Global Payments Inc (GPN) Fiscal 2015 Second Quarter Conference Call Transcript

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Our performance for this quarter resulted in the largest core operating margin expansion of any quarter over the past several years. Additionally, this is the first time in our history that we have achieved an annual free cash flow run rate of over $400 million. These milestones are driven by the strong momentum we have achieved worldwide across our direct distribution businesses. Particularly noteworthy, given significant foreign currency headwinds. Consistent with recent trends, our US business delivered impressive results led by our direct channels which generated double-digit organic revenue growth for the second consecutive quarter. Canada also maintained stable performance in local currency with consistent business financials.

Our international results reflects solid business performance across most of our markets with particularly strong revenue growth in Asia, Spain and our E-Commerce channel. Additionally, we experience markedly better than expected margins in our international business. Largely from outstanding execution augmented by market-based pricing changes in Spain. We also continue to make progress in our strategical to expand our worldwide footprint. During our Fiscal Second Quarter, we completed the acquisition of Ezidebit which provide us with distinctive distribution in Australia and New Zealand — new direct markets for Global Payments.

We also recently announced an agreement to establish a merchant-acquiring joint-venture with Bank of the Philippine Islands, one of the country’s largest banks. With these new partnership, we will increase our existing distribution in the highly-attractive Philippines market and bring our innovative products and services to a significant additional merchant base. These transactions will enhance our position in some of the fastest-growing payments markets in Asia Pacific and demonstrate that we are making significant progress on our strategy in that region, executing on our vision that we set forth in 2012 with the purchase of HSBC’s remaining interests in our then Asia Pacific Joint Venture. Our performance in the first half of the Fiscal 2015 reflects the consistent and sound execution of our strategy to expand technology-enabled direct distribution in our markets augmented with disciplined capital deployment. We continue to reinvest in our businesses, pursue our global corporate development roadmap and officially return capital to shareholders. Now I will turn the call over to Cameron.

Cameron M. Bready, Executive Vice President and Chief Financial Officer, Global Payments, Inc.

Thanks Jeff and good morning everyone. Before reviewing segment results for the quarter, I would like to first provide an overview of the key drivers of our performance for the second quarter relative to our expectations. In the United States, all of our direct businesses continue to perform quite well generating year-over-year organic growth rates that in-trended above our expectations. Our business in Canada remain stable although our local currency performance was more than offset by FX for the quarter.

In Europe, Spain performed exceptionally well driven by double-digit transaction and volume growth as well as market-based pricing impacts. Our E-Commerce channel also continues to perform better than we expected which has contributed to our European top line growth. Similar to Q1, the strong European performance was partially offset by our Russian business which continues to be impacted by the overall economic environment and the effects of FX which were in even greater headwind than we anticipated. Our Asia Pacific business generated organic revenue growth in the high single-digits, accelerating from previous quarters and outperforming our expectations. Of course reported Asia results were further bolstered by the addition of Ezidebit which performs in line with expectations.

Now for the Quarterly Segment Details. Total company revenue for the Second Quarter Fiscal 2015 grew to $697 million reflecting 10% growth over Fiscal 2014 and cash operating margins expanded 100 basis points to 20.4%. Diluted cash earnings per share increased 19% over the prior year’s quarter to $1.27. Our underlying business demonstrated strength during the quarter even after normalizing our revenue growth for the addition of PayPros and Ezidebit. Assuming we own the PayPros and Ezidebit businesses in our current and prior year second quarters, or normalizing for their effect, total company revenue growth would have been 5% in line with our long-term core organic growth expectations, despite the impact of significant FX headwinds. On a constant currency basis, total company revenue growth was approximately 8% for the quarter.

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