Ladies and gentlemen. Thank you for standing by, and welcome to Global Payments Fiscal 2014 Fourth Quarter and Year End Conference Call. [Operator Instructions] And as a reminder, today's conference call will be recorded..

At this time, I would like to turn the conference over to your host, Executive Vice President and Chief of Staff, Jane Elliott. Please go ahead. .

Thank you. Good afternoon, and welcome to Global Payments Fiscal 2014 Fourth Quarter and Year End Conference Call. Our call today is scheduled for 1 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 risks and uncertainties discussed in our SEC filings, including our most recent 10-K. 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 results more clearly reflect comparative operating performance.

For a full reconciliation of cash earnings to GAAP results in accordance with Regulation G, please see our press release furnished as an exhibit to our Form 8-K filed earlier today. The press release is also available in the Investor Relations area of our website, www.globalpaymentsinc.com..

Now I'd like to introduce Jeff Sloan.

Jeff?.

Thank you, Jane, and thanks, everyone, for joining us this afternoon. Before I begin our formal commentary, I would like to introduce Cameron Bready, our new Executive Vice President and CFO. I am delighted to have him as part of our team.

On that same note this marks David's last earnings call as CFO, and I am pleased to now have David as the company's President and Chief Operating Officer. I look forward to working with both Cameron and David in their new positions..

We are pleased with our strong performance for fiscal 2014, with revenue growth at 8% to $2.6 billion, and cash earnings per share growth of 13% to $4.12..

We also returned over $415 million to shareholders in buybacks and dividends and made a key $420 million acquisition. These results reflect continued execution of our strategy to expand direct distribution, leverage our technology footprint to bring innovative products to each of our markets and prudently balance and deploy capital..

We made tremendous progress on our strategic initiatives in fiscal 2014. We enhanced our integrated payment solutions business with the acquisition of PayPros, and we have made significant strides in our integration efforts including, for example, by establishing a new leadership structure and combining our sales forces.

This has already shown early wins..

As expected, we also stabilized and delivered solid performance in our Canadian business and expanded our distribution in key markets in Asia and Brazil by adding new bank referral and technology partners. These results and our actions highlight the success in alignment of our business strategy with worldwide market opportunities.

We approach each of our markets with significant global knowledge and capabilities, yet remain focused on leveraging our local expertise..

We combined this approach with a disciplined capital allocation strategy. Over a 3 to 5-year cycle, we believe our model will deliver low double-digit cash earnings per share growth, including acquisitions and buybacks, driven by mid single-digit organic revenue growth and operating margin expansion..

Now for quarterly highlights. We exited the year with strong momentum. Revenue growth for the quarter was 9% to $674 million, and cash EPS growth was 11% to $1.09..

We are delighted to report that our North American business continued to deliver solid results in both the United States and Canada. The U.S. results were driven by strong performance across our direct channels, including the addition of PayPros.

Canada delivered another quarter of stable performance in local currency, with 3% growth for both revenue and credit transactions..

We were also pleased with the performance of our international business, reflecting solid execution across all of our markets, with particularly strong revenue growth in Spain and our e-Commerce channel..

As we look towards fiscal 2015, I'm confident that we will continue to make progress on our strategic and capital deployment initiatives, building upon our direct distribution footprint and overall market presence.

We'll remain focused on solving tomorrow's payment technology needs today by fulfilling our customer's needs and continuing to deliver scalable, innovative products and services..

In addition, we continue to pursue a well-disciplined corporate development roadmap and have a strong acquisition pipeline of opportunities in the Asia Pacific region, Europe and the Americas that have the potential to augment our strategy..

Finally, our Board of Directors approved an additional $200 million share repurchase authorization, further demonstrating our ongoing commitment to prudent capital management on behalf of our shareholders. .

Now I will turn the call over to David. .

Thank you, Jeff, and welcome, Cameron. We're glad to have you on board. We're pleased with our momentum exiting the year and with performance across all of our markets in fiscal 2014. As anticipated, Canada's revenue grew 3% in local currency and network assessments annualized in the fourth quarter. Canada's revenue declined by 4% in U.S.

dollars as a result of currency translation. U.S. revenue growth for the quarter was 9%, driven by transaction growth of 11%. PayPros performed as expected in the quarter and added 2 percentage points to total North America revenue growth of 7%.

North America cash operating income grew 3% to $82.7 million and cash operating margin of 17.2% was about as we anticipated..

International revenue grew 14% for the quarter in U.S. dollars. Europe delivered strong revenue growth of 16%, fueled by performance in Spain and from our e-Commerce business. Asia Pacific revenue grew 5%. International cash operating income grew 16% to $66 million, and cash operating margins increased about 60 basis points to 34.6%.

As expected, total company cash operating margins for the year expanded by about 20 basis points to 19.5%, excluding the 2014 incremental security investment of nearly $17 million..

We generated free cash flow of about $80 million this quarter and nearly $320 million for fiscal 2014. We define free cash flow as net operating cash flows, excluding the impact of settlement, assets and obligations, less capital expenditures and distribution to noncontrolling interests..

Capital expenditures totaled $20 million for the quarter and $81 million for the year. Our total available cash, including working capital, at the end of the year was a little over $300 million. And during the quarter, we purchased 2.9 million shares at an average price of $67.60..

Now let's turn to 2015. We expect fiscal 2015 reported revenue to grow 6% to 8%, and range from $2.69 billion to $2.76 billion. We expect cash earnings per share to grow 10% to 12%, and to range from $4.52 to $4.62..

We also expect core cash operating margins to expand by as much as 30 basis points in fiscal 2015..

We expect North America revenue to grow at a mid to high single-digit rate, with mid to high single-digit revenue growth in the United States, and Canadian revenue growth in the low single-digits in local currency. We expect North America cash operating income to increase in the low double-digits compared to last year.

We expect cash operating margins in North America to expand in 2015..

As you know, one of our largest U.S. sales partners was acquired by another company in June. Due to the recent closing of this acquisition, our current financial expectations assume no change in the nature of our relationship with this customer.

Importantly, if the nature of our relationship with this customer were to change during the fiscal year, we would not expect any significant effect on our fiscal 2015 expectations for North American operating income or total company cash earnings per share..

We anticipate that international revenues and cash operating income will grow at a low to mid single-digit rate in U.S. dollars, including currency translation headwinds in certain markets. We expect international cash operating margins to decline modestly. International expectations reflect assumptions for mid single-digit revenue growth in U.S.

dollars in Europe, with consistent local currency performances from Spain, the U.K. and our e-Commerce business, coupled with a tempered view of growth expectations for Russia, which represents less than 3% of total company revenue..

We expect Asia Pacific to deliver mid single-digit revenue growth. We expect foreign currency translation to represent a modest headwind to overall cash earnings per share for the full year, and this is incorporated in our expectations..

We expect our effective tax rate to approach 28%, and diluted weighted average share count to approach 70 million shares for the year..

We expect the distribution of quarterly cash earnings per share as a percentage of annual earnings per share to be roughly consistent with that of fiscal 2014. And we anticipate that fiscal 2015 capital expenditures will total about $95 million.

Including the additional share repurchase reauthorization of $200 million, we now have about $320 million of total authorization remaining for potential further share repurchases. And finally, we have about $900 million of capacity on our credit facility to fund future initiatives..

Now I'll turn the call back to Jeff. .

Thank you, David. We delivered strong results for fiscal 2014, with high single-digit revenue growth, improving margin trajectory and double-digit cash earnings per share growth, all in accordance with our stated business model.

We are committed to driving sustainable growth in each of our markets and remain dedicated to creating value for our shareholders, partners, customers and employees. As our fiscal 2015 guidance suggests, we expect another strong year..

Now I'll turn the call over to Jane. .

[Operator Instructions] And operator, we will now go to questions. .

[Operator Instructions] And our first question today will come from the line of Ashwin Shirvaikar with Citibank. .

Congratulations to Cameron and David on your new positions. And let's start with saying it was a good quarter. I guess, my question, though, is about your guidance.

And as I kind of look at the revenue guidance, $2.69 billion to $2.76 billion, it seems relatively conservative given that it should include about, correct me if I'm wrong, about $75 million or so of PayPros revenues. So I guess, if I exclude that in the organic growth rate, seems to be a bit tempered in terms of your expectations.

So that's kind of what my first question was with regards to it.

If you can walk through sort of the ups and downs of how you arrive at your revenue assumptions?.

Sure. Ashwin, it's David, I'd be happy to. I think, you really need to pull all the pieces apart to think about how the revenue growth comes together without splitting hairs over PayPros specifically, you certainly can make your own assumption there.

I would tell you, in aggregate, we feel very good about the trajectory of the company, the momentum heading into '15, that were on the model that Jeff described. We feel very good, obviously, about the 10% to 12% cash earnings per share growth to complement that in the margin expansion. With that as preamble.

Let's talk about the pieces and recognize that when we go into any given year, we first start with the macro situation in all the markets we serve and start to begin to build the budget from there and think through how the pieces of macro affect GDP, which might affect the consumer, which then might affect FX or anything else that goes with that.

And really, what I think you get when you come back to that total picture is really nice progress, consistent with what you'd expect from each of our markets. So let's walk through them specifically. PayPros add very nice revenue to the United States picture.

Remember, the big channel there, ISO, continues to slow, which as you well know, is happy news for us at the margin line, and neutral news for us at the income line. So we're very happy to have the pieces of the U.S.

revenue come together with great performance in the integrated business, married with slowing ISO channel and solid performance from the rest of the U.S. channels, all of which aggregates to mid to high single-digit revenue growth from U.S.

In Canada, we're looking at low single-digit growth in local currency and then you get to the effect of currency, taking you potentially the wrong direction.

Our range, obviously, always allows for currency in any given market, so you've got a couple of different pieces you've got to think through that will eventually affect your overall range about what you're asking a moment ago.

When you bring all that together for North America, mid to high single-digit growth, because you accuse us of being a little conservative there, I won't say yes or no, but you do know the way we like to set our expectations here. We expect to hit them and have the potential to keep making progress over the course of the year.

When you think about international, again, you think about the various pieces of the market, we're expecting consistent performance from all the assets you're familiar with across our international portfolio of business. That's sort of a mid single-digit growth kind of U.K. business. Same in a place like Malta.

Maybe mid to high in Spain, which has consistently posted high single-digit growth and sometimes low double-digit growth in that market. Our Global Solutions e-Commerce business would be a strong double-digit grower, just as it did last year. Now with Russia, we have a tempered expectation, which reflects macro there, as you might expect.

Macro is little bit challenged there. Obviously, we can all read the headlines, so we allow for little tempering there momentarily. And we bring those folks together, those assets together, you've got mid single-digit overall growth in Europe, a really solid mid single-digit growth in Europe.

Asia grows mid single-digits as well, and that allows for low to mid single-digit growth in U.S. dollars across all of international. Again, that international allows for FX headwinds in certain markets. Right now, I think, we're going to be solid to perform across all of international.

So you bring all the pieces together and you get to 6% to 8% revenue growth, which we think is going to be terrific performance fueling terrific earnings performance as well. .

Understood. I guess, my second follow-on question is operating leverage, obviously, a good thing, especially considering you guys are making investments in the business.

So with that 30 basis points, is that something we should expect sort of get on out, if you will? Are you going to set a range here to say, going out multiple years, 30 to 50 is a good range to expect? Any color there?.

Well, I think, I'd point back to Jeff's prepared comments and think through the way we think about the model is over a midterm cycle, 3 to 5 years, solid revenue growth, earnings growth above that, particularly when you add in the combination of acquisitions and buybacks on the top of what would be core operating income growth above the revenue growth rate.

That implies leverage, to your point. I don't know if we're going to parse a target for exactly how much margin might expand on an annual basis. But you're certainly seeing a sign of what we believe the model to be when you look at the overall expectations for 2015. .

And just on top of that, Ashwin, as David described, we're not giving specific time periods. Our operating model, as I mentioned in my prepared remarks, a key feature of that is operating margin expansion, and we don't expect that to reverse. That's how you go from the organic revenue guidance to the earnings guidance that David laid out.

The key functions of that model, therefore, would be, over time, increasing margins. And I think, you saw that in fiscal '14, and our guidance in fiscal '15 reflects that as well. .

Your next question comes from Dave Koning with Baird. .

And I guess, just 2 questions. My first one, you mentioned cash margins being up in North America year-over-year in fiscal '15.

Is that primarily due to mix? Or should we expect some of the individual items to generate increasing margins across, I guess, ISOs and direct?.

Yes, David. It's actually, I guess, you think of it as both in that we expect our core integrated solutions business, so even pre-payPros, to continue to grow and expand margins as it has since we bought APT 1.5 years or so ago. Beyond that, same model for our direct business and our gaming business.

We have the assumption of continued slower growth than we would historically recall with the ISO channel, which while not a margin enhancer, it's less of a headwind against the margin growth we expect from the core business. On top of that is a PayPros business, which we've talked about before, at what stage it came into the company.

And over the course of this year, we expect it to be a piece of the margin expansion story as well, as they get integration straight and continue to make progress there. And then, your final element is we have a still stable, we believe, Canada in local currency.

Now could FX move against this there to sort of give you a headwind there? It's quite possible. So it will track there. It's that the core stays stable, that mix of credit transaction growth spread that's been manageable for us for a few quarters now that, that continues. So if I boil down your question, it is mix because of the channels.

But within that, to the point of the first part of your question, it's the individual channels themselves performing at or above expectations. .

And I'd add, Dave, to what David Mangum said, that those investments in those channels, APT and PayPros being the most obvious ones, we're done with a point of view that it was very important for us to buy businesses that, by their own nature, had attractive margins that we could then grow beyond the corporate average.

So yes, part of it, of course, necessarily, is the mix as these businesses grow and perform over time. But let's realize, going back to the target model, that we've made investments in businesses that were margin-additive to what our corporate goal was. So that part was very much by design. .

Great. And just a quick follow-up. I think, you said PayPros added 2% to North America revenue growth.

That would only imply something like $10 million or so of revs, and I thought we were around like a $25 million quarterly run rate?.

We are on that quarterly run rate as we exited. we can check a little bit of that math as we go to the pieces later tonight. But we are on that $25 million run rate, you're exactly right, David. .

Your next question comes from George Mihalos with Crédit Suisse. .

Congratulations, David and Cameron. Just wanted ask a question to sort of parse out the U.S. growth again.

Outside of the ISO channel, are you seeing any of the direct business slowdown at all? Or is all the slowdown really coming from the ISO channel still?.

Yes, George, it's Jeff. I'll start answering that qualitatively. David, of course, will add additional commentary. We're not seeing a slowdown in the remainder of the businesses.

When we look at our integrated businesses and now we're going to annualize PayPros, so we don't have annualization impact, those businesses are still performing well into the double-digits organic revenue growth, George, excluding any annualization impact. So we're not seeing a slowdown there whatsoever.

When we look at our other direct businesses like our gaming business, in my opinion, those businesses are growing well north of where the market is for that type of business. And the same thing, I believe, is true of the rest of our remainder of our direct businesses in the United States.

So we're not seeing a trend whatsoever in any way in our direct book in the U.S. .

Yes, maybe just a slight drill down, the traditional sort of bank-based referral business does not have a fundamental change in trajectory from last year or the year before, the year before that. So you are kind of left with more of a slowdown in the ISO channel, the wild horse numbers being a piece of that mathematical conversation as well. .

Okay. Great. That's helpful.

And just as it relates to the operation in Russia, obviously, a small piece of your business, but the conservatism that you're looking at for 2015, I'm just curious, have you seen a slowdown in the fourth quarter of '14, and that's what's leading you to be more conservative? Or you just assumed it's going to slow down in the near future?.

Yes. If -- we don't parse any growth rates by market, but I would say we had a solid Q4. But now, as we sit here in July, we're looking ahead 12 months of performance.

And as I said earlier, when we start thinking about any market, whether it's United States or any other, we start with macro and say, hey, is there anything about which to be cautious as we begin the idea of how our transactions and volume are going to grow, going to be, where would we take market share, et cetera, et cetera.

But one would certainly look up by thinking look at Russia and say, there are probably some macro challenges ahead of you there, so let's temper our expectations. That does not mean we don't think our acquiring business is going to grow in Russia. Our acquiring business we expect to grow in Russia. I'd probably stop there, frankly, for tonight. .

Your next question comes from Bryan Keane with Deutsche Bank. .

Just a follow-up question on the U.S. market. If I say it's going to grow mid single-digits and I subtract $75 million from PayPros, I'm basically getting flat year-over-year revenue growth in the U.S. business. I'm just a little surprised by that.

So maybe you can help me understand how that could be?.

We'd have to pull apart your model, Bryan. But I think, the mid allows for a big range of outcomes, lots of risk, FX in Canada, et cetera. At the end of the day, if you pull the pieces together, it wouldn't surprise me if you're higher than the bottom of that range and thinking about the pieces. And then, of course -- you're talking about U.S.

only, not just Canada, I realize now that I'm thinking about the answer, I'm giving you the full segment answer. But the pieces there allow for how quickly can the ISO business move, which, as you know, if that slows a little further, big revenue number, no impact on earnings.

So think about our range as accommodating all those outcomes, including that big channel slowing down a little more markedly even than we've seen in the past. .

Yes, Bryan, I think, as David said, just to be clear, because I know we're conjoining U.S. versus Canada. So in the U.S., our prepared remarks are mid to high single-digit rate of growth in revenue in the United States.

It's only when we blend in the Canadian business that low single-digit in local currency that you get to what I think you were just positing in terms of your question. .

Yes. I mean, if it's -- U.S. is -- I'm just on the low end of U.S., mid single-digits, if you subtract out PayPros, it looks like U.S. could, on the low end, be no organic growth or no revenue growth. That's the surprising piece.

Does Comerica, in the dissolution or the break up of that alliance, is that having an impact there? And then, last question for me is just on international margins, I think, it's going to be down year-over-year in fiscal '15.

Just trying to figure out what's causing that?.

Yes. Sure. So let's go back to the pieces again. On your core comments about U.S. and mid, wherever your math is getting you down in the range or below the range. Remember, that allows for further slowdown in the very big ISO channel, which would have no concurrent effect on cash earnings per share.

So that's how we create that range and that range of outcomes with mid to high single. Do we expect to be at the bottom end of that? No, we don't do that any year, but we create a range for any number of risk factors.

The primary 1 in the range about what you're asking would be how fast the ISOs perform? Do they grow much slower than we think? Do they decline in aggregate, which, again, frankly, doesn't matter from an earnings perspective, from a materiality perspective. On that same theme, Comerica doesn't matter for this conversation either.

And so I just wanted to be very clear about Comerica, those of you who have seen the filing. It's not material to the company. To give a little bit of color to that, we had a 51-49 joint venture with Comerica Bank. We had 51% ownership of that. We have agreed with Comerica to split the joint venture. We'll retain our share, they'll retain theirs.

We're currently working with them on the mechanics of the split. It's as simple as mechanics.

So to boil that down and maybe to answer your question, Bryan, whatever the mechanics of that split turn out to be, it's not going to change our financial outlook for the year and it does not drive the growth rates for the company, much less for North America or for U.S.

So let's set that aside and we go back to ISOs and some of the other pieces, the integrated businesses growing in such great fashion over the course of 2015, and that creates our U.S. and total company expectations. Now on international margins, which is the sneaky third question you managed to get in to this call. So a couple of things there.

So we do expect it to be down modestly, and there are a couple of things involved in that. The first is we're expecting continued strong growth from what we call Global Solutions, which is the e-Commerce channel we operate, which operates at lower margin than the rest.

And that has an impact in any given quarter, whether it be Q4 '14 or our expectation for fiscal 2015. We obviously have a tempered view of Russia, which has been a part of the margin expansion story over time.

We certainly allow for currency at sort of the bottom end of whatever some of those expectation ranges would be, particularly in specific currencies like the euro or maybe the ruble, again, back to the macro commentary a moment ago.

And we probably have another year of some moderate investment at the margin in Asia as we continue to build out the distribution channels there to try and drive the long-term growth of Asia as a bigger contributor to global, 2, 3, 4, 5 years down the road.

So those are the big pieces of why we expect -- I think, our commentary is down modestly in terms of operating margins in international year-over-year. .

Your next question comes from Jason Kupferberg with Jefferies. .

I just wanted to start on the margin side. I think, you guys said it will be up as much 30 bps year-over-year in fiscal '15.

But if we assume that you're getting, if my math is right, about 70 bps of year-over-year lift just from the absence of the $17 million in security costs from last year, what are the offsets against that?.

So Jason, I'm a little confused by your question. The security cost don't go away. In fact, they're growing in 2015, and we are covering them in other parts of the expectations. So the $17 million was not a one-timer, it was a new run rate for the company from a security investment expense.

So as we pull the pieces together, we expect security to begin to scale like the rest of the infrastructure. But we will not scrimp on security.

That means if it has to grow, and it's growing quite substantially next year, that means in other parts of the company, particularly in the infrastructure, whether it's accounting or any other sort of corporate area, those things need to scale to allow for that investment and/or we need to drive increased revenue growth.

So the margin story really is a little bit back to an earlier question. You drive really nice progress in the U.S.

to get a little bit of help maybe over the course of a year and late in the year at the margin from an acquisition, you have a stable Canada, you have these factors that take you back in international, even though you're growing revenue nicely, all-in, it comes together on top of a scaling infrastructure and you get approaching 30 basis points of margin expansion.

.

Yes. I think, Jason, the way I think about it is, in David's prepared commentary, there's 20 bps of margin expansion in fiscal 2014, excluding, for apples-to-apples purposes, the security increment. And that 20, Jason, compares to the 30. So that's how I take that rather than saying the 20 in 70 and all those other things.

We're growing margin more quickly next year than we did this year, and that's how I think about it. .

Okay. That's helpful clarification. And just quick metric question. What was PayPros' contribution to U.S. transaction growth in Q4 there? I think, the total number was 11%.

And then, just anything you can tell us about FX headwind for revenue for fiscal '15?.

PayPros adds a couple of points if you create that 11%. And then, would you ask your second part of your question again, your sneaky third question as well, because you cut out for a second there. .

I copied Bryan, yes. The FX headwind on revenue for next year. I know you said a modest headwind on EPS.

Is it similar for revenue?.

It is. And obviously, it starts with the revenue. But yes, it's a similar concept when you see the revenue in addition to the earnings. .

Your next question comes from Kevin McVeigh with Macquarie. .

Let me add my congratulations as well. Hey, you folks have talked about kind of low double-digit cash EPS over the course of the cycle.

Can you just drill down on that a little bit? What are the components to buyback versus acquisition versus organic?.

So Kevin, it's Jeff. I'll start on that. So obviously, as we said in the prepared remarks, it's over a 3 to 5-year period. So in any year, you could be plus or minus, Kevin, the targets.

But I would say, in general, you look at mid single-digits organic revenue growth, then you add to that a little bit better mid single-digits operating income growth to try to get toward EPS. And that is the genesis of my comment around operating margin expansion before you get into M&A and the like.

So mid single-digits organic revenue is better than mid single-digits operating income growth.

Then in any given year, realizing it throughout the cycle, Kevin, I would say that it's probably around 2% earnings growth from buybacks in any given year, Kevin, and probably around 2% in any given year increment in year from acquisition activity in that year. So that's how I would think about it in terms of ranges.

But you do realize that, as we've said before, when we balance corporate development pipeline by way of return, we very much think about what is the return from a buyback relative to the acquisition we're doing from an IRR point of view, and we also think about what's the return from an earnings per share accretion point of view.

So to a certain extent, Kevin, I view that 2% to 4% as being not quite fungible but being tradeoffs in the context of acquisitions versus repurchase. .

Understood.

And then, is it fair to say that's probably the type of range we have dialed into the '15 guidance as well?.

Yes, I think, it's fair to say that we're pretty much, as I mentioned in my prepared remarks, pretty much right on that guidance for fiscal '15. Now of course we're only just into the fiscal year right now and these things, by way of acquisition in particular, Kevin, these things tend to come up during the course of the year.

I did mention in my prepared remarks, we do have a very full pipeline, particularly in Asia Pacific, Europe and the Americas, probably in that order. So we want to see how those play out throughout the course of the year, Kevin. So putting aside for a minute, you have that all in the bucket of the 2% to 4% area. .

Your next question comes from Glenn Greene with Oppenheimer. .

A couple of questions. I guess, I just want to go back to the U.S.

or North America revenue growth, but make sure I heard it right, are you sort of contemplating the potential for an ISO revenue decline within that guide, Dave?.

I'm allowing for continued slowing of the ISO channel. And yes, potentially, that could even put you in a place where those are tiny decline, absolutely. .

Which would imply, all else equal, better North America margins.

And you sort of said somewhat up, but directionally, that would mean even more than directionally somewhat better than that?.

Just to reiterate exactly what I said, I said North America margins we expect to expand. And so I think, you're right in sort of inferring from that, that we expect progress there. And a piece of that is less headwind from the ISOs, no question about it. .

Okay.

And then, maybe if you could just update us on PayPros integration efforts, how far you guys have progressed on that? And is it likely that we'll sort of complete that by the end of the year and have a sort of a clean slate going into fiscal '16, where we get sort of a full loan integrated payments business between PayPros and APT with a much improved margin profile exiting the year?.

Yes, happy to provide that. And let me just start by saying to the tail end of your question, the answer is yes. And I'll come back to that in a second. We're actually really pleased with the integration to date. I think, we noted in Jeff's prepared comments, the leadership team is in place. We've moved quickly to do that.

We have a very solid integration plan for the technology, the platforms and the products and how they'll come together over the course of primarily this fiscal year. From a reporting perspective, sort of metrics and what happens in the corporate office around accounting and HR, I'm feeling very good about those pieces.

We brought the employee base into the manner in which we operate and pay, which is always an important thing to do when you bring an entrepreneurial type company into a corporate environment, how do you keep that spirit while bringing them into the corporate fold, all that really being managed very well by the core PayPros leadership team and our existing APT leadership team that's come together very, very nicely.

To go to the most important part of that, which is really the second part of your question. As we look at this year, we've got a lot of work to do. I don't know that we'll exit '15 finished with everything.

But we will be in terrific shape from a product, bringing 1 product to market, 1 platform and 1 set of customer-facing technologies to each new customer at that point. We already have 1 face to the customer from a sales perspective and it's going great, we have 1 very, very large win you've already seen just a few weeks ago.

So I do believe, to your point, when we exit the year, whether or not every little bit of integration is finished, we won't be talking about integration anymore. We will be talking about a company really growing nicely and really contributing even more to the margin story we're expecting from the United States in North America. .

Okay.

And can I squeeze one more in here?.

Sure, why not?.

Yes, why not. I sort of -- I guess, I appreciate the sounds like various conservatism around the globe in terms of revenue growth and some people have asked around these questions.

But are there any specific customer dampening growth losses or books of business that are coming off your portfolio, is it dampening revenue growth or is it just sort of more bits of conservatism here and there, you had some Russian headwinds, some FX headwinds? I don't know if you get the gist of my question?.

Yes. I think that, first off, the answer is no. There's nothing specific, no challenges, no problems. I think, we're in our usual mode. It's the beginning of the year. We're going to get ready. We have 12 months ahead of us.

We take a look at all the markets, other than the specific ones I've called out a little bit earlier, which are really currency around the globe here and there, a little bit of tempering in the market with some macro challenges right now. There's nothing specific beyond that. And we expect a really solid FY '15. .

Your next question comes from Jim Schneider with Goldman Sachs. .

First of all, on the PayPros, I was wondering if you could give some color on, for fiscal '15, how you're thinking about the growth rate of PayPros specifically off the base of the run rate you're at today? And then, as you exit the year, how big you think the integrated channel is going to be as a percentage of total sales?.

So Jim, this is David. I would sort of parse PayPros and sort of link it to APT to answer the first part of your question and come back to the second. We think, each of these 2 businesses are solid double-digit, mid-teens top line growers for the foreseeable future. So the core PayPros business is right in line with that.

We actually think, to go back to Glenn's question, we can perform, when we put the 2 really together, with the right technology and product, plan and execution, maybe we can squeeze out a little bit more growth from that over some period of time. So the core PayPros that comes into global matches the core APT really beautifully.

The verticals don't overlap, but they're both growing at this really nice double-digit range. So think about that as you head for your model for 2015 and beyond. I don't believe I'm going to parse the revenue lines enough to give you exactly what piece of the company is going to be integrated payments come '15.

But I would say, if you think about the math, which you know PayPros when it came into the company a little less than 2 years ago -- I'm sorry, excuse me, APT when it came into the company a little less than 2 years ago, now PayPros just a few months ago, and then, you think about the growth rates, I think, you have enough in front of you to realize that it's already a really big piece of the company and it's a really nice fast-growing defensible channel that's going to help us, Jeff said a moment ago, drive that margin expansion in and out of North America that we're expecting in the model for the 3 to 5-year timeframe we're talking about.

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That's helpful. And then, just as a follow-up.

On the M&A pipeline, you've talked about different potential deals in Asia and EMEA in the past, can you talk about where we might likely see a deal first come to fruition?.

Yes, sure. So what we said, in particular, in Asia, since we started there, Jim, is there are 3 countries in Asia that we're not in directly today that we would like to be. And those are Australia, South Korea and Japan.

And where we end up in those markets is really a function, as I said before, about what types of partnerships are available and what those returns look like. But I would look to those 3 as to where we've been spending our time as it relates to Asia.

Second in Asia, there are markets that we're already in that we feel like we need to be bigger in because we don't have enough scale.

And I think, what we've said before is in particular, India, Mainland China and Philippines, are 3 markets where we are physically present today but we don't feel we have enough scale to accomplish the goals that we have as a company. And in those markets, we're also looking continually to expand our existing footprint.

We've been able to do that today organically. But we do believe, and our model suggests, that we do have to augment that through inorganic partnerships, which is what we're trying to affect.

When were those things happening and the timing of those things are really a function of who the partner is and what the returns look like, but that's where we're spending most of our time. .

Your next question comes from Andrew Jeffrey with SunTrust. .

So we've seen a lot of change now in the integrated channel or the direct channel, obviously, your acquisitions, and then, Vantiv going after Mercury.

Could you just talk about sort of the competitive environment? There was a lot of momentum behind the ISPs, and it sounds like that's at least partially why you're feeling pretty sanguine about North American profitability, recognizing the ISOs slowing down, too.

How do you kind of think about the long-term competitive environment? How do you differentiate yourself in the direct SMB business, and ultimately, a year from now, do you think ISPs continue to blend up the profitability of your business all else being equal?.

Yes, Andrew, it's Jeff.

So what I would say is we've been extremely happy with the growth rates, the spreads, and really, the retention rates and the lack of attrition in the integrated channel both in the case of APT in the 1.5 years that we owned APT, as well as in the case of PayPros in the quarter, a little bit more than a quarter that we've owned PayPros.

And to be here sitting here today, I don't really see that changing all that much.

I think that the key thing in those businesses, the key thing in that business, Andrew, is that we're in about 40 different vertical markets between APT and PayPros, and it's what is your value proposition, I believe, in those markets, in those vertical markets that we're attacking.

So as you probably know from our Investor Day, when we talk about APT, which we owned at the time, it was very much geared toward dental, veterinary, auto repair, those types of markets. PayPros, as David alluded to, very complementary, didn't overlap all that much. And that's primarily geared towards self-storage.

And of course, there's joint win that we've announced about a month ago in rentals, which David was alluding to, which of course, is in the auto channel where both really had a presence.

So I think that the answer initially to your question is, what is your value proposition in that go-to-market vertical channel? And I think, as APT and PayPros have been able to show, we're very good at those vertical markets and we think we have differentiated solutions in those 40 channels that we've been alluding to. That's kind of point #1.

Point #2, how do I think over a cycle, not really in the next 12 to 24 months but in a cycle that, that may evolve. I do believe, with those acquisitions, as well as with the partnership with CyberSource, which we announced 2.5 years at this point, I do think we're becoming more of a technology services company.

And I think, you've seen this in us, and I think, you probably have seen this in some of our peer's announcements, at the end of the day, the mode of differentiation, I think, for us in our business going forward is not going to be the type of device that something resides on, but instead, the value of the software we're providing as a service.

So to go back to my commentary around APT and PayPros and integrated, it's very much a re-catering to the specific needs of the dentist office, of the pharmacist in the case of health care, of the auto repair shop in the case of the auto dealer, and do our applications address their concerns.

Well, part of doing that is be very good at differentiated service solutions. And I think, over time, that's going to become more of a technology play and a software-as-a-service play. But as I look out, I think, that's going to be a mode of differentiation for us rather than what type of device is fueling the means of acceptance.

I think, we like to think about our business, Andrew, especially in that channel, as largely device agnostic. And that's how we think about delivering our value. I think, the last thing I'd say, Andrew, on the mode of differentiation is our ability to do a cross-border.

So you've seen from us the announcement with APT that we brought that functionality into Canada, and in particular, we've native-ized, for example, with Interac in the Canadian marketplace. That's very different than having, Andrew, a customer in the U.S. that wants to do business in Canada.

Instead, our APT product is designed for Canadian customers with a Canadian business, of course, in Canada.

So I think, our ability to bring that kind of service functionality, not just as a solution to 1 market, but as a solution to multiple markets where the language reflects the nature of those markets, the certifications reflect the nature of those markets, is a very important point of differentiation.

So as I look 3 to 5 years out, I would say our ability to bring those models around the world is really one of the ways that we're going to win. And I think, we've seen it initially with us in Canada with APT. .

Okay. That's very helpful. And with regard to the international acquiring business, it sounds like that continues to perform very well.

Are there initiatives to expand that, either geographically or is there additional partnerships? How should we think about that? Or is that just going to be -- is that going to continue to just benefit from nice organic growth the way we've seen it in the last couple of years. .

I think, it will still look to all of us, Andrew, like an organic grower. But it does have its own dedicated sales team. Actually, its own dedicated product team for that matter, too. To your point, we think about either different flavors of partners or crossing different borders with these e-Commerce transactions.

So some of the enhanced growth or expanded growth we've seen in the last year comes from existing customers growing their own businesses organically and delivering pieces of that growth to us. Some of it came from existing customer routing a little bit more volume our way.

And some of it, a small, but growing piece, comes from net new sales we made a year ago beginning to come into the base. And we would expect the quota-carrying sales force there to continue to keep adding net new customers to that solution in '15 and beyond.

You raised a great point, we really like the performance of the top line growth and we'd like to see more of that cross-border traffic rolling through, and hence, we've got this dedicated sales force focused on doing just that. .

I'd add to that, Andrew, that if you look at the changing regulatory environment, particularly in the EU market, I think, our view and the ability to take our solutions cross-border in a relatively seamless way is a very important mode of differentiation of what we're trying to accomplish.

So the footprint that we have in those markets where in many cases we're doing business there already, our ability to offer 1 seamless solution as rates come down starting in calendar 2015 and ultimately thereafter through EU regulation, we're finally starting to see over some period of time SEPA probably come into effect by way of regulations and network action.

And I think, whether it's through our international acquiring business or otherwise, I think, we're well-positioned to capture share as those costs come down from merchants. .

Our last question will come from Tien-tsin Huang with JPMorgan. .

Sorry if I missed this, I just want to ask on the ISO growth slowdown, is that broad-based or was it driven by a select few ISOs? And I know you get this question a lot, is the slowdown you think just law of large numbers or is there some secular issues going on as well?.

Yes, Tien-tsin, it's David. I think, the slowdown has been going on for some time. I guess, as a reminder for everyone on to call to start, it is broad-based, perhaps almost by definition. But the channel overall is slower than it was 2 years ago, much slower than it was 4 years ago.

When we look at it, it certainly feels like part of it have to be the law of large numbers, very large amount of revenue, very large amount of transaction.

I think, though, it's inescapable, when you look at the mix of business we operate to not conclude at some level that we're placing capital investments and organic investments in channels we expect to grow for the short, medium and long term. That growth has to come at the expense of something else across the market.

And so, I think, you can conclude from that, we believe firmly in the channels which we're investing that growth is coming potentially at the expense of some of these other channels. Are there other channels that may be slowing as well across the market? Perhaps.

We don't see them necessarily within the portfolio of businesses we operate, but I think, you can conclude from that sort of a potential view, not necessarily a purely analytic view, of how another factor in that the slowdown of that overall ISO channel. .

Sure thing. Just follow the capital. Just on the Asia Pac side, the revenue did step down a little bit sequentially.

What's going on there? Anything unusual?.

Well, we have 1 large customer who had a product launch that affected Q3 that obviously the launch itself doesn't repeat itself in Q4. Beyond that, there really isn't a whole lot going on.

I think, as you know, the Asia business is one where we're still focused on continuing to invest and drive the growth we can while focused on what else can we do from a distribution and an acquisition standpoint to enhance that growth in the future. So the business kind of is operating at a certain level right now. We expect it to improve over time.

But beyond that 1 customer, not a whole lot of one-timers, anything like that, operating inside the business. .

Okay. Last one and I'll let you guys... .

You get 3, too, huh?.

Yes. Sorry, David. Hey, man, it's your last call as CFO, I'll give you 1 more easier one. So in the long-term, we like you guys setting out that long-term guidance, I think, it's nice to have that. So I just want to clarify, for this year's EPS guidance, are you assuming buybacks in that number in the EPS range or not? I wasn't sure. .

Yes. So I'm glad you actually mentioned that because I think it's a great thing to clarify at the end. Buybacks, to-date, the buybacks we did last year, obviously, are in the guidance. We are assuming no future buybacks, no potential future buybacks.

With the current $320 million remaining authorization, our expectations for cash earnings per share assume no additional buybacks out of that authorization. .

All right. Very clear. Congrats on the new title, and Cameron, welcome to the earnings circuit, man. We'll talk later. .

Thanks very much. I look forward to it. .

Well, thank you very much, on behalf of Global Payments, for joining us this afternoon. .

Ladies and gentlemen, this concludes our conference for today. Thank you for your participation. You may now disconnect..