First Data Corporation Q1 2006 Earnings Conference Call Transcript (FDC)

First Data (FDC)
Q1 2006 Earnings Conference Call
April 21, 2006, 8:00 a.m. EST

Executives

Ric Duques - Chairman and Chief Executive Officer
Kim Patmore - Chief Financial Officer
Gary Kohn - Vice President Investor Relations

Analysts

Greg Gould - Goldman Sachs
Adam Frisch - UBS
James Kissane - Bear Stearns
Paul Bartolai - Credit Suisse
Mark Marostica - Piper Jaffray
Pat Burton - Citigroup
Bryan Keane - Prudential
Brandt Sakakeeny - Deutsche Bank
Andrew Jeffrey - Robinson Humphrey
Greg Smith - Merrill Lynch

Presentation

Operator

Welcome and thank you for standing by. At this time, all participants are in a listen-only mode. After the presentation, we will conduct a question and answer session. Today’s conference is being recorded. If you have any objections, you may disconnect at this time. I’ll turn the meeting over to Mr. Gary Kohn, Vice President Investor Relations.

Gary Kohn

Good morning. Thank you for joining us today. With me today are Ric Duques, Chairman and Chief Executive Officer, and Kim Patmore, Chief Financial Officer. Today’s call is being recorded. Our comments today include forward-looking statements and I ask that you refer to the cautionary language and earnings release for additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements.

During the call, we will discuss items that do not conform to GAAP. We have reconciled those measures to the GAAP measures on our website under the Invest section under the financial headings.

A reminder that all statements made by First Data officers on this call are the property of First Data and subject to copyright protection. Other than the replay, First Data has not authorized and disclaims responsibility for any recording, replay or distribution of any transcription of this call. As always, we’ll have time for questions following our prepared comments. With that, I’ll turn it over to Ric.

Ric Duques

Thank you, Gary. Good morning, everybody. Well, 2006 is off to a solid start. The first quarter results were squarely in line with our first quarter operating plan for 2006. We are very pleased with the underlying strength in all of our major segments, especially commercial services, and we are on track to deliver our full year 2006 guidance.

When we met in January, we guided you to $0.47 to $0.50 of earnings, and I am pleased to say that our reported EPS is $0.48, and this includes a net negative of $0.01 impact, primarily from the settlement of a previously filed patent lawsuit. Excluding this settlement, earnings per share for the quarter would have been $0.49.

Revenue for the quarter grew a very solid 10%, the largest growth since the fourth quarter of 2004 for us. Organic revenue growth was 6%, which is a very nice acceleration from the 2005 full year organic growth rate of 4%.

Behind the story here is the performance of the segments, which was in line with our plan and sets us up for an exciting year. Total segment revenue growth was 10%. Total segment profit growth was 13%, or 8% excluding the 2005 integration spent. Now, let’s take a look at the segments in more detail.

Western Union -- in the first quarter, Western Union generated solid revenue growth and profit growth, while maintaining very strong profit margins. Each of these methods were in line with our operating plan for the first quarter of 2006. Total Western Union segment revenue growth was 16% in the first quarter, or 17% on a euro-adjusted basis.

Vigo added $31 million in revenue and accounted for 3% of that growth. Excluding Vigo, and a negative $10 million impact from the euro, Western Union growth was 13%.

Operating profit increased 13% in the quarter, with solid profit margins of 31.7%. Excluding Vigo, margins improved slightly to 32.8% from 32.5%. Western Union performance was driven by our strong consumer-to-consumer business, which accounts for more than 80% of revenue. Consumer-to-consumer transactions increased 31%, or 22% if you exclude Vigo, driven by strong performance internationally and in Mexico. C2C revenue growth was 18%, or 14% excluding Vigo. On a euro-adjusted basis, C2C revenue growth excluding Vigo was 15%. While we continue to build out our network, existing locations continue to drive the business. U.S. same-store transaction growth was a strong 16%.

We are excited about our Mexico business and continue to see one of our most competitive markets growing at phenomenal rates. Total Mexico transactions, which include all brands, increased 55%, generating revenue growth of 54%. Western Union branded transactions to Mexico, which excludes Orlandi Valuta and Vigo, increased 23%, driving very strong revenue growth of 27%.

The trends in the international business are exceptionally strong. International transactions increased 35%, or 28% excluding Vigo. International revenue grew 18%, or 15% excluding Vigo. China transactions increased 39%, while India transactions grew 96%.

International intra transactions, driven by the Philippines and Chile, more than doubled year-over-year. Let me share with you some of the key accomplishments this quarter that continue to position Western Union for long-term growth.

Today, we have nearly 274,000 agent locations worldwide, and we are on track to achieve a target of approximately 300,000 locations by year-end. During the quarter, we announced a key agreement to offer money transfer services to all Travel Ex’s 700 retail locations around the world. Over 500 of those locations now offer Western Union service. We also extended our relationship with the Irish Post, resigning this agent to a new long-term contract. Western Union continues to leverage its extensive network agent relationships and global reach to add new services, new customers, and new transactions.

In Mexico, we leveraged our agent base and started an outbound business from Mexico to the rest of the world. That was in late 2004. This business has been extremely successful and during the quarter, both revenue and transaction growth exceeded 100%. This business is on a $16 million annual run rate. Now let me be clear here. The numbers that I just mentioned to you are not included in the Mexico growth rate that I gave you earlier. So you can see that across the board, Mexico is very strong, primarily money going into Mexico, but now money coming out of Mexico.

In Chile, Western Union is now providing intra-country money transfer service through its agent partner, Chile Express.

westernunion.com increased both revenue and transactions 40% in the first quarter, and we continue to expand this product globally. westernunion.com is on plan to achieve about $100 million in revenue in 2006.

In addition to our new products, Western Union continues to focus on building and enhancing customer relationships through its global loyalty program. We now have $5.8 million active loyalty cards in the hands of our customers around the globe, enhancing our ability to offer customers the best service in the industry. Across the board, loyalty customers transact more frequently than non-carded customers. In the U.S., 34% of our C2C transactions were completed using a loyalty card that was up from 24% a year ago.

We are also seeing increases outside the United States. We introduced the gold card in Europe and Asia in 2004, and we are seeing similar levels of usage and retention in both regions. In Asia Pacific, we have countries where more than 80% of the C2C transactions are completed using a gold card, resulting in very high retention levels there. When you couple the enhanced customer relationship with the increased usage, you can see why we’re very excited about this program.

Finally, we have reorganized our consumer-to-business group, and we continue to see nice improvement there. Consumer-to-business transactions increased 12% in the first quarter here, driving revenue growth of 5%, which is slightly better than we had anticipated. Western Union had a great start to a year that will prove to be an historic one both for the Company in general and certainly for Western Union in particular.

Now let’s turn to Commercial Services. Commercial Services is off to an excellent start in 2006. First quarter results were fuelled by solid execution along with strong consumer spending at the point of sale, which drove both revenue and profit growth to the upper end of our expectations.

Revenue growth in the quarter was a strong 9%, or 6% excluding debit network fees lead by solid transaction growth of 15%. In January, we guided to a full year revenue growth of 8% plus or minus. We are pleased today to remove the minus sign, and now we project 8%+ growth for the year. Operating profits of $214 million in the quarter reflect a 24% reported year-over-year growth. Excluding integration costs reported in 2005, operating profit growth was a very strong 9%.

In January, we guided to mid single-digit profit growth for the quarter. We were able to far exceed those expectations, thanks to our renewed focus on operating cost efficiencies. Profit margins for the quarter were 23%. Excluding debit network fees and integration costs, margins improved to 28.4% from 27.6%, which reflects the hard work and focus of a very energized management team in this important segment of our business.

Segment revenue growth were even stronger considering that TeleCheck, while continuing its turnaround, negatively impacted growth by about 1%. We are very focused on TeleCheck performance, and we see signs of improvement. TeleCheck continues to gain momentum in the marketplace with the acceleration of electronic check acceptance at the point of sale. Our recently announced acquisition of ClearTek services, that’s a business that provides us with state-of-the-art return check management and collection systems for major retailers and supermarkets, will enhance our leadership position as we continue to rebuild this business. Finally, during the quarter TeleCheck settled its patent lawsuit with LML for about $15 million, including all past and future claims, but negatively impacting our earnings per share by $0.01 this quarter.

We shared with you in January the key success drivers for Commercial Services, which were the sales management, activation and retention. I am pleased to say that the new leadership team has done a fantastic job in the first 90 days of 2006 focusing on these areas.

First Data Commercial Services, through its five distinct distribution channels has the broadest and most diverse sales force in the industry. These sales channels are alliances, revenue-sharing alliances, our premier and national account sales group, ISOs (independent sales organizations), and our oldest channel, processing only clients. All of these channels have the ability to sell into any size merchant or any vertical market. Today, 85% of our merchant locations and 75% of our revenue comes from our regional and mid-market merchants, and all of our distribution channels have appropriate focus on driving this market.

During the quarter, our alliances performed in line with expectations. We expanded our financial institution network through the addition of two new revenue sharing alliances, and four new bank referrals. We added 10 new ISO’s to our third party distribution channel.

Sales productivity remains strong in our premier and national account group, where we added a number of name brand wins across credit, debit, pre-paid and check. Our oldest channel, processing-only clients, are still producing new locations in the regional and mid-markets. We have many processing only clients who have been with us for many years, and we will continue to actively support these loyal clients.

We also spoke about the importance of improving our activation process by reducing the number of days to activate merchants. We are excited to tell you now that we have begun to roll out our automated merchant activation system, called AMA, to our sales force. This system is designed to activate a merchant in as little as one day. We launched this ahead of schedule on April 10, and we expect to have this product fully rolled out to the entire sales force by the end of the third quarter.

Merchant attrition trends are improving as a result of expanded efforts across all of our business lines. We are just now beginning to see the positive results of our proactive initiatives and we expect to see the benefits in our financials in the second half of 2006.

Finally, I’d like to give you a quick update on business integrations which are in process as well. Chase and Paymentech will be fully integrated by mid-year, and our national alliance with Citi is ramping up and is on target to meet our internally set goals. During the quarter, we successfully converted Citi’s merchant portfolio from another third party on to the commercial services platform. We are extremely excited about this success we had in this first quarter.

Commercial Services business, which will be First Data’s largest business segment once Western Union is spun out, is making tremendous progress and we are very excited about the run rate active for the quarter. The fact that Commercial Services will generate approximately $4 billion in revenue in 2006, and had such strong revenue and profit growth in the quarter, is a very positive sign for the new First Data in 2007.

Now let’s move to Financial Institutions. Financial Institutions segments first quarter results were in line with our expectations. Revenue for the quarter declined 5%, or 8% excluding reimbursables. Operating profit declined 4%, margins for the quarter were 18.9%, which is up from 18.6%. Excluding reimbursables, margins improved to 28.8%, up from 27.6%.

The largest impact for the segment’s revenue and profit have been the rollover of the Chase, Fleet, and People’s deconversions and their resultant liquidating damage payments. We will anniversary the last of these deconversions by the end of July. In the mean time, to give you a little bit better view of the state of this business, we believe it’s important for you to look at the revenue growth from our existing client base without the impact of the reimbursables and without the impact of these deconversions.

During the quarter, Chase, Fleet, and People’s deconversions negatively impacted revenue growth by 13%. If you exclude the impact of these deconversions, revenue growth was actually plus 5%. Now, our goal is to have the Financial Institutions segment growing revenue and profit by 8% to 10% by 2008. I am confident that with the underlying revenue growth in this business of 5% today, we are well on our way to achieving that goal.

In the spirit of full transparency here, we told you in January that we report on the five components of revenue in this segment, so I’ll give it to you now. Core, credit and retail processing decreased 21%.Output services -- that’s plastics and statements-- was flat. Debit was flat. Reimbursables were relatively flat. Remitco, which is our remittance processing business here, grew 7%.

Now, this is clearly not where we want to be, and we still have a lot of work to do here. But to that end, we have programs in place and continue to execute on the fundamentals everyday. Our leadership team here has appointed a business leader for each of the major components of revenue, and has put a considerable amount of that focus on aligning our sales force within our debit output service, remittance processing, card processing businesses. Although these efforts are not reflected in this quarter’s revenue, we expect that they will show improvement in the second half of the year and into 2007.

During the quarter, accounts on file increased by $10 million, bringing our total accounts on file to $426 million. We also converted two new clients to our core processing business -- one in output services, and we renewed 92 clients in our debit business. During the quarter, we added five new portfolios to our core processing business, and 43 new clients to our debit business.

In the recent past, we talked about bringing new system functionality to our clients in this market. During the quarter, we launched customized color statement printing with a key customer. This product allows statements to be customized down to the individual customer level. We anticipate penetrating this product further into our client base throughout the year. This product is a clear differentiator and will attract new clients and retain existing clients.

Finally, let me update you on the $75 million worth of future cost reductions set by the end of [2000], which we announced in our January 26 call. As of today, we have identified approximately $25 million of targeted reductions and will have projects in place by the end of the year to ensure that we capture the benefits in 2007 and 2008. We continue to focus on cost reductions and will continue to update you on our progress here.

I will mention here before I go on to the next group, this team in the Financial Institutions group has done a really terrific job and is very, very focused on improving the performance of this segment, and I think we’re well on our way in this quarter to making that happen.

Now let’s turn to International. People ask me, what’s different since you came back? While many things are different, the most amazing thing is the opportunity in the international arena and the terrific job the team has done in capturing these opportunities.

Our International segment had another great quarter. FDI continued to perform well against its global strategy, delivering strong, profitable growth. Revenue growth in the quarter was 24%, with organic growth of 3%. On a constant currency basis, revenue growth was actually 30% and organic growth was 9%. Operating profit increased 35%, driven by very strong organic growth of 17%. On a constant currency basis, operating profit increased 43%. Operating margins improved to 11% from 10.1% last year.

Strong financial performance continues to be driven by our execution on our core fundamentals. We now have $1.2 million point of sale locations, up 70%, and more than 17,000 ATM’s, up more than 63% since the first quarter last year. These additions drove first quarter transactions to 955 million, an increase of 84% on the 518 million transactions in the first quarter last year. We ended the quarter with 47 million accounts on file.

We continue to be extremely pleased with the performance of our acquisitions. During the quarter, acquisitions accounted for 21% of the segment’s revenue growth. Our leadership team continues to execute on the three major planks of their global strategy:

1. Driving growth through processing for new clients and expanding our services in issuance, merchant, and ATM markets.
2. Driving efficiencies by consolidating and integrating into a common platform.
3. Targeting strategic acquisitions and partnerships.

We continue to build out our issuance processing business through our VisionPLUS platform around the globe. The marketplace is confirming the value of VisionPLUS with its selection by such prestigious institutions as G.E., HSBC, Citi, Westpac, four of the five largest banks in China, and many others.

In Latin America and Caribbean, our Processa operation base in Panama now processes for 25 banks in a multi-client environment, using VisionPLUS. Processa continues to outperform our original expectations.

In China, our Shanghai operation headquarters continues to gain additional business from our partner’s ICBC, which is the Industrial and Commercial Bank of China; the Bank of Communications in Hong Kong; and other third party processing customers. We are in a unique position to provide a single solution across multiple countries, as evidenced by our recently announced deal with Settlement, a subsidiary of BNP Paribas in Romania and China.

VisionPLUS processing in Europe, Middle East, and Africa continues to expand across the region, and we were working closely with Barclay's to finalize contracts and conversion schedules; again across multiple countries.

We are very encouraged by the prospects of our new merchant acquiring business built on OmniPay. OmniPay is a technologically advanced multi-country, multi-client merchant processing platform which provides First Data clients, banks and merchants with accounting, settlement, and dynamic currency conversions in all key international markets. We previously announced a global acquiring partnership with HSBC and ABN Amro.

In the issuance processing business, large multi-national companies continue to choose First Data to be their provider of global processing capability. While we continue to have success on the sales front, we remain very focused on driving efficiencies by converting previously-acquired businesses into common platforms.

In March we converted our merchant alliance with Bank West, which was formed in August of 2005, on the OmniPay platform. Our newly acquired alliance in the Netherlands will convert to OmniPay in the third quarter this year, and VNL, the alliance in Italy, converted in the fourth quarter.

Finally, an update on the acquisitions. We remain very focused in closing GZS and a mid-year close date looks very likely now. Our acquisition pipeline is very robust, and we are active in all markets around the world. We will continue our trend of closing on strategic acquisitions in key markets that offer attractive financial returns. It’s important to keep in mind that the timing of closing on an international acquisition is always difficult to project. We remain excited about our international business as a growth engine for First Data.

Turning to the spin for a moment. As you know, we will separate the Western Union business into an independent company through a tax-free, 100% spin-off. Today, we have dedicated teams focused on ensuring that the spin occurs as expeditiously as possible. We remain on plan for the spin to occur probably in the early part of the fourth quarter of this year.

What I can tell you today is that Jack Greenberg has been named non-Executive Chairman of Western Union, and will leave the First Data board at the time of the spin. We are very excited to have Jack as a new non-Executive Chairman of Western Union, as he was the former chairman and CEO of one of the world’s most prominent brand companies, McDonald’s. Knowing brands and the international marketplace the way he does is going to be a great help to this Company. In addition to Jack, we are actively searching for six to eight board members with strong international and consumer product experience.

We are actively working with the rating agencies on the new Company’s debt ratings, and we’re very encouraged by the progress we were making. While the final debt allocation decision has not been made, we are targeting strong investment grade ratings for both companies, especially those for First Data.

As a result of the large settlement and funding operation of First Data’s businesses, we hope to obtain a rating for First Data in the single A range, which is similar to what we have today. We would also hope to obtain strong ratings for Western Union, but potentially lower than First Data’s ratings on a final debt distribution allocation.

Earlier this month, we initiated conversations with the IRS relating to the tax-free status of the spin-off. We expect to submit a ruling request within the next couple of weeks. We are targeting to file Form 10 with the SEC in June, and we plan to host a conference call at the time we make that filing to review the details of the filing and to answer any questions you might have. Finally, the headquarters for First Data will remain in Denver, and Western Union will also be headquartered in Denver. We remain very committed to updating you on the progress as we move forward here. Now I’d like to turn it over to Kim Patmore. She’ll give you a little more vocal color here.

Kim Patmore

Thanks, Ric, and good morning. EPS for the quarter was $0.49, excluding items, and was $0.48 on a GAAP basis. Items in the quarter included a $15 million charge related to the settlement of the Alamo patent lawsuit; a $2.5 million charge related to external spin costs; and a $7.6 million gain on the sale of corporate aircraft and Bidpay.

Quarterly results included stock-based compensation expense of approximately $24 million, and incremental $22 million, or $0.02 per share principally, as a result of the adoption of FAS 123R effective January, 2006.

Overall, we had a solid revenue quarter. Revenue growth was a very strong 10%, and as anticipated during the quarter, product sales and other revenue increased $35 million, primarily related to incremental terminal and rental fee revenue, and incremental royalty income.

Cash flow from operating activities was approximately $621 million versus $523 million last year. Our free cash flow components for the quarter were as follows: net income from continuing operations was $375 million; depreciation and amortization was $202 million; CapEx was $143 million; and dividend payments were $46 million.

While we have suspended our voluntary buyback program, during the quarter we spent $170 million net of proceeds for treasury stock purchases related to employee benefit plans. We still expect full year CapEx to be in the range of $400 million to $450 million, and we expect to generate full year cash flow from operating activities of $2.4 billion to $2.6 billion. We ended the quarter with $5.2 billion in debt, down $182 million from year-end. Interest expense increased 44%.

The effective tax rate from continuing operations was 27.7% this quarter, the same as the first quarter last year. Remember, the effective tax rate takes into account the impact of the minority interest and equity earnings and affiliates. The 27.7%, while higher in this first quarter, we expect the full-year rate to be approximately 27%.

Finally, we told you in January that we would be reviewing our portfolio of 11 slower growth businesses, residing in IPS and corporate and other, to determine their strategic importance to First Data. We have concluded that six of these businesses will be retained. They are Integrated Payment Systems, Government Solutions, First Data Technologies, Voice Services, TeleServices, and Solutions.

In 2005, these six businesses accounted for about $450 million in revenue, and we believe long-term that these businesses can meet or exceed our growth expectations for both revenue process. IPS will continue to be reported as a separate segment, and the other retained businesses will continue to reside in the corporate and other line. The other five businesses will either be sold or minimized. Now I’ll turn it back over to you.

Ric Duques

Thanks, Kim. Looking ahead to the second quarter, and for the rest of the year, as we said in yesterday’s press release, we continue to expect full year EPS from continued operations to be in the range of $2.35 to $2.42, excluding future costs related to Western Union spin, or any impact from the spin, and the potential sale of businesses.

While it will not be our practice to provide regular quarterly guidance going forward, given the transitional nature of this year, we feel it’s important to articulate our EPS expectations for the second quarter. Specifically, we anticipate the second quarter EPS from continuing operations to be in the range of $0.52 to $0.55. Let me make it very, very clear: this guidance is squarely in line with our original 2006 second quarter operating plan. It is not a change to our expectations.

Furthermore, we are clearly on track to deliver on our original $2.35 to $2.42 EPS guidance for 2006. Thanks, and thanks very much to the 30,000 talented people working at First Data. Now operator, I will open it up to questions.

Operator

Thank you. (Operator instructions) Greg Gould of Goldman Sachs, you may ask your question.

Greg Gould - Goldman Sachs

Ric, a couple of questions. On the consumer to business segment in Western Union, when should revenue growth converge toward the transaction growth of 12%? Should that happen in the next couple of quarters?

Ric Duques

Well, first of all, let me hope that you do a better job at retirement than I did. Secondly, I don’t think I can give you a real good projection on that. It’s a quarter by quarter basis. We’re encouraged, but that’s about all I can give you, Greg, on that.

Greg Gould - Goldman Sachs

Secondly on First Data International, can the 17%+ organic revenue growth continue for a while?

Ric Duques

Based on the way we’re doing with the acquisitions and how we’re integrating them, which we’ve done a really good job on that so far, the answer is when you get them in and you get them running well and you get them on some common platforms, the answer is yes. The future is unpredictable here, but we feel very encouraged by it.

Greg Gould - Goldman Sachs

Sorry, Ric, let me ask one last question. The tax rates, post spin-off, what do you expect the tax rate to be for each of the two entities?

Ric Duques

Kim’s going to give you the answer to that, but I think there’s still uncertainty on that one too.

Kim Patmore

I think on the tax rate, we will have clarity when we do the Form 10, and so when we have that separate session with you, probably early June, we’ll go through that. I think directionally though you can assume that the tax rate for Western Union separately will be higher than where we are today, as a consolidated First Data, primarily due to the tax exempts that we have in the IPS portfolio, which will be retained on the First Data side.

Greg Gould - Goldman Sachs

Okay, thanks. Congrats on the results.

Ric Duques

Thank you.

Operator

Adam Frisch of UBS, you may ask your question.

Adam Frisch - UBS

Thanks. Regarding the spin-off, you gave some clarity on the timing and so forth, but I just want to know the public company costs. How different should the margins be going forward once these two companies are split from the segment levels that were disclosed previously?

Ric Duques

We don’t know right now. I would not think they would be dramatically different, but there’s just too many moving parts here. We have teams working to minimize the impact. Obviously there are certain things that are not present in Western Union now that will be there, so as we weed through those items, we’re trying to compensate for those. Where there’s additions, we’re trying to make some subtractions; and we are at the conscience effort that we have a lot of folks working on. At the end of the day I wouldn’t think they’d be dramatically different, but they probably will be different.

Adam Frisch - UBS

A follow-up on Q2 guidance. It was a little bit lower than I think the consensus had, not that a quarter makes a difference if you’re confirming the full year, but anything in the quarter that we should be aware of? I know you said that earnings would kind of get better throughout the course of the year, and Q2 looks like it’s not following that train of thought.

Ric Duques

Yeah, since I thought you might ask that question, or somebody might, I have my laundry list here: IPS is impacting negatively the second quarter; interest is impacting negatively the second quarter; liquidating damages is impacting negatively the second quarter, the 10 businesses are a slight drag there; stock, the 123R stock options are in there; and we have more bonus accruals in the second quarter of ’06 than we had in Q2 ’05. The total of that is probably $90 million to $100 million.

So that’s what’s happening. Many of those start to turn the other way in the Q3 and Q4; that’s kind of an overarching thing there. We have a management team in place here in the growth businesses, Pam Patsley and Christina Gold are there, which gives us a high degree of confidence that what they’ve done in the past, they’ll continue to do. We have new senior executives, Ed Labry in Merchant, who is very sales oriented there. Do you think he is?

Adam Frisch - UBS

I think so.

Ric Duques

Then we have Dave Bailis, who’s on site in Omaha, and last year we basically had either an absentee manager there or no manager there for parts of the year, so that team is very energized also. I think we’re real happy with what we have going into the second, third and fourth quarter.

Adam Frisch - UBS

Great, if I could just sneak one more in, because you brought up Ed’s name. We were in Vegas this week for the ETA conference, and it seemed like the merchant businesses is finding some of its swagger again, that they’re making some improvement there and gaining some traction; and that was from people other than Ed, so you’d be happy to know that.

Ric Duques

Does Ed think it’s gaining traction?

Adam Frisch - UBS

He was fairly upbeat. It was kind of a shock. He was upbeat.

Ric Duques

That is surprising.

Adam Frisch - UBS

Yes. What is he doing in the organization? I think there was talk about restructuring sales and reinvigorating that engine, and signing 10 ISO’s in one quarter seems like a pretty big deal, so if you could touch on that.

Ric Duques

Well, listen, I attended the sales kick-off meeting, and to say that it’s energized is an understatement. I think that he just knows the industry well, so I don’t think he’s just a sales guy. I think he basically knows the industry extremely well and he knows a lot of the people here, he knows the “right