth in Europe particularly, and recall, particularly around the February quarter of last year, we saw some outsized growth and began talking to you guys about the fact that those transactions, many of which by the way come from PayPal to go back to an earlier question, come at a lower contribution margin.

And thus, you can have the dynamic, where you've got really high European revenue growth, married to maybe less international profit growth than you might expect overall. That doesn't mean there's any problem with the channel. It's the nature of the transactions themselves..

Our next question comes from the line of Tim Willi with Wells Fargo..

Congratulations, as well, to Paul and Jeff. The question I had around sort of partner-of-choice strategy that you've been putting into place. I think, Jeff, it's sort of been one of your initiatives.

But you've announced deals with companies like edo, having ShopKeep, just very curious if you could talk a little bit about initial reactions from your channel partners about these alliances and partnerships you're building.

And any way to think about how much more expensive that might be, I mean, eventually, the income statement impact and then [ph] I know it's a big topic but curious if you could walk us through some thoughts there..

Yes, sure. Tim, I'm happy to do that. So I think to back up a bit, the partner-of-choice strategy that we talked a lot about in January at our Investor Day is really grounded in the fact that we're a service business.

So what's important for us is to provide our partners and our merchants, our customers with the ability to accept any payment, anytime, anywhere. And that means that they have the choice, for example, to accept PayPal. That means they have to have the choice, for example, to accept a tablet form of acceptance like a ShopKeep.

We have to have loyalty solutions like edo, which you referenced. So the way we view our business is how much choice can we give our customers and how much choice can we give our partners.

If you look at the deals that you mentioned, one common thread is with the increasing complexity at the point of sale, how do we enable that choice and ultimately, provide more value-added services to our customers and that's really the common thread.

So I would say the reaction from our partners has been very good to what we're doing with these third parties. We continue to expand the suite of solutions in our mobile universe. ShopKeep is a part of that.

You may also remember in January that we talked about PayApp, which is our own proprietary solution for mobile commerce, which we now have in 5 markets in Asia Pacific, including, in particular, in Hong Kong. You've also read, of course, our initiatives with Intuit in the U.K., with PayPal in the U.K. and there's more to come in other markets.

So I really think of that, Tim, in the context of we're a service provider. We need to provide value-added services to maintain our position. ShopKeep, edo, all the types of things that our customers are looking for, and I think the reception has been very good, and I think there's more to come..

And maybe a little color on top of that, Tim. When we talk about PayApp, what we really build is an infrastructure, into which all of our partners can plug.

So for mobility, whether you're dealing with tablet or a dongle or any other integrated solution, you can plug in there for boarding, underwriting risk management, reporting, processing, tailored for digital commerce.

That also means what can plug in there is content, whether that's the kind of edo offer or couponing for analytics, available in all markets around the world and available to our current partners, as well as the new partners, about what you're asking.

So all that infrastructure is available for any partner who wants to plug in, as well as our direct sales force anywhere in the world. As you might imagine, we're selling a lot of this on a direct basis in the Asian markets Jeff referenced, with the ability to do that across Europe and some of the other markets as well.

So the way we thought about is very much that service architecture. Everyone can plug into that service, whether you're current partner with your own, mobility or tablet strategy or whether you're a new partner, like a ShopKeep, we can make that available to any customer they'd like around the world..

Okay. And then if I could just follow up, I guess obviously, this is sort of evolutionary.

So when you get to sort of the income statement or think about North American revenue or I guess I'm going to say revenue overall, is this something that you think from -- however your structuring these partnerships with edo, ShopKeep, your own proprietary PayApp-type stuff, is this something that sort of works against maybe sort of what people view as the secular margin issue around North America? I mean, do we get into more revenue per merchants, more revenue per channel partner, that really help defend the margin structure? Is that the -- just sort of your thoughts on the likelihood of it playing out that way over some period of time in the next couple of years?.

Yes, without going into specifics, I believe this should fundamentally transform over the long term, the shape of the face of the income statement and here's why. Right now, our conversations about margins are dominated by whether the ISOs are doing that kind of conversation.

To the extent a plug-in service infrastructure like this allows our customers to on more of an àla carte basis by services from us with maybe a different contractual relationship from what we have ISOs today in the United States, then what you're talking about is getting more and more growth in volume, sort of wholesaling as Jeff described it from large partners, without the problematic GAAP accounting margin implications you get from the ISO accounting today.

I certainly believe -- we certainly believe we're dedicating entire business units to the belief that mobility and digital commerce is how transactions are going to be effectuated over the coming years. And with that should come the opportunity for sort of different optics on the income statement to answer your question directly.

No promises, I can't tell you exactly how it's going to shape. But that's certainly the view of how the partnerships should evolve, yes..

Our next question comes from the line of Craig Maurer with CLSA..

And again, congratulations to both of you. I was wondering if you could comment if there's been any change in -- if you've been able to perceive any change in how Paymentech is operating. We're about 6 months from the CMS announcement, and I was wondering if you've seen any change in behavior.

Also if you have any thoughts on today's announcement of an alliance to explore tokens, which I know banks are also looking at as a way to move us to -- to skip the payment networks altogether, that would be helpful..

Yes, sure. Greg, it's Jeff. So on Paymentech and the JPM Visa announcement some time ago, we haven't seen any difference in a go-to-market strategy or in the competitive landscape. It's always been a very competitive business.

JPM and other large acquirers, as well as acquirers and issuers, are going to use their rightly earned competitive advantages to compete in those marketplaces. So we really have seen no difference over time in the go-to-market strategy from that announcement or otherwise.

Second, in your question about the announcement today from Visa MasterCard and AmEx, we welcome anything that provides more secure commerce for any of our businesses in any of our markets. Obviously, there's a variety of solutions to go-to-market there. Tokens might be one.

EMV, which, of course, we're knee deep in and we've discussed before is another. But anything that provides more security to the ecosystem in the U.S. or elsewhere is a welcome occurrence. As I said before in response to Tim's question, we are a service provider.

So as long as something is touching a merchant and the consumer is using that service and/or a merchant wants to get paid, we'll be there providing solutions.

So whether that's riding on existing rails, on Visa and MasterCard, the other networks or which we ride [ph] again different functionality that's been described before, as long as it is touches a merchant and somebody wants to get paid and somebody wants to transact, we're going to be the beneficiaries of being in the middle of that.

If that's more secure, ala tokens, that's great news for what we do. So we welcome things like that, and I'm sure there'll be more to come..

Our next question comes from Tien-tsin Huang with JPMorgan..

Paul, I also want to wish you the best. I also enjoyed working with you. And I guess, I've learned a lot talking with you over all these years. So just wanted to say thanks upfront..

Well, that's very kind, Tien-tsin. I feel the same. Thank you very much..

Sure. I do appreciate that. I guess, maybe I'll just ask you, Paul. How active do you think you'll be here as Chairman to '14? And Jeff, congrats as well.

Should we expect any big changes from you? Or will be you running things differently, anything to call out today?.

Well, Tien-tsin, I'd like to, first of all, comment on why and when. So this is something that -- this is a planned transition. Jeff has been here for 3.5 years. And the board and I believe strongly he's the right guy at the right time. The company is in terrific shape, so that plays well into this.

And honestly, from my own vantage point, this is good timing for me personally as well for the company. To your exact question, I'm going to remain on a couple of different levels. I'm going to remain a large shareholder. I'm going to be actively involved as Chairman, primarily focusing on ensuring a smooth transition.

I'm working with Jeff on a number of strategic things, working on some key introductions around the world. Jeff knows that a ton of this people already but I'm just kind of adding a little impetus to those relationships, and that is my focus.

Jeff is CEO and my job is Chairman, and he is charged with the day-to-day responsibilities running our company. And I, for one, am convinced he'll do a great job of it..

And to answer your second question, Tien-tsin. Of course, today, we've reaffirmed our revenue expectations for this fiscal and also raised our earnings expectations for this fiscal as we've described, and that's what we're working toward. So I think it's a pretty clear path as to what we're doing.

Of course, we also had an Analyst Day that you were at in January, where we set forth our strategy, which we're pursuing. And I'm sure, over time, we'll have further discussions about what that strategy is and what it will be.

For now, for day 1, it's really business as usual and I'm going to continue to work with Paul and our board, as we execute on the objectives that we've laid out for this fiscal..

Understood, understood. So let me -- as my follow-up, I'll ask a business question. just -- I'll ask on Europe. I think David mentioned -- asked it before. But Europe was better than we had modeled sequentially by quite a bit on very little expense growth, it looks like, sequentially again.

Was there a pricing change there? Is this sustainable? Just trying to think about how that might sketch out over the remainder of the fiscal year..

So Tien-tsin, if I point you back to the strong global solutions, also that e-commerce solution in the quarter, and then one other thing to watch for, that I think is going to be a trend going forward as we go from Q4 and to Q1, remember Q4 ends in May and then Q1 really takes over the entire summer.

So we have product sets that we've now introduced in an awful lot of markets, like DCC, that have really big quarters in our first quarter. You get a lot of the travelers moving around. Lot of travelers, for example, headed to Spain for us in the first quarter.

And so we saw outsized growth and frankly, more growth than we expected in Spain from that particular product, which you then see flow through in your Europe revenue.

So don't be surprised if you see pretty strong sequential revenue Q4 -- Q1 over Q4 kind of going forward now that we've fully rolled out that product across much of Europe, and we still have the Asia version of that product that continues to chug along as well..

Our next question comes from the line of Andrew Jeffrey with SunTrust..

I certainly will miss you. Hopefully, our paths will cross again soon..

Well, thank you, Andrew, and I hope so as well..

David, you mentioned you -- called out the security spend, and I just want to make sure I got it, you said $4 million in the quarter, $17 million for the year was the expectations?.

That's right, Andrew?.

Okay. And then you sort of normalized the margin.

I guess what I'm wondering is, how do we look at that as we go out to '15? Are we thinking about an elevated level of security spend around that level by which your overall corporate expenses rise this year? Or is there going to be a way to scale that? Or does it actually grow?.

Yes. I think it has to scale as we head into '15. It's like any other piece of this infrastructure. It has to scale. It may be an exceptional piece in that as tools improve, you want to be as secure as you can from a posture perspective.

So perhaps, counting on it to grow no more than we have our human resources or our legal department grow from a scale perspective inside the corporate is asking too much. But we do not expect it to grow at outsized expense levels from '15 and beyond.

We think we're setting up the baseline over the course of '14 in order to lever it, really across the world, '15 and beyond. There may be a hair of an element of it's not fully in every run rate for the full year in '14 so it might grow a little faster than one might imagine but, I mean, a little faster.

Again, we don't expect to see huge chunks because as with any other piece of the infrastructure, security services, the entire infrastructure and should provide some element of scale..

Okay.

And so recognizing, and maybe this is a question for Jeff, recognizing that it's hard to predict what's going to happen next in the world, all else being equal, do you feel like you probably hit the trough for consolidated profitability at this point?.

I think that question requires an awful lot of a crystal ball. I would point you back to maybe a different language. I think we feel good about where the business is and how it's executing right now. We're off to a good start for this year. This year is the first clean year in a while. There is no breach.

There's no weird trajectories of pieces of the business. We have opportunities to expand distribution, not just in Asia, but in other places. In fact, we are expanding distribution in places like Asia. They're actually implicit in our view of the year and the improvement in Asia in the second half of the year.

There's new distribution partners in Malaysia, Sri Lanka and the Philippines, may be tactical may not be as sexy as the big banks that Paul was talking about earlier, but that's just running the business. It's what we do. And you sink pieces all around the world.

So rather than say this is the trough, I would tell you we feel good about the position of the execution, and we've been consistently executing against what we talked to you guys about in January, which allows the business to execute better quite frankly..

Our next question comes from the line of Steven Kwok with KBW..

Congrats to both Paul and Jeff.

I was just wondering if there are any early indicators of how the second quarter is trending?.

Steven, we really don't break out monthlies. But I would say, there's nothing we've seen, thus far, in the quarter that suggests our forecasts are off-track..

Got it.

And then just as a follow-up, in terms from an M&A perspective, I mean how big can you currently flex the balance sheet for a deal?.

We can flex quite substantially from here. As you know, we target an implicit investment-grade approach to keep our cost of capital low and make sure we're as attractive as we want to be to different financial services partners around the world. But we have a great deal of room as you can tell from what we reported, in the order of 2x levered.

We can certainly run this business quite a bit above that, depending on the opportunities. Jeff described exactly where we stand right now, which is a solid pipeline but enough of a view of that pipeline to suggest that this is a good time to go ahead and return a little more capital to shareholders in the form of an accelerated share repurchase.

But we can flex the balance sheet well north of 3x for the right combination of capital opportunities..

And Steven, just to add to what David said, I don't view us and I don't think David does either, as being capital constrained relative to deals that we see in our pipeline. So it's a balance and that's what we are executing on..

Our next question comes from the line of Bryan Keane with Deutsche Bank..

Just wanted to ask about the spread there between the revenue growth in constant currency in Canada and the 3% transaction growth. I just want to make sure I have the moving pieces.

I know credit spreads are flat, but can you just maybe walk through it for me, David?.

Yes, I'm happy to. So you got the foundation, Bryan. It's flattish spread -- flat spreads, not flattish, flat spreads and then beyond that 3% transaction growth in aggregate, which is a combination of credit, highly profitable credit growth and debit, which is a little less profitable. So credit is moving along nicely in Canada.

Now what goes on top of that is the changes, the structural changes introduced by each of Visa and MasterCard in April and July, respectively, which changed the structure around assessments in the market, domestic assessments, cross-border assessments, international, et cetera.

So the difference between then between the 10% reported and what your math and your model would say 3% plus flat ought to deliver, presumably around 3%, is the change in the assessments in the market overall and then how those ended up reflected on customers' statements by the time the actual volumes had come through based on charge types, card types and the application of the assessment.

So it's revenue, core revenue, nice progress, nice foundation but then on top of that, the network-driven changes and assessments..

Okay. And then with the MasterCard change in July, we'll see a little bit more of that. I guess it's not a pure number, the one that we're looking at for the quarter..

Yes, I think, that's the right way to think about it. You get a little more help in the September quarter from MasterCard, while at that point you'll have a full quarter of Visa. But yes, I think that's a fair way to think about it..

And then just for the big margin improvement in North America, is it safe to say that was pretty much all Canada? Or was some of that improvement also in the U.S.?.

Actually, I would start you with the U.S. That is APT, which is 2 things. One is not a comparable quarter last year because we closed in October.

In addition, just a very nice profitable business we've added that's growing and growing its profits at a rapid rate, married to a little slower ISO growth, which as you know, at the margin line and, quite honestly, at EBIT line as well, are not necessarily bad things for Global Payments, given how much that helps with the optics in North America and then total company margins..

Our next question comes from the line of Roman Leal with Goldman Sachs..

Let me call the congratulatory comments to both Paul and Jeff..

Thanks, Roman..

Maybe if we start off, David, you kind of talked a little bit about the moving parts U.S. versus Canada.

To get to your full year guidance in terms of margins being flat to maybe slightly up, are the expectations that may be APT anniversaries and the ISOs start to go a little faster towards the second half of the year or Canada's maybe gets a little bit weaker second of the year? Can you walk us through the different moving parts to get to flat to slightly up for the rest of the year?.

Yes, I'd be happy to. And I think I'll toss on top of that the rest of the world in total company, because that question is inevitable as well, I'm sure. So you've got the right question, the right pieces in mind. Let's start with -- at a total company level. Total company margin is about flat year-over-year in Q1.

That's what we expect for the full year. Now below that, as usual, Global Payments have all kinds of moving parts. You put your finger on the correct view of North America. We closed the APT transaction last October, so Q1 gets a big benefit from that. We'll get a little bit of help in Q2 as well.

And then we're benefiting right now from less margin pressure from the ISOs, that growth slows a bit with large numbers. However, there's nothing to stop the ISOs from billing lots of fees later in the year and that often happens in our Q -- in our Q3 -- for Q3 and our Q4.

So we do allow for that to happen, and so to have a little slightly different trajectory from the ISOs later in the year. Frankly, we also expect Canada margins to be a little bit better in the first half of the year versus the second. That's where the time of the reprices and then how the metric shape for the full year.

So if you think about those couple of things, we've got margin expansion on the first couple of quarters and then you probably ought to have a model that has margins for the second half of the year look a little like they did the second half of last year.

As we go through the year, we post some Q2 results, we'll have another view of Q3 and Q4 and we'll talk some more about it at that time. If you park that for a second and, again, indulge me to the whole world for everyone why we're doing it, in international, we expect to be around the same level in FY '14 we were in FY '13 as well.

So as we saw last year, and as I mentioned earlier in answering Tien-tsin's question, a lot of our most profitable products come on -- it's been a seasonally strong Q1, except DCC, and also our IPP products. Again, a lot in Spain and some of our other markets as we introduce them. So that will result in a strong Q1 margin, a little lower margin in Q2.

But that's not unlike the sequential change in margin from Q1 to Q2 you saw last year. And then you should expect the same sequential change in Q3, traditionally our weakest quarter, but you're talking about U.S., Canada, U.K., Russia, anywhere around the world. So expect that again and expect that margin looks something like last year's margin.

What's important about this, I think, and part of why I want to touch on it is, by the time you get out to Q4, we expect to be executing better in Asia. We expect some of these distribution partners to come through and be creating some level of leverage in some of these markets in that latter quarter.

We expect continued execution in Europe so that you should have some margin expansion in Q4 in international overall. So that'll begin to play against the North America, which means for the total company, you get those trends.

You lay in our corporate expenses, which are growing a little more than you would expect this year because of corporate security, and you end up in total, now for total company margins '14 over '13, slightly down on a year-over-year basis but would have been up without that incremental security. Those are the pieces..

That's very helpful. My follow-up maybe for Jeff, what's the strategy with the Caixa partnership in Brazil? And we're talking about the M&A pipeline, but how does the distribution or even the client pipeline looks like in Brazil? It could be a pretty important market obviously..

Yes, thanks, Roman. We're very pleased with where we are in Brazil. We actually have roughly 1,000 merchants today processing with us in a very short period of time, just a number of months in Brazil. We expect the CaixaBank transactions, we said, to close this month in October.

I think what we're going to get from the CaixaBank transaction is a few things. First, we're going to bring their technology into the Brazilian market. They have their own mobile point-of-sale technology today in Spain. One of our key initiatives is to roll that out into the Brazilian market, which we're working on now.

We also expect to take DCC, which David just described, and we have, of course, in other markets to have that available by the World Cup, which, of course, is next summer here, June and July 2014 in Brazil. And we're also building -- looking at building an e-commerce business in Brazil from a distribution point of view, again, with CaixaBank.

And then lastly, with Caixa, we've staked out a number of their customers who are already in Brazil today from a processing point of view who are their customers in Europe or Spain, have those become our customers in the Brazilian marketplace, as well as other customers of theirs in Latin America outside of Brazil.

So I think there's a number of things going for us in Brazil, so we feel good about where we are. But we need to continue to expand that business and capitalize on where we are with CaixaBank..

Okay. And maybe, if I may, a last -- one last one on Asia. David, I know you don't like calling bottoms here.

But just given the sequential trajectory we're seeing and some of the distribution you're gaining there, is it safe to say that the sequential improvement continues going forward?.

Yes. Particularly, I'd focus on the second half of the year compared to the first half of the year, but yes..

Our next question comes from the line of Wayne Johnson with Raymond James..

My question is really based on overseas as well. Can you talk a little bit about the Moscow market? Paul, I know you've done a lot of work on this, and I understand all parties have done a lot of work on it.

But if we could talk a little bit about how that's been evolving, what you guys expect to achieve in that particular geography this year? And the follow-up is, does the relatively recent Qiwi IPO, that hurt or helped GPN prospects in that region?.

Okay, Wayne, this is Paul. I'll do Russia, and then I'll ask Jeff and David to do the second question. So Russia has been a nice double-digit growing business for us, pretty much from onset. It's an interesting demographic, about 140 million people, and credit and debit cards are growing very strongly there.

So that kind of -- you get the benefit of that rising tide lifting all ships but we're also introducing a number of products. We have a very adroit sales force. We have superb management there, and we've done a great job of signing new business and expanding.

For example, if you goes to Sochi for the Olympics, the great majority of those merchants, we send whole teams out there to sign them up, sign them up for credit cards, debit cards and for club cards, so which is very important to our Chinese partners. So we love that market.

It's -- it has some intrigues, but we love that market and I love our management team there and most particularly, we all love our growth..

I would just add to your question, Wayne, about Qiwi. I think that the way to think about Russia, and Paul touched on it, is that the vast majority of the market called more than 90% remains cash and check.

I think it's one of the government's initiatives in Russia to make the business -- to make their economy more electronic for all the obvious reasons. I think digital wallets, ATMs, top-up kiosks, all these other things, of which Qiwi is a part, are all good news to us. If you go back to what we described before, we're a service provider.

The more choice that we have in market, the better the ability to displace cash and check at the point of sale, the more service providers, the more merchants who accept cards, those are all key inputs into what we do and I think Qiwi plays right into that.

So from our point of view, that's fertile ground for growth, everyone around the world, but especially in Russia..

All right, terrific. Congratulations on the announcement today..

Thanks, Wayne..

Our next question comes from the line of Dan Perlin with RBC..

Let me just add my heartfelt congratulations to both of you. It's been a long road, Paul. So I very much appreciate everything you've done over the years for me so....

Well, thanks, Dan..

The question I had is, you added John to your board recently, John Partridge, to your board.

And I'm interested, since we got you here, Paul, your thoughts about what opportunities he might be able to present to you guys in that there's new regions that he might want to bring you into, where there might be new technologies or partnerships, for that matter, given his experience with Visa?.

Thanks for that one. I would say that we are just delighted to have John on our board. And John was President of Visa and he was, obviously, involved in all the issues that we went through when we had that data intrusion. And I think that in scenarios like that, you get to know the networks and the networks get to know the processor.

And I think he felt comfortable with what we did and we felt comfortable with the way they did it and particularly, with John's leadership. He has -- as you mentioned, Dan, he has significant experiences, particularly in Latin America. He's a fluent speaker. He spent a lot of his career there. He's also a technologist.

And his Rolodex is deeper than anybody's. So -- and he, by the way, is just at Visa, so he's bringing all current knowledge. He's bringing tons of contacts. He's bringing credible business acumen. And the thing that made us feel the best, it seems like a bit of an endorsement to us because this is not the only opportunity John has.

So for him to accept our invitation, it felt pretty darn good that he would serve on our board..

And then just real quick on a follow-up. I keep trying to figure out how you guys are going to monetize your distribution asset, both domestically and then globally. And I hear you talk a lot about partner of choice.

But I'm wondering, are you finding that a lot of new technology companies are increasingly coming to you directly proactively in order to get access to your distribution? And if so, how do you think about really monetizing that outside of just as partner-of-choice idea -- or strategy rather, sorry?.

Yes. Dan, it's Jeff. I'll certainly start with that. So I think Tim asked this question.

If you look ShopKeep; if you look at edo; of course, if you look at PayPal and some of things that they're doing, I think our ability to provide value-added services to our customer base and to our partners around the world is something that's very distinctive to us.

And if you look at the customers that we have, who we have in multiple geographies like PayPal, for example, I think what you realize is that very few folks in the world that can provide that suite of services in multiple markets.

So if you just go back to the conversation a few minutes ago, the partner-of-choice strategy is rooted in the notion that we can do well if our partners do well and if our partners do well, we don't, and providing with more value-added solutions that enable them to win in the marketplace and enable us to win on a direct basis makes a lot of sense to us.

I think that's what you've seen with these announcements since the Investor Day in January, for example, along the lines of the mobile ecosystem that David described..

And is there a unified technology that they're able to plug into that falls under this partner strategy, so that you're easy to partner with quickly? Or is this separate and distinct for each partnership?.

Yes. That's a great question, Dan. So again, going back to the Investor Day, so one of the things about the partner of choice is that we have to make it easy to do business with us. Otherwise, people would decide it's too hard to partner.

So if you look at some of the multinationals with whom we're doing business today that we've described on this call and previously, I think you'll see a common theme is, they're generally based on a variety of markets, many of the companies we're in market with in Europe and Asia are U.S. companies and domiciled here.

And the reason they're selecting us is they know that they can do business with us in multiple markets, including, in particular, outside their home market.

David described a few minutes ago in response to another question our International Acquiring platform, which is based in the U.K., we use that platform to provide card-not-present services to customers around the world.

So to your question about kind of one solution, there's a very good example with one platform and how people can dial into multiple markets with us. Same thing is true for the mobile ecosystem that David also described.

The ability for Intuit, PayPal and others to participate with us, not just in their home markets, but in markets around the world is also distinctive to Global Payments. So I wish I could say there is always one solution in every market that we're in, but obviously is our goal.

But what I would say is that, I think we're much further down the path than many of our peers are and certainly, much down -- much further down the path of that strategy than we were just a number of years ago..

We will take the last question from Tulu Yunus from Nomura..

Let me just add my congrats to Paul and Jeff as well. Just 2 quick questions on North American revenues, actually.

Firstly on Canada, can you -- thanks for the comments on the trajectory of revenue growth, I guess I was kind of curious how much of the Visa -- could you maybe give us some more detail around how much of the Visa assessments have actually really stuck around now with them being installed for several months now?.

I'd be happy to. I really can't break that out. But I can tell you when assessments are introduced to a market, they become a new cost in the market for merchants.

So 100% of the assessments stick around in that setting, which is why when you get to the level of Global Payments income statement, that becomes revenue as well as expense in our income statement, unless we're looking at that and saying, "While we have worked around this, we've got to create more value.

Therefore, we might mark this up a little bit." But 100% of that sticks around from the perspective of the assessments themselves coming from the networks..

Understood. I guess I was more curious around the markup associated with the assessments.

Has that more or less kind of stuck around here? Or should we expect that to kind of get computed away? I mean, I guess your comments around spread is having the stabilized help answer that question potentially but more curious around like the markup, the benefit that you guys are enjoying from those fees..

Yes. I think the key way to measure competition in the market is the one you mentioned, which is what is happening, particularly with credit spreads in the market. In the Canadian market, there's no room for changes in debit spread-outs and mix.

And as you can tell, we think we've been -- we've had manageable credit spread changes the last 3 quarters, culminating in one that's flat this quarter. So I think you put your finger on the right thing. In terms of how all the other pieces come together, I would just tell you that everything is tracking along with our models right now..

Okay, great. And then just lastly, on U.S. revenues, you're basically putting up around 6% revenue growth this quarter.

With APT anniversary-ing later this year, and keeping in mind that your guidance is kind of mid- to high-single digit, how do you get there as kind of APT anniversary? I guess -- are you going to see some pickup in some of these other lines of businesses, maybe just help me get there?.

Yes. I don't expect us to see a material pickup, and we don't need that in order to hit the full year expectations. We will see the ISOs, we think, bill some of the fees I was describing earlier at odd times later in the year. APT, even when it annualizes, it's still going to be growing well into the double digits.

Now marry to that to some of the other channels I described earlier, the gaming, the Greater Giving, we have all the pieces to go ahead and hit this sort of mid- to high-single-digit revenue growth for the full year on top of the Q1 performance..

You're welcome. And ladies and gentlemen, thank you so much for your interest in Global Payments and for joining us on this call today..

Ladies and gentlemen, this concludes our conference for today. Thank you for your participation. You may now disconnect..