This summary is based on the second quarter fiscal 2008 earnings call conducted by Global Payments Inc. (GPN: chart) on January 3, 2008.

Chairman, President and CEO: Paul Garcia
Senior EVP and COO: Jim Kelly
EVP and CFO: Joe Hyde
Vice President of Investor Relations: Jane Elliot

Key Investors Issues

- Earnings per share increased to 48 cents from 42 cents in the prior year.
- Quarterly revenue grew 18% over the previous year quarter to $308.8 million.
- In Q2, the firm repurchased 477,585 shares for a total of $19.1 million.
- The firm expects fiscal 2008 EPS to be in the range of $1.89 to $1.96.

Second Quarter Fiscal 2008 Financial Highlights


For the second quarter, revenue grew 18% to $308.8 million compared to $260.7 million in the prior year.

The growth was driven by solid performance in merchant services segment, while the money transfer segment continued to be impacted by lower year-over-year pricing. Fiscal year to date, the revenue grew 19% to $619.8 million compared to $521 million in the prior year period.

Excluding the impact of current period restructuring charges, diluted earnings per share grew 14% to 48 cents compared to 42 cents in the prior year quarter.

In the first six months of fiscal 2008, excluding the impact of current period restructuring charges, diluted earnings per share grew 11% to $1.02 from 92 cents in the prior year period. In accordance with GAAP, the current quarter and year-to-date periods include restructuring charges relating to an operating center consolidation announced in March 2007 and completed in November 2007. For the three and six months ended November 30, 2007, GAAP diluted earnings per share were 48 cents and $1.01, respectively, compared to 42 cents and 92 cents, respectively, in the prior year comparable periods.

- The corporate expenses increased 4% during the quarter, and the firm continues to expect fiscal 2008 expense growth ranging from zero to growth in the low single-digits.
- During the quarter, the company completed the facility consolidation plan announced in March 2007 and incurred a modest amount of related restructuring charges.

- During the second quarter, Global Payments repurchased 477,585 shares in the open market at an average price of $40.09 per share for a total of $19.1 million. As of November 30, 2007, the company had $13 million remaining under its current share repurchase authorization.
- Capital spending for the quarter was $13 million, which primarily related to technology spending, including for the new G2 platform in the US, in addition to merchant terminal spending and facility consolidation plan.

The company reported cash increased due to strong cash flow generated during the quarter, which included $52 million related to settlement processing.

The majority of this $52 million relates to temporary timing differences, partially due to Hong Kong back end system conversion. These timing differences will likely reverse during the second half of fiscal 2008. The cash balances include amounts that the firm holds related to merchant reserve funds, which totaled $127 million at the end of the second quarter. This reflected an increase of $15 million compared to the end of the first quarter, primarily due to Hong Kong back end system conversion. Prior to this conversion, HSBC was holding this cash on its balance sheet in connection with its transition services agreement. In addition to merchant-related reserve funds, the cash balances include other forms of operating cash that is either needed to manage the business or that reflect timing differences such as cash in the money transfer branches or cash related to settlement processing. The remaining non-operating cash that is available for acquisitions, share repurchases or other strategic initiatives was approximately $130 million at the end of the second quarter. The primary strategy for this excess cash is to focus on seeking new acquisitions, which represents the highest potential return for shareholders.

Performance Analysis of Segments

Merchant Segment

The ISOs continued to drive strong organic growth in the domestic direct channel. The firm continued to have success in retaining its customers and in signing new ones, including two new ISOs signed in the past quarter.

The credit and debit card transactions grew 28% for the quarter, with revenue growth of 25%. Due to the continued success of the ISO channel, the firm is raising its expectation for fiscal 2008 revenue growth to the low 20% range for its domestic direct channel.

In Canada, the firm signed the long-term merchant referral agreement with HSBC during the quarter. This agreement demonstrates the firm’s continued success in this market. For the quarter, the company’s Canadian credit and debit card transactions grew 4%, while revenue grew 20%, driven largely by a favorable Canadian currency exchange rate. While the firm anticipates a continued year-over-year currency benefit for the remainder of this fiscal year, the third quarter revenue growth for this channel is expected to be in the low double-digit percentage range. This expected growth is lower than the second quarter growth, primarily due to non-recurring card association incentive revenue realized during fiscal 2007 third quarter. For fiscal 2008, the company is raising its revenue growth expectation to the low to mid-teen range for its Canadian channel.

The Asia Pacific channel had strong revenue growth of 24% for the quarter. Due to these results, the firm is increasing its expectation for fiscal 2008 revenue growth for this channel to 33% to 40% on a reported basis; or, the low to high teen percentage range on a pro forma basis. This growth reflects solid momentum gains from the continued sales initiatives and investments, and a positive turn in the revenue growth from Taiwan, as previously anticipated. The company continued to make operational progress on its goal to be fully converted from HSBC’s back and front end systems platform by calendar 2010. As of today, the firm has converted both the Macau and Hong Kong back end platforms onto its U.S.-based platform.