Below is the transcript of the Global Payments Inc (NASDAQ:GPN) Fiscal 2015 Second Quarter Conference Call made on Thursday, January 8, 2015, 08:00 AM ET.
Global Payments Inc (NASDAQ:GPN) is a Fortune 1000 company that describes itself as “one of the largest worldwide providers of payment solutions for merchants, value added resellers, enterprise software providers, financial institutions, government agencies, multinational corporations and independent sales organizations located throughout North America, South America, Europe and the Asia-Pacific region.”
In their press release for the Fiscal 2015 Second Quarter Earnings Conference Call, GPN Executives announced that the company “further increases its annual Fiscal 2015 revenue, margin and cash EPS outlook” as it “raises share repurchase authorization to $300 million.”
Company Representatives:
Jane Marie Elliott – Executive Vice President and Chief of Staff, Global Payments, Inc.
Jeffrey S. Sloan – Chief Executive Officer, Global Payments, Inc.
David E. Mangum – President and Chief Operating Officer, Global Payments, Inc.
Cameron M. Bready – Executive Vice President and Chief Financial Officer, Global Payments, Inc.
Analysts:
David J. Koning, CFA – Senior Research Analyst, BPO, Robert W. Baird and Company
Ashwin Shirvaikar – Director / Senior Analyst, Citigroup
Bryan Keane – Managing Director in Equity Research, Deutsche Bank
Tien-tsin Huang – Senior Analyst, JPMorgan Chase & Co.
Dan Perlin – Managing Director at RBC Capital Markets
Georgios Mihalos – Vice President, Equity Research at Credit Suisse
Jason Kupferberg – Senior Equity Research Analyst, Jefferies Group LLC
Glenn Greene – Managing Director/Analyst at Oppenheimer & Co Inc
Darrin Peller – Managing Director at Barclays Investment Bank
Andrew Jeffrey – Analyst, SunTrust Robinson Humphrey.
Operator
Ladies and gentlemen, thank you for standing by and welcome to Global Payments (NASDAQ: GPN) Fiscal 2015 Second Quarter Conference Call. At this time, all participants are in listen-only mode. Later, we will open the lines for questions and answers. If you should require assistance, just call. Please press star then zero and as a reminder, today’s conference will be recorded. At this time, I would like to turn the conference over to your host, the Executive Vice President and Chief of Staff Jane Elliot. Please go ahead.
Host:
Jane Marie Elliott, Executive Vice President and Chief of Staff, Global Payments, Inc.
Thank you. Good morning and welcome to Global Payments Fiscal 2015 Second Quarter Conference Call. Our call today is scheduled for one hour and joining me on the call are Jeff Sloan, CEO, David Mangum, President and COO and Cameron Bready, 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 which are subject to risk and uncertainties discussed in our SEC filings including our most recent 10-K and Form 10-Q. These risks and uncertainties could cause actual results to differ materially. We caution you not to place undue reliance on these statements. Forward-looking statements made during this call speak only as of the date of this call and we undertake no obligation to update them.
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 measures more clearly reflect comparative operative performance. For full reconciliation of cash earnings and other non-GAAP financial measures to GAAP results in accordance with Regulation-G, please see our Press Release furnished as an exhibit to our Form 8-K filed this morning and our trended financial highlights both of which are available in the Investor Relations area of our website at www.globalpaymentsinc.com. Now, I’d like to introduce Jeff Sloan. Jeff?
Jeff Sloane, Chief Executive Officer, Global Payments Inc.
Thank you Jane, and thanks everyone for joining us this morning. We are delighted to deliver another quarter of strong performance and to again, raise our Fiscal 2015 revenue margins and cash earnings per share guidance. By remaining intensely focused on execution, we achieved revenue growth for our Fiscal Second Quarter of 10%, cash earnings per share growth of 19% and operating margin expansion of 100 basis points.
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.
North America segment revenue grew 9% for the Second Quarter, with US growth of 12% over the prior year. On a normalized basis, organic US revenue growth was 5% which was comprised of growth in our direct channels of 12% and growth in our ISO channel of less than 1% during the quarter. As anticipated, growth in our ISO business continues to decelerate and this channel is becoming an increasingly smaller portion of our business. Our ISOs now contribute approximately 15% of our North America operating income, and approximately 8% of total company operating income, which compares to approximately 20% and low double digits respectively as of Q3 of Fiscal 2014. Despite local currency performance of 6% revenue growth, Canada revenue growth in US dollars declined 2%, resulting from an unfavorable exchange rate.
North America cash operating income grew 10% to $85.4 million, and cash operating margins were 17.5%, up from last year, driven by growth in our direct channel, partially offset by unfavorable Canadian FX trend on a year-over-year basis. International revenue grew 11% for the quarter in US dollars. Europe delivered strong revenue growth of 9%, fueled by performance in Spain and E-Commerce channel, offset by continued under performance in our Russia business in light of the general economic environment and ruble devaluation. As a result of strength in the rest of our business, Russia now represents approximately 2% of total company revenues, down from approximately 3% last quarter.
Asia Pacific revenue grew 21%, driven by strong organic revenue growth and the Ezidebit acquisition, which contributed approximately 12 percentage points to the growth rate. Our organic growth in the region was primarily a result of a combination of increased volumes, growth in dynamic currency conversion, and selective pricing initiatives. International cash operating income grew 20% to $83.5 million and cash operating margins increased to 40.1%. Our effective tax rate for the quarter on a cash basis was 26.7%. We generated approximately $105 million of free cash flow this quarter, which we define as net operating cash flows, excluding the impact of settlement assets and obligations, less capital expenditures and distributions to non-controlling interests.
Capital expenditures totaled $15 million for the quarter and our total available cash including working capital at the end of the quarter was approximately $225 million. Lastly, we repurchased a total of approximately 700,000 shares during the quarter for approximately $47 million. Now I’d like to turn to our expectations for Fiscal 2015. Based on our results for the first half of Fiscal 2015, we are increasing our outlook for the full fiscal year. We now expect reported revenue to grow 8% to 10%, and range from $2.75 billion to $2.8 billion. Similarly, we are raising our cash earnings per share expectations to a range of $4.75 to $4.83 reflecting growth of 15% to 17%. We also now expect core cash operating margins to expand by as much as 50 basis points in Fiscal 2015, with margin expansion in both our North America and international segments. It is important to note that these expectations also reflect further strengthening of the US dollar against most of the foreign currencies to which we have exposure which represents a more meaningful headwind to our financial results for the remainder of the year.
Additionally, our expectation for our Russia business is further tempered from our last quarterly update as a result of the challenging economic environment there. As usual, these cash earnings per share expectations only reflect share repurchases that we have completed prior to this call. By way of update, during our Q4 Fiscal 2014 Earnings Call, we made reference to the June 2014 acquisition of one of our largest US sales partners. At that time, we noted that our Fiscal 2015 expectations assumed no change in the nature of our relationship with this customer resulting from the transaction. We have recently amended our agreements with this partner and can confirm that this transaction will not have any impact on our Fiscal 2015 expectations for GAAP revenue, operating income or total company cash earnings per share. In addition, we do not expect any meaningful migration associated with this partner during Calendar 2015. We currently have approximately $875 million of capacity to fund future initiatives, including approximately $650 million of availability on our corporate credit facility.
As a reminder, we expect the FIS transaction to close toward the end of our Fiscal 2015 and we intend to fund this acquisition from operating cash flows and do not expect it to have an impact on our near term capital allocation plans or facility availability. Lastly, our Board has approved an increase in our share repurchase authorization to $300 million in the aggregate further demonstrating our ongoing commitment to prudent capital management on behalf of our shareholders. I will now turn the call back over to Jeff.
Jeffrey S. Sloan
Thanks Cameron. This is yet another quarter of transparent, consistent execution of our strategy to grow and control direct distribution, deliver innovative products and services, and leverage our worldwide technological and operational advantages. We are delighted to again raise guidance. Finally, we remain committed to driving sustainable growth in our markets and are dedicated to creating value for our shareholders, partners, customers and employees. Now I’ll turn the call over to Jane.
Jane Marie Elliott
Thanks. Before we begin the question and answer session, I’d like to ask everyone to limit their questions to one with one follow up in order to accommodate everyone in the queue.
Operator
Thank you. Ladies and gentlemen, if you have a question at this time, please press the star — the number one key — on your touch tone telephone. If your question has been answered or you wish to remove yourself in queue, please press the pound key. Our first question is from Dave Koning of Robert W. Baird and Company. You may begin. Thank you and operator, we would now go to questions.
David J. Koning, Senior Research Analyst, BPO, Robert W. Baird and Company
Can you hear me?
Jeffrey S. Sloan
Yeah, Dave, we can.
David J. Koning
Alright, great, okay so, I guess first question, just on Spain. Is there any way to isolate either the revenue or EBIT impact or in rough terms because international was so strong and just wondering how much of that bit really was isolated to the Spain pricing movement?
Jeffrey S. Sloan
Hey, Dave, it’s Jeff. I’ll start and Cameron will add to this. I would say, and we try to say in our prepared remarks is, while we’re not going to break out the changes from growth in the core business versus interchange, we did say in our prepared remarks that we had 13% transactional growth in Spain in the quarter. So I think it’s fair to assume at a minimum that we would have had double-digit local currency growth in Spain notwithstanding any changes to interchange and I think that’s how we think about it, Dave.
David J. Koning
Okay. That’s great and then I guess just the follow up then. International EBIT, $83 – $84 million this quarter, is that generally sustainable or I know there’s a little bit of seasonality to that that comes down off in the back half, but is that largely sustainable given all the, you know the things that are going on?
Cameron M. Bready
Well, I, you’re right, Dave — its Cameron — and that Ezidebit is included in there but only for a partial quarter so I would caution you to bear that in mind as you think about the going run rate.
The only other thing I would comment on is FX. Obviously, the performance in the quarter was good despite the FX headwinds but we are forecasting incremental headwinds for the balance of the year as well, so, I think by and large, it’s generally going to be a good number going forward after you normalize for a full quarter of Ezidebit but you’ll have to take into consideration FX as well.
David J. Koning
Got you, great. Thanks! Great job!
Jeffrey S. Sloan
Thanks Dave.
Cameron M. Bready
Thanks Dave.
Operator
Thank you. Our next question is from Ashwin Shirvaikar of Citibank. You may begin.
Ashwin Shirvaikar, Director / Senior Analyst, Citigroup
Thank you. Good morning Jeff. Good morning Cameron.
Jeffrey S. Sloan
Good morning.
Cameron M. Bready
Good morning.
Ashwin Shirvaikar
Congratulations on the quarter. Happy New Year. I guess a couple of questions. One is I wanted to — I may have missed this with regards to the full impact of the FX headwind, what are you overcoming in dollar terms for the year?
Cameron M. Bready
For the year, Ashwin, we have not provided a specific estimate as to how much of the FX headwind is impacting our numbers. What we can tell you is, obviously when we provided our guidance back in October, we thought that FX was going to be a more meaningful headwind than we did at the beginning of the year. As we sit here today, we expect it to be in an even an increased headwind relative to where we were three months ago with the expectations for the full year as well. So I can tell you sitting here today, we’ve been able to overcome a fairly meaningful amount of FX headwind on a both revenue operating income and cash earnings per share basis but haven’t given a specific estimate as just how much is embedded in the numbers.
Ashwin Shirvaikar
Okay and Ezidebit seems to be tracking to the you know $25 million full year revenue impact that you had guided to earlier. I want to ask also about the Philippines impact with regards to full year, how much is that going to be? And then if I could sneak in an extra question. Oil prices are going down. Are you actually seeing consumer spending rising on the back of that consumer transactions?
Cameron M. Bready
I’ll start with the first two, Ashwin, and I’ll maybe ask Jeff to chime in on the third. Certainly on Ezi, that remains our expectation for the full year. As we noted in our prepared remarks, the company is performing in line with our expectations thus far and the outlook would suggest that they’re going to be on target for the full year expectations as well. I will note, the Australian dollar is a little weaker, but again we still feel the business is going to perform in line with our expectations for the year. On the Philippines, there is nothing in our guidance currently reflected for the Philippines joint venture that we recently announced. Although, I would note at the time that we made that announcement we did indicate whatever impact there will be in FY ’15 will be relatively immaterial. And then lastly, I’ll ask Jeff to jump in on your question regarding consumer spending.
Jeffrey S. Sloan
Yeah I think you’re right in what you said, Ashwin on consumer spending. We, as you heard from us before, we generally view our business as a GDP plus growth type of business. A lot of that depends of course on consumer spending to the extent that oil prices either stay where they are or come down further, we view that as a positive to our business because it has the effect of a tax cut effectively for consumers. So we view that in general, it is really nothing but upside for the health of the consumers on whose businesses we depend for our financials.
Ashwin Shirvaikar
Okay, thanks. Congratulations, keep up the good work. Thank you.
Jeffrey S. Sloan
Thank you.
Cameron M. Bready
Thanks Ashwin.
Operator
Thank you. Our next question is from Bryan Keane of Deutsche Bank. You may begin.
Bryan Keane, Managing Director in Equity Research, Deutsche Bank
Hi guys. Can you hear me alright?
Jeffrey S. Sloan
Yeah.
Cameron M. Bready
Yeah.
Bryan Keane
I just wanted to follow up on that international margin growth because that was the real surprise in the quarter.
I’m just trying to figure out, was that all mostly due to Spain? And then when you get pricing like that, like you’re getting in Spain, how sustainable is that when we look into next year or does that get competed away?
Cameron M. Bready
Bryan, it’s Cameron, I’ll jump in and I’ll ask Jeff to add any additional color. Let me just step back for a second and note some of the drivers for the international performance that we touched on in our prepared remarks. First of all, Spain obviously is an important driver but again recognize a good portion of that is execution, as Jeff mentioned. With double-digit transaction and volume growth, notwithstanding the nice tailwind we’re seeing from the lower interchange, we’re clearly pleased with the execution in the Spanish market. The rest of the international businesses in Europe continue to perform well also but for Russia, which we talked about which continues to be a bit of a headwind for that business.
In Asia, you had organic revenue growth of 9% which accelerated quarter-over-quarter year-over-year which is obviously contributing to the margin performance for the international segment as well. You couple that with the addition of Ezidebit which contributed 12 percentage growth per points to growth on a revenue basis, you’re obviously driving operating income and margin expansion as well given that Ezidebit’s coming in at a higher margin than our average. So when you roll all those pieces together, I would say a lot of it is execution and performance, the addition of Ezidebit, and naturally the regulatory changes in Spain are helpful, but I think a lot more about is it is the execution we’re seeing in the business.
David E. Mangum
Bryan this is David. In terms of the tail on something like the interchange reductions, what we typically see and what we assume certainly now in the case of Spain is that will dissipate over time. If you think back to the Durbin days here in the United States which is just going back a couple years ago, you had a year, maybe a little less than a year, of benefit from changes in the regs as well as the interchange. Remember though, that was a steadily decreasing benefit as time went on. So it’s a really nice benefit right now. It will decrease over time. I would say this, though.
I think what’s really tell tale about Spain — setting aside interchange for a moment — is the volume growth and the transaction growth that Jeff mentioned a little while ago. 13% transaction growth this quarter, double-digit volume growth, implied or implicit, in that double-digit revenue growth as well. Similar metrics in Q1, similar metrics we expect for the rest of the year. It’s when you combine that with this interchange benefit that you really get the outstanding performance and then feeds the list of items that Cameron just went through in terms of overall international margins.
Bryan Keane
Okay and I assume you’re taking share in Spain to get those kind of transaction growth rates and then finally, just Cameron, on operating margins international, what does the back half guidance then imply for that? What should we put in our models or expect?
Cameron M. Bready
Bryan, we absolutely are taking share in Spain. We are, remember this, that what’s really interesting about that we are the largest provider in Spain. We have the largest market share: 25%, 28% depending who’s counting. But certainly with growth rates like that we are absolutely taking share and we’re very happy with performance in Spain.
Jeffrey S. Sloan
Yeah and then Bryan on your last question, I think we would expect a little bit of margin degradation relative to what we saw in Q2 for the international business in the back half of the year, as David highlighted with some of the benefit from the interchange reduction in Spain beginning to dissipate, you’ll see a little pressure on that relative to what we just reported. But obviously, we’re still for the full year guiding toward margin expansion for the international segments, as well as the North American segment and the total company in totality.
Bryan Keane
Okay, congrats on the results.
Cameron M. Bready
Thanks Bryan.
Jeffrey S. Sloan
Thanks Bryan.
Operator
Thank you. Our next question comes from Tien-tsin Huang of JPMorgan. You may begin.
Tien-tsin Huang, Senior Analyst, JPMorgan Chase & Co.
Great, thanks. Good results here. I just wanted to get some clarity on what’s driving the guidance raise. I caught the JV, the Comerica push out and migration. Obviously had some upside here, but can you be more specific?
Jeffrey S. Sloan
Sure, I’ll just add something Tien-tsin and Cameron can comment on the financial modeling around the guidance.
There’s no impact in the guidance as we said back in July as it relates to Comerica which is material…
Tien-tsin Huang
Okay.
Jeffrey S. Sloan
…I think you might be asking about Comercia which is the Spanish joint venture — the name of our Spanish joint venture that David and Cameron just described in terms of its performance. So obviously double-digit organic transaction and volume growth is going to substantially enhance the revenue, but also increase the minority interest line because that’s the primary source of our minority interest, the 49% share that CaixaBank has in that joint venture. Cameron, you want to go through the… any more specifics on the modeling?
Cameron M. Bready
Yes, I’ll be happy to. Just a few comments. We’re obviously reflecting in our guidance the performance we’ve seen for the year-to-date period coupled with our changed expectation for the balance of the year. I mean, we’re continuing to expect trends in the US direct business to be strong as they have been in the front half of the year. We had US direct growth of 12% in the second quarter which we expect that to continue to be strong in the balance of the year. We remain bullish on the prospects for Spain for all the reasons that David highlighted a moment ago that’s somewhat offset by again tempered expectations for our Russian business, as well as increased headwind associated with FX for most of the major currencies to which we have exposure. When you roll all that together, again, we’re upping our revenue up margin and cash EPS guidance for the full year.
Tien-tsin Huang
Alright, that’s good. So just as my follow-up just on Canada with the interchange there coming down. I know there’s been some debate on the MDRs and how that might get reflected. Any thoughts on that as an opportunity and your ability to reprice in Canada? Thanks. That’s all I had.
Jeffrey S. Sloan
Yes, Tien-tsin, its Jeff. What I would say is that’s expected to occur in the spring in April of 2015. Our assumption is that all of that is going to be passed through based on our current understanding of the regulations related to the changed reduction in Canada. But as we’ve said before to you over time that at the end of the day any reduction in the cost to our merchants of acceptance is good news for our business. And the reason it’s good news for our business is it should increase the number of merchants who want to take cards because it lowers the cost. That should help. In addition, to the extent we take any other pricing actions over time not related to the interchange reduction, that takes Tien-tsin some of the pressure off from other actions that we may take. So even in environments where everything is passed through, we’ve seen good growth implications to our business as a tell tale sign of those changes. So really at the end of the day it’s nothing but good news for our merchants and we think the same for us.
I want to add even though it’s not in Canada, that there have been changes to the EU legislation since we last talked on our last call and it does look like the EU this month is going to be approving, Tien-tsin, changes to affect what we used to know as SEPA by way of interchange, both cross-border as well as domestic. And as those rates come down in EU, we do expect to see benefits from that which we expect to start really in the summer. So really start early in our Fiscal ‘16. I think in addition to the Canadian changes that you just asked about, I would say that we would anticipate positive effects from the EU changes starting this summer.
Tien-tsin Huang
Yeah thanks for that, Jeff. Lot of positives there, thanks.
Jeffrey S. Sloan
Thank you.
Operator
Thank you. Our next question is from Dan Perlin of RBC Capital Markets. You may begin.
Dan Perlin, Managing Director at RBC Capital Markets
Thanks. I want to just go back to I guess Europe broadly for a moment, if I could. So I don’t know, I think this was the first time that you gave the Spain actual transactions. I know in the past you talked about double-digits, so I don’t know if that’s actually an acceleration materially or if it’s just continued good execution there.
But when I think about the margin argument and I hate to kind of harp on it, but if Spain’s kind of been doing double-digits and E-Commerce has been strong which is typically pretty much lower margins let’s just say, is the combination of Ezidebit coming on and then pricing, because Ezidebit I thought had lower margins than what you actually produced this quarter even in international?
Jeffrey S. Sloan
Hi Dan, it’s Jeff. So what I would say is when we announced the acquisition and then closing of Ezidebit, what we had said at the time is it’s above our international margins Dan before we even brought it into Global Payments.
Dan Perlin
Okay.
Jeffrey S. Sloan
So Ezidebit really from the initial acquisition is accretive to our international margins. So as Cameron referenced, it’s obviously helpful to the economic model number one. Number two, I would say that our objective as a company as you know is to grow overall margins. So we run a portfolio of diverse businesses but we don’t see as changes come down the pike in Spain or elsewhere, we don’t see a reason why we wouldn’t be continuing to grow in the totality of our international margins over time. So I wouldn’t view it as a temporal move in margins. I would view it as this is a plan that we’re executing against.
Dan Perlin
Yup. And then my follow up is really in relation to kind of the OpenEdge, kind of go-to-market strategy and re-branding, I’m wondering is there any updates you can kind of give us in terms of cross-selling new products? What kind of uptake you’re seeing and then to what extent have you made that push geographically, kind of north of the border? Thanks.
David E. Mangum
Yes Dan, its David. Thanks for asking that question. OpenEdge first off is hitting its numbers. It’s growing just as we expected. The initial cross sales are moving well. Remember what we started with was integrating the entire sales force and then affecting the re-branding where we really expect to begin seeing momentum as you recall from a quarter ago, maybe two quarters ago, as we get into the second half of this year and then early ’16. We’ll see that momentum on two sides. One is the actual expense benefits from platform integration, some of the usual integration that we see, but the other is the cross-selling. So early days, the early signs are good. What you’ll see from that business particularly is the consolidated roll out of the security that includes EMV tokenization as well as point-to-point encryption into one bundled security solution, which really is the way to think about security particularly as you’re dealing with small to medium-sized merchants around the country.
And yes, we’re focused very discreetly on taking that business into Canada. We already have a small Canadian presence there. We have a dedicated sales staff which is one of the counter synergies — the negative synergies we’re affording this year on a way to hopefully improve performance in 2016 and growth in 2016. But everything at OpenEdge is right on track. We’re also executing the technology and platform integration plans as well. We’re boarding new customers to Global Payments platforms as we speak. So everything going very well and OpenEdge is delivering its income numbers just as we expected.
Dan Perlin
Excellent! Thank you guys.
Jeffrey S. Sloan
Thanks Dan.
David E. Mangum
Thanks Dan.
Operator
Thank you. Our next question is from Georgios Mihalos of Crédit Suisse. Your may begin.
Georgios Mihalos, Vice President, Equity Research at Credit Suisse.
Great, thanks guys and congrats on the quarter. Wanted to start off on the US side. It looks like you mentioned the 12% growth in your direct business, ISO slowing a little bit. It sounds almost like OpenEdge is sort of continuing to grow in sort of the high-teens as opposed to the mid-teens that I think you had originally sort of baked into the model, can you confirm that? And then related to that, as we go through 2015 and the EMV migration really starts to accelerate, do you think you would be able to maintain this current rate of growth in the high-teens?
Cameron M. Bready
Hey George, it’s Cameron. I’ll jump in on that and I may ask David to comment on the EMV roll-out specifically. As it relates to the growth expectations for the OpenEdge platform, I think you’re correct in that we have been seeing obviously growth trends that are higher or slightly higher than I think our expectations were for the business. As David noted, it continues to perform very much in line with our expectations from both a revenue and operating income perspective. But on a top line basis, I think the growth has been strong and it’s certainly contributing to the 12% growth that we’ve seen in our direct business for the quarter which is a fairly consistent trend from the first quarter of Fiscal ’15 as well.
As far as momentum, certainly I think we see opportunities to continue to expand and grow the business in the back half of the year and as we look at FY’16 as well, I’ll let David maybe jump in on some of the specifics that you referenced around EMV and what not.
David E. Mangum
Yeah, I think George, we expect to be selling an integrated security solution with a very easy path to get live for our partners. We expect to deliver American Express through OpenEdge which is really in the early stages there of delivering that. There is series of verticals or there isn’t necessarily a lot of American Express penetration to date, so we are teeing up that combined with a question Dan asked a moment ago which is cross-selling the products like Decline Minimizer into the APT base — the legacy APT base. We think we set ourselves up for another strong growth year in 2016 and more to come as we talk going forward.
Georgios Mihalos
Okay, great and just a final question from me. Just want to ask, are there any additional pricing initiatives assumed in your guidance for 2015, anything new? And it sort of sounds here from your comments that you expect any significant upside or any real upside coming from additional pricing to hit the P&L more in ’16 than ’15. I just want to make sure I’m thinking about that correctly?
Cameron M. Bready
Yes George, I would say that we continually look at pricing. You know we are in very competitive markets all over the world. I was really referring to was the April change in the interchange in Canada that’s been announced. I was also referring to the EU changes which we expect to be adopted this week by the EU Parliament by this month, but to be implemented over the summer. I would say in general most of the industry including Global Payments looks at pricing twice a year as a systemic matter, George, and that’s tied to or generally is around the MasterCard and Visa announced changes which are typically done in October and April.
It so happened that the Canadian change is around the same time, in April. But in general, most of the industry looks at that because those are clear notice periods where we have to go back to merchants anyway. So what I would say, George, is those are regulatory changes that don’t happen all the time which is why we call them out. But we continually look at pricing in all of our markets to make sure that we’re striking the appropriate balance.
Georgios Mihalos
Great, thank you.
Operator
Thank you. Our next question is from Jason Kupferberg of Jefferies. You may begin.
Jason Kupferberg, Senior Equity Research Analyst, Jefferies Group LLC
Thanks guys. Just wanted to pick up on one of the comments that David made a little while ago around the platform consolidation in the US and the OpenEdge business, so with PayPros and APT coming together. Can you just give us a little more detail on the timing of when you think that platform consolidation will be done and will that be a noticeable margin tailwind as we get into Fiscal ’16?
Cameron M. Bready
I think to take your question reverse, Jason, I don’t think it will be noticeable in the face of the income statement because the sheer size of Global Payments much less our North America business as well. Instead what you have is one of the tactics that will help us continue to deliver operating income growth and margin expansion over time in the United States, North America and then by expansion, globally. The way we’re thinking about migration now is the first, and maybe the most important step, is we’re boarding new customers to Global Payments. Probably the best thing I can tell you right now is we have a good long-term processing relationship with a third party that provides processing now.
We’re happy with the pace of integration. More to come and we’ll feed in those integration benefits over time over the next year or year two. So we can keep chatting about it. But we like the idea of having that as another tactic to help us with 2016 and beyond from a margin expansion perspective.
Jason Kupferberg
Okay, so just kind of more incremental it sounds like?
Cameron M. Bready
Yes.
Jason Kupferberg
And then just as a follow-up on the Philippines joint venture. Can you give us a little bit more detail on the size and growth of that market may be competitive landscape and just kind of how many merchants did Global Payments as well as Bank of Philippines have prior to the JV, just to help us with some sizing?
Jeffrey S. Sloan
Yes. Jason, its Jeff. So we’re very pleased with the partnership with Bank of the Philippines. It’s one of the largest banks as I said in our prepared remarks around the country. We’re already in the Philippines market in two significant ways. One, we have a direct acquiring business in the Philippines market already. And number two, we have our service and our global service center in the Philippines with about 600 employees. So, we think we’re very well positioned alone and even better positioned in combination with our partners at Bank of the Philippines. We’re adding 34,000 additional merchants, Jason, through the joint venture. I think as we said publicly, Bank of the Philippines has 800 branches. So we’re picking up an additional 800 branches in market.
And in terms of the growth rate, while we don’t break out the financials separately for our submarkets of our 13 markets in Asia, what I would say is if you go back to one of the earlier questions about — from Ashwin — as to what drives our business, we’re generally GDP plus derivative type of company. And if you look at GDP, Jason, in the Philippines it’s growing really in the high single digits. It has in the last number of years and expecting as today. So I would say high single digits plus on an organic basis in that business is a good estimate, Jason. And then when you combine the two, I think each one of us is probably in the top handful of folks as a share point in the Philippines already. So I think on a combined basis we would expect to be the second largest player in the Philippines.
Jason Kupferberg
Very helpful, thank you.
Jeffrey S. Sloan
You’re welcome.
Operator
Thank you. Our next question is from Glenn Greene of Oppenheimer. You may begin.
Glenn Greene, Managing Director/Analyst at Oppenheimer & Co Inc.
Thank you. Good morning. A couple questions. Just wanted to go back to the US growth, the 12%. I know it’s early but you’ve sort of embarked on participating in the OptBlue program. I wonder if you could quantify how meaningful a benefit that might have been to the US growth and maybe talk about strategically how important that is to you?
Jeffrey S. Sloan
Yeah Glenn, its Jeff.
I’ll start and Cameron can add some additional color. I think as a tactical matter, it’s very important to us, as I said before, we believe that we are the first large transaction processor in the United States to enter the market with OptBlue. We started the market in May of 2014. You saw this of course really fully in our first quarter.
If you go back to the First Quarter Prepared Remarks, I think were in Cameron’s section what you would have seen for the first time for a number of reasons, but OptBlue being a primary reason, is a substantially higher revenue growth rate relative to transaction growth rate. And at least some of that is attributable to the fact that we’re getting better traction, capturing share at better marginal economics on OptBlue versus our traditional, some of our traditional programs. I think that’s probably one of the ways to think about what the benefit is to Global Payments is a better yield per transaction as we move away from just a pure switch fee which is what we used to get through American Express or programs like it into more of a traditional acquiring mode where we get basis points on volume. And I think that’s probably as much as we can say about the economics to us from American Express.
Glenn Greene
Okay. Understood. On Canada, I think what you said it was 6% constant currency growth and I think last quarter you did have some pricing benefits — and I’m not talking about international change related — how much of the 6% constant currency growth this quarter was transaction based versus pricing?
Cameron M. Bready
Last quarter you’ll note we did make reference to some pricing initiatives that we did have in Canada and that was a contributor to the growth that we were seeing on a local currency basis. Obviously that continues to be a component of it. But I’d say more importantly what we’re seeing in Canada is stable business fundamentals. When you look at transaction growth and spread, we’re seeing a relatively stable fundamental basis for the Canadian business which is really contributing to the local currency performance we’re seeing. Naturally we saw 7% roughly decline in the Canadian dollar and that’s why you’re seeing the US dollar results that we’re seeing.
Glenn Greene
And if I could slip in one more, the 50 basis points of margin expansion for the year, could you just delineate North America versus international expectations?
Cameron M. Bready
We haven’t provided specific guidance for either of the two segments in terms of what we expect other than to say we expect margin expansion for both of those segments which is going to contribute to the overall roughly 50 basis point expansion we’re anticipating for the total company.
Glenn Greene
Okay, great. Thank you.
Jeffrey S. Sloan
Thanks Glenn.
Cameron M. Bready
Thanks Glenn.
Operator
Thank you. Our next question is from Darrin Peller of Barclays. You may begin.
Darrin Peller, Managing Director at Barclays Investment Bank
Thanks guys. Nice job on the quarter. Just want to start off on capital structure, if you can give us a quick update on your strategy. You’ve obviously been much more sort of in favor of buybacks but I know Jeff you mentioned looking for more deal opportunities internationally especially, so where do we stand now on that?
Jeffrey S. Sloan
Yes, I’ll start Darrin, with the strategy question and I think Cameron will put in a lot of the financial details. So we announced three transactions in the last four months really. Two of the three of which were outside of North America, those being Ezidebit and the JV with Bank of the Philippine Islands. So I would say Darrin, as it relates to corporate development and pipeline, we’re now in the mode having just announced three deals in the last number of months of really rebuilding the pipeline.
In terms of location of the pipeline, we’re opportunistic. So as we’ve said before, we’ve got to find something that’s for sale with a good partner with attractive returns to our shareholders and we do measure that relative to re-purchase. So we’re very focused on the IRR, as well as the cash earnings accretion from the repurchases, relative to the acquisitions to the extent that we can risk weight them. And that’s how we think about the balance between the two. Cameron, you want to comment on the capacity and repurchase?
Cameron M. Bready
Sure, I’ll be happy to. As you’ll know and I’ll just remind you of the comments I made in my prepared remarks, which is we did increase our share repurchase authorization to $300 million. We did execute some re-purchases in Q2, although relatively minimal compared to things we’ve done historically.
As you look at our capacity today we have roughly $875 million of available capacity to pursue strategic initiatives. That’s a combination of roughly $250 million of cash on hand and the balance being capacity under our existing revolving credit facility. So as we sit here today, we have roughly gross debt of $1.6 billion, net debt of something south of 1.4. We’re sort two-and-a-half times levered right in the sweet pot as we see it for continuing to move forward and execute on the capital allocation plan that we’ve been discussing now for several quarters; ample capacity to pursue both strategic acquisitions that meet our criteria, as well as continuing to be a relatively consistent buyer of our stock in the market.
Darrin Peller
Alright, that’s very helpful. Just one quick follow up, one thing I didn’t hear mentioned much on the call around pricing potential is the Visa and MasterCard place changes going to effect in the US market, the increases in their assessment fees, although mild. I know there’s been some opportunity for you guys in the past, not just to pass it through, so, is that also something that might perhaps go into effect in January, April, and give you guys a little bit of a lift in the US market going forward?
David E. Mangum
Yeah Darrin, its Dave. The answer is yes, although I would point you back to Jeff’s comments earlier. Those are the kinds of compliance releases that happen a couple of times a year. They’re almost always baked into how we think about the business as the year starts. But you’re absolutely right. That’s a little bit of help or little bit of air cover as we think about any operational things we might want to do in the second half of the year.
Darrin Peller
Got it. Alright, guys. Thank you.
Operator
Thank you. Our next question is from Andrew Jeffrey of SunTrust. You may begin.
Andrew W. Jeffrey, Analyst, SunTrust Robinson Humphrey
Good morning. Happy New Year, guys. Thanks for taking the question.
Cameron M. Bready
Sure.
Jeffrey S. Sloan
Good morning.
Andrew W. Jeffrey
Could you generally discuss sort of the couple I guess competitive questions. One, in terms of the North American OpenEdge competitive environment, US, any changes that are notable in terms of competition within the channel or from other providers? And then as a follow-up, E-Commerce, we’re hearing about a lot of companies being funded in the ECommerce space, especially in Europe, any sort of competitive thoughts on that front?
Cameron M. Bready
Yeah, Andrew, I’ll start with the US, North America view around OpenEdge and integrated. I think there are a couple ways to think about competition. First off, it’s not notably different from maybe six months ago if we had the same conversation. There are more folks using the words integrated payments as they describe their offerings. Often those are ISOs without fully-integrated payment solutions that really do embed themselves into the software that runs small businesses around the country.
So when you get down to brass tacks from a solution perspective, there really isn’t a change but you see a little more marketing, a little bit more noise. Obviously, given the success, and the fairly public success of integrated solutions, particularly the solutions that we’ve been selling for the last year and a half when we finished off the APT transaction.
But again, if you reset yourself and say, ‘Okay, is the list of competitors different from what it was six or nine months ago?’ No. ‘Is there a noticeable change in the economics of the market from six months ago or nine months ago?’ The answer is no, and, in fact, hopefully we’re driving the opposite, which is rolling out more solutions, making us more and more the partner of choice obviously, but also driving more sustainable competitive advantage for us and our partners as we work with the merchants themselves, we’re doing more and more to solidify those relationships.
So, we feel very good about our competitive positioning integrated in the United States, and feel very good about the prospects of rolling it out over time internationally — broader than just Ezidebit, with its Australia, New Zealand and Asia presence.
Jeffrey S. Sloan
I’d say, Andrew, it’s Jeff, on the question on E-Commerce, we tend to think about it — especially in Europe — as really an omni-channel offering, so we tend to think going forward it’s going to be less about how the transaction really came into the merchant, and more about our ability to service people on both a card not present environment as well as a card present environment. That’s particularly true, as I mentioned before to Tien-tsin, as we move into a post-SEPA environment. So as you think about the implications of domestic and cross-border rates being lower across the EU, it really shouldn’t matter where a merchant is based and how a transaction comes in.
So, we’re actively positioning our business and repositioning our business in the case of Global Solutions, to really deal with omni-channel customers, to provide better value-added analytics and services in environment where we think merchants will be more inclined to accept a transaction however it comes in as rates are reduced. So, I think we think a little bit less along the lines of E-Commerce and more along the lines of can we capture share by offering value-added solutions that are almost channel agnostic.
Andrew W. Jeffrey
Very helpful. Thanks a lot.
Jeffrey S. Sloan
You bet.
Operator
Thank you. Our next question is from Brett Huff of Stephens, Inc. You may begin.
Brett Huff, Managing Director at Stephens Inc.
Can you guys hear me okay?
Jeffrey S. Sloan
Yeah.
Cameron M. Bready
Yeah we hear you, Brett.
Brett Huff
Good morning and congrats on a nice quarter.
Cameron M. Bready
Thank you.
Brett Huff
I have two quick questions. One is, can you give us, apprise for us the pro forma or the cash EBIT dollars, percentage-wise that Canada contributes now? And then, can you talk a little bit about what the DCC offering there might help? That’s one question.
Then the other is a little bit bigger picture, looking into Fiscal’16. Can you just go over generally what kind of the pros and cons or puts and takes are as we think about more sustainable margin expansion for you all?
I know it’s going to be about 50 basis points this year, as we think about the interchange changes, APT and PayPros integration and things like that.
So, those are the two questions. Thanks.
Cameron M. Bready
I’ll jump in. And I’ll ask either Jeff or David to provide any additional color commentary if they’d like to. First, as it relates to Canada, we’re really not going to provide any more disaggregated data relative to its total contribution on a cash EBIT or operating income basis for North America. I would note on the second part of your question around DCC, it’s a relatively small opportunity for us. It’s obviously something we are prepared to offer to merchants in that marketplace, but we just don’t really see that as being a significant driver for the business as we look to either the balance of FY ’15 or the years beyond.
As we talk about the second part of your question as it relates to margins for 2016.
Let me just start first at a high level. I think what we’ve traditionally said is we anticipate organic margin expansion in this business of 30 to 50 basis points annually. And that’s going to be driven by a variety of factors, and it’s going to ebb and flow a little bit depending on the year, and depending on what some of the headwinds and tailwinds may be.
We’re obviously not in a position to provide ’16 guidance as we sit here today, but we certainly are pretty pleased with the performance we’ve been able to generate thus far for the year, and we’re guiding up 50 basis points for the full FY ’15 Fiscal Year. As we look forward to ’16, we expect some of the tailwinds that we’re seeing in ’15 to continue, and currently the pricing initiatives that you referenced — the lower interchange — are going to be positives, but we also expect to see continued headwinds for FX. We’re going to continue to have to endure those, at least until we get to the middle part of next year, given that a lot of the deterioration we’ve seen, or strength in the US dollar we’ve seen, has been in the recent months, not so much in the first half of Fiscal ’15.
So, I think we do expect that certainly the business fundamentals to remain strong as we roll into ’16 which I think will present a nice tailwind for margins. We expect the pricing initiatives to be positive. But I think we also expect FX to be a continued headwind, certainly at least for the first half of the year.
Brett Huff
Okay great. That’s what I needed. I appreciate your time.
Jeffrey S. Sloan
Thanks, Brett.
Operator
Thank you. Our next question is from Tim Willi of Wells Fargo. You may begin.
Tim Willi, Managing Director, Wells Fargo Securities, LLC
Thanks, and good morning. I just had one question for Jeff, David. Obviously, you’re off to a strong start. You’ve let some of the upside come to the bottom line in terms of revised guidance. But I’m just curious, Jeff or David. When you think about areas of the business that you would have liked to have had more dollars to spend on, when you originally set out on this year, where are you going to spend extra money? Or where are you most encouraged about allocating some of this extra earnings power that’s emerging — is it geographic, is it product? Just sort of curious too — anything that really highlight that’s going to get a bit more focus than maybe it otherwise would have.
Jeffrey S. Sloan
Yes, Tim, it’s Jeff. I’ll start at answering your question. It’s a very good one. What I would say, and I take it more in the corporate development area versus the product area, and David may augment that with his thoughts, too. But on the corporate development side, we always start with, what types of partners are really available and are they partners that we’re comfortable with?
So, one area of the company that I’ve mentioned before that, if I had all my wishes kind of come true, would be an expanding presence in Latin America. So, as you know, we have our business that we started, De Novo, about a year-and a-half ago in July of 2013 in Brazil. We’re currently up to 6,500 merchants and our partners at Caixa, we are pretty pleased with where we are.
But I think we’ve also acknowledged that, in the context of a business of our size, it’s not enough to make a meaningful increase in our revenue or our EBITDA or our cash earnings in the immediate term. So, sitting here today, I would love to be in a position, Tim, over the next 6 or 12 months to be able to say that we’ve significantly increased the size of our business in Latin and South America. Part of that, of course, is Brazil, which we’re in already today.
But we’ve talked a lot about other Latin American markets like Mexico, given its size and its prominence, that we’re not in directly, that we really wish we could be. So, if I could snap my fingers and find a place to substantially expand the footprint of the business, I would certainly say that additional investments in Latin America, in those markets in particular, would be most welcome. Dave, do you have any comments on the other?
David E. Mangum
Yeah, I think he asked a great question, and I think — I’m glad you did, because it allows us to say we are re-purposing some of this solid year into other, more tactical things, even beyond, what Jeff said, at the strategic level in terms of entering new markets. We are putting some of the money actually back into new product — into new solutions. We’re accelerating some solutions that are already on the drawing board.
We also are taking some things that we’ve been discussing, at least in this room in which I’m sitting now, as long-term initiatives, bringing them forward a little bit as well. Things like re-engineering the way we interact with customers themselves to drive both a better customer experience, as well as drive improved opportunities for compliance, and also improved economies over some period of time, renewed focus on organic growth to the extent we can with better tooling and better product drive more and more organic growth.
These are all sort of examples of investments that we have brought forward or initiated in the last few months that we had on the drawing board for the future that will help us drive long-term growth and help sustain the model development the way Cameron has described it to you this morning.
Tim Willi
Great! Thanks very much for the thoughts guys.
Jeffrey S. Sloan
Thanks Tim.
Cameron M. Bready
Thanks Tim.
Operator
Thank you. Our last question is from Tom McCrohan of Sterne Agee. You may begin.
Thomas McCrohan, Managing Director, Research Department of the Equity Capital Markets Division, Sterne Agee
Hi guys and apology if this question was already asked. But could you just give us a feel for the impact this quarter on the lower oil prices, and how we should be thinking about that going forward in certain markets such as Canada? Thanks.
Jeffrey S. Sloan
Hey, Tom, it’s Jeff. So, we answered that a little bit, but not probably as head-on as you just asked it. I would say in all of our markets, we are a GD plus derivative business, meaning we should grow north of GDP. We look really at the Visa and MasterCard and local statistics on a transactional basis is — what the target is for our rate of growth.
To the extent that consumers, for example, or businesses, but especially consumers, are paying less for some of their costs like oil that has the effect of a tax cut and should increase their ability to spend on a volume basis in those markets. So, it’s really nothing but good news. I would say, as a corollary, we really don’t have really in any of our markets a very large fuel presence. So, there really is no offset, because we’re not really present at the pump in any substantial way in most of our markets. So, to go back to one of the previous questions, Tom, it’s really nothing but good news for our markets as it gets reflected in better organic GDP rates.
Thomas McCrohan
Great, thanks!
Jeffrey S. Sloan
Thanks a lot Tom.
Jeffrey S. Sloan
On behalf of Global Payments, thank you very much for joining us this morning on our Second Quarter Fiscal 2015 Earnings Call.
Operator
Ladies and gentlemen, this concludes today’s conference. Thank you for your participation, and have a wonderful day.
