- As expected, the company received a foreign currency benefit similar to the level seen in the second quarter. Partially offsetting these favorable impacts were non-recurring, Canadian Card Association incentive payments received in last year’s third quarter in addition to higher losses in check guarantee channel compared to the prior year.
- Money transfers operating income was $1.2 million, which was consistent with the second quarter results.
- The company is expecting a money transfer operating margin in the mid to high single-digit percentage range.
Corporate expenses increased 2% and the company continues to expect fiscal 2008 expense growth ranging from 0% to growth in the low single-digits.
- The company expects a fiscal 2008 total company normalized operating margin of 18.9% to 19.1%.
- For non-operating line items, the company expects the following for fiscal 2008. $12 million to $13 million in interest income net of interest expense, $8.5 million to $9.5 million for minority interest net of tax, and an effective tax rate of between 33.3% and 33.5% and average shares of approximately $81 million.
- Capital expenditures were $9 million which primarily related to technology and merchant terminal spending. For fiscal 2008 the company continues to expect capital expenditures of $40 million to $50 million.
- Reported cash increased to $388 million due to strong cash flow generated, partially offset by timing differences related to settlement processing as expected.
- Excluding merchant reserve funds and other operating cash, the company had approximately $170 million in excess cash at quarter end.
Key questions from the third quarter earnings call conducted by Global Payments, Inc. on March 27, 2008.
Kartik Mehta (FTM Midwest): The ISO business is doing well. Is it that you just have a few ISO’s that are doing well, or is it that you are gaining market share and signing more ISO’s or that they are all participating and that is the reason the business is doing so well?
Paul Garcia: It is a bit of everything. We do have a number of big ISO’s who continue to go from strength to strength, but we are also signing smaller ISO’s who are going to be successful and some we signed a couple of years ago who are growing to be sizeable themselves. I can not pin it on one thing other than we are fortunate to have a robust group of ISO customers.
Kartik Mehta (FTM Midwest): What is the sustainability of this growth?
Paul Garcia: The ISO’s are exceeding our growth expectations in our growth budget. Every year we budget for something less and the ISO’s seem to exceed it. I believe they can still sustain above market growth but over time this channel has to slow somewhat.
Kartik Mehta (FTM Midwest): You said one of the obvious uses for cash will be acquisitions. What is the competition like for acquisitions?
Paul Garcia: It has changed for a couple of different reasons but the biggest is the most acquisitive competitor is no longer aggressively pursuing acquisitions. It does not mean they are not doing it altogether, but they are less visible in these activities. I also think that sellers have a more realistic, for whatever reason, objective in mind and the acquisition pipeline has never been more robust. I am confident we will get some deals done. We promise near term accretion and we promise deals that we can explain to you simply that make sense for our company to fulfill our mission. I hope to deliver on all those promises in the not to distant future.
Charles Murphy (Morgan Stanley): In the fourth quarter you anniversary large conversion – are there any deals out there for ISO’s that you are bidding on that could help the comps in fourth quarter and into fiscal 2009?
Paul Garcia: That is true. We do anniversary a big conversion. We have baked all that in. When we tell you we are expecting a robust quarter we have anticipated the benefit of path findings and the rest of our business. The 29% growth in Asia was not lost on anyone. We also will be getting a smaller benefit from some of our other activities including Canada. At the end of the day we are feeling good about the fourth quarter.
Charles Murphy (Morgan Stanley): What the benefit to EBIT in the third quarter was from foreign exchange?
Joseph Hyde: It was similar to the second quarter level. It is running between 4 and 5 cents of positive impact the past couple of quarters and we would likely expect that in the fourth quarter.
David Koning (Robert W. Baird): You have mentioned the Canadian interchange benefit the last couple of quarters. It kicks in April 1. How big of a benefit that is to the fourth quarter and on a full year basis how big do you expect that profit benefit to be in Canada?
Paul Garcia: Sequentially it will not be that large because it is a partial quarter. We have not finished the whole budgeting process on that so it is a to-be-seen. We think it will have some impact of some importance for us. We have not given a lot of specificity on that. When we give our guidance for fiscal 2009 in our July call we will be as specific as common sense and the competitive nature of these things will allow us to be. That is why I am being cagey on that too. You want to have as much full disclosure as you can, but you have to understand you live in a competitive world. It does not have a huge amount of impact in the fourth quarter. We do think it has a nice lift for us in 2009 and we have not specified at this point, nor am I prepared to, exactly how much.
David Koning (Robert W. Baird): In Asia the last couple of quarters you have grown mid to high 20%. Originally you had talked about strong double-digit growth. Is there any reason the growth was so strong recently?
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