Highlights From GPN's Q1 Conference Call: Guides In-line for FY10

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October 2, 2009 10:51 AM EDT

Last night, Global Payments (NYSE: GPN) reported Q1 EPS of $0.71, 6 cents better than the analyst estimate of $0.65. Revenue for the quarter was $441.3 million, which compares to the estimate of $424.93 million. Shares are trading down about 2% this morning.

Highlights From GPN's Q1 Conference Call:

Global Payments sees FY10 EPS of $2.43-$2.54, versus the consensus of $2.50. Global Payments sees FY10 revenues $1.69-$1.74 billion, versus the consensus of $1.72 billion.
(CEO) We delivered solid financial performance with revenue growth of 9% to $441 million and diluted earnings per share of $0.71, which was flat compared to last year's quarter. However, on a constant currency basis, our Q1 revenue and EPS growth would be 14% and 10% respectively.
Our North American merchant services revenue grew 6% for the quarter
Despite unfavorable currency exchange rates, we delivered revenue growth from our international merchant services segment this quarter of 29%.
I'm very pleased with the initial performance of United Card Services, UCS in Russia, which performed better than anticipated.
Our central European indirect processing businesses continue to be challenged, but I'm pleased to announce that we have now renewed our three largest customers from multi-year periods.
Our Asia-Pacific business grew 23% due to the September 2008 addition of the Philippines, as well as continued sales success.
Not surprisingly, macroeconomic conditions have caused our average ticket amounts to decline across all of our geographies compared to prior year.
Finally, the money transfer business continues to face challenges and macroeconomic headwinds, as well as immigrant labor trends.
We are not aware of anything that would suggest that these trends will change for the remainder of fiscal 2010, however, despite these difficulties, we maintained double-digit operating margins for the quarter.
(CFO) Our full-year EPS outlook for a growth of 9 to 14% still includes a favorable impact of earnings growth of about one percentage point due to potential weakening of the U.S. dollar. Any fluctuations in currency rates of course may cause variances to our outlook.
Total company operating margins for Q1 were above what we expected at 21%, and we continue to anticipate the opportunity for modestly expanding margins for the full fiscal year of 2010.
We reported an effective tax rate for the quarter of 31.4%, which is a little lower than our expectations.
We reported total cash and cash equivalents of about $1 billion, but that amount is somewhat illusory. You may have noticed that our quarter ended on a Monday. And as a result, our cash include weakened merchant dollar volume, which is also reflected in our corresponding settlement obligations balance sheet line item. This volume was settled to our merchants on Tuesday, September 1 brining our cash level to a level more comparable to our May 31 reported cash. This timing effect will happen again in November and May. In fact, our total available cash at the end of the quarter was about $165 million.
(Q&A) A question on the debt, obviously, you have that debt from the HSBC transaction and I'm wondering what the goal is as far as reducing that debt -- will it be, like you've done it previously or you tried to pay it off as quickly as you can or do you have intentions to continue with that debt for a while? (A)I think what you'll see is that debt will continue for a while that as we accumulate cash, you should not be surprised to see us work to pay down obviously the most expensive portion to that debt. So it shouldn't surprising, at least, you will see us start paying down a little bit of debt, as we've accumulated a bit of cash now in the last couple of three quarters.
(Q)Paul, you had a fantastic first quarter, obviously much better than anybody expected, yet you're keeping your full year guidance where it is. I'm just wondering, is it that we just all underestimated what you are going to earn in the first quarter or did something happen in the first quarter that gives you a pause about the remainder of the year and you're not -- as a result, you are not raising guidance? (A)It's primarily the first part. We gave you guys annual guidance and I think you guys generally the street consensus built in a little more of a hockey stick in to the plan and then quite frankly our expectations. And we're pretty spot on with our plan. So that's the primary reason.
(Q)So would you expect, in the past you've had a second quarter that's seasonally a lot lower than the first quarter, would you expect similar seasonal trends this year as in the past or because of effects, you'll see something different? (A) I think what you'll see, if we focus on this is David, if you focus just the current-year, not comparisons to last year as Paul mentioned, Q1 was about right on our. And in the end if you look annually, you'll see FX type swings in the growth. So let's have all that aside for a moment. What we really expect to see now is a year to chase like our traditional years have chased. So go back to 2008 or even before, where you'll see that traditionally first quarter contributed something on the order of 27% of our full-year earnings, and then Q3 contributed substantial the least of our earnings for that year, with each of Q2 and Q4 somewhere in between. That's generally how we see the year shaping, meaning that we anchored Q1 on track for our full year expectations. But it is as Paul said, really we're kind of dead on our own plan for the full year, say it's Q1 or realize, we are ahead of published estimate, because you guys are jumping really up to Q4. But we do see the year shaping like you've traditionally watched Global Payments and we achieved.
(Q)And then last question Paul, just on your most recent acquisition Auctionpay. Obviously, a small acquisition, but what is it that you acquired that you didn't have and -- or what will this acquisition let you do that you couldn't do before? (A)There are several great verticals and still profit giving is one of them. And this is, this company, although it's not a big company, it's a very good company with some great product sets and it's actually a leader in this space, particularly in the option space. So, you have an option that you're kid school, and that's a sweet spot for these guys and they probably have more of that business than anyone. So we believe we can take this company beyond its initial geographies. We can add some products suites to it. We know we like what they do. We think we can actually improve upon it, and immediately take these to Canada and to the UK for starter. So we like this deal, it's a great vertical, we also like the management team. The CEO and the people that helped build this are all coming with the deal. They're excited about doing this with us and I think I would say, small but powerful. We feel very good about this deal.