Andrew Langford - VP, IR Jeff Sloan - CEO David Mangum - President and COO Cameron Bready - EVP and CFO.

Glenn Greene - Oppenheimer Dan Perlin - RBC Capital Bryan Keane - Deutsche Bank Steven Kwok - KBW George Mihalos - Cowen Paul Condra - Credit Suisse Andrew Jeffrey - SunTrust Jason Kupferberg - Jefferies Dave Koning - Baird Ashwin Shirvaikar - Citibank.

Ladies and gentlemen, thank you for standing by and welcome to Global Payments Fiscal 2016 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, Vice President, Investor Relations, Andrew Langford. Please go ahead.

Good morning, and welcome to Global Payments' fiscal 2016 year-end 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 today's conference call contain forward-looking statements, which are subject to risks and uncertainties discussed in our SEC filings, including our most recent 10-K and subsequent filings.

These risks and uncertainties could cause actual results to differ materially, and 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, adjusted net revenue, and free cash flow, which are non-GAAP measures.

For a full reconciliation of cash earnings, adjusted net revenue, 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?.

Thank you, Andrew, and thanks everyone for joining us this morning. We are delighted with our strong performance in fiscal 2016, highlighting another year of solid execution that generated significant growth across our markets.

We also made substantial progress in our strategic objectives, including the successful completion of our merger with Heartland in April, a landmark transaction for Global Payments. For the year, we delivered net revenue growth of 11%, increased operating margin 50 basis points, and grew cash earnings per share 18%.

Each of these results exceeded our fiscal 2016 budget expectations as well as the cycle guidance we set forth at our Investor Day last October.

We are most proud of our ability to accelerate net revenue growth and maintain a consistent level of operating margin expansion, and cash EPS growth versus last fiscal, notwithstanding the incremental impacts of foreign currency.

We expect continued positive momentum in fiscal 2017, as we expand direct distribution, deliver innovative products globally, leverage our technology and operating environments, and prudently deploy capital. And of course, our partnership with Heartland is at the core of this strategy. We are very pleased with early results at Heartland.

Our combined senior management team is in place, and has hit the ground running. New sales at Heartland have set internal records over the last three months and we've begun to see the anticipated benefits of revenue enhancements across our businesses.

We closed our first global cross-sell in June, and jointly closed Heartland's largest ever new sale when we signed a major US national restaurant customer in May.

We are already executing initiatives to accelerate revenue growth by enabling sales of our Heartland campus solutions, school solutions, and commerce point of sale payment technology globally as we head into fiscal and calendar 2017.

Since the closing of the merger on April 22, we have also focused on executing our integration plans, which are critical to the realization of expense synergies. We have successfully completed the first 90 day actions which consisted of substantial reductions in force, facility closures, vendor rationalization and duplicate expense elimination.

We are well down the path toward realizing the expense synergies we outlined for fiscal 2017 and beyond. And we have not been busy just with Heartland during fiscal 2016.

We continue to make progress on the two key strategic initiatives to accelerate transformative growth that we described during our Investor Day, international expansion of our OpenEdge integrated solutions business, and continued development of our omni-channel solutions offerings.

For OpenEdge, we are now live, and driving sales of our solutions outside of the United States. We recently signed a contract with one of our largest existing ISVs to deliver integrated solutions to their customers in the United Kingdom. We are also pleased with our progress in Canada where we now have 30 ISV and VAR partners.

We will shortly launch OpenEdge marketing campaigns with both local and US-based partners to further accelerate penetration of our integrated solutions end market. Our omni-channel solutions businesses had another very good year in fiscal 2016.

We added over 4,000 new e-commerce customers in the UK and Ireland, and signed several enterprise e-commerce clients in the UK in the fourth quarter, based on the strength of our Realex platform, its scalability, reliability and performance.

We are well-positioned to accelerate growth, and we expect to roll out our bundled e-commerce solution in Spain imminently. In addition, we plan to integrate Heartland's e-commerce offering in the United States with our global e-commerce solutions to create best-of-breed omni-channel capabilities before the end of calendar 2016.

Furthermore, our acquisition of eWAY also expands the scope of our offerings in the Asia-Pacific region, providing us with global reach that is unmatched in our industry. Now for quarterly highlights. Our North American businesses again delivered strong results. Our US direct channels generated high single-digit organic revenue growth, led by OpenEdge.

Canada continued its steady performance in local currency, resulting from strong new sales, terrific execution, and stable business fundamentals. Our European businesses again generated solid results. We saw double-digit volume and transaction growth in Spain for the fifth consecutive quarter, well in excess of market growth.

Outside of Spain, our businesses in the UK and Continental Europe performed in line with our expectations. While we were disappointed with the result of the recent UK/EU referendum, we have been preparing for that potential outcome for some time. We had contingency plans in place, which were executed immediately after the result.

We do not expect any material impact on operations or earnings expectations as a consequence. We continue to monitor the impact of the referendum, and we'll take further actions as conditions warrant.

It is also worth noting that our US business is now two-thirds of our net revenue post Heartland, with the UK now representing single-digits of our company's net revenue. Asia delivered high single-digit organic net revenue growth in local currency.

Much like last quarter, we also generated substantial operating margin expansion, as we reacted quickly last fall to emerging macro headwinds across our greater China markets. Finally, we remain delighted with our Ezidebit business, which reported accelerated revenue growth above 20% on a local currency basis.

Our investment in the eWAY partnership in April highlights the confidence we have in our Australian colleagues and our optimism for this market. Finally, a word about the change to our fiscal year that we announced today. Last July, we began the journey to provide enhanced comparability of our results with our peers.

I believe this change will be the final piece of the puzzle to allow our stakeholders to better compare our performance to that of our competitors. Now, I'll turn the call over to Cameron..

Thanks, Jeff, and good morning, everyone. Fiscal 2016 was another terrific year for Global Payments. It included a number of significant milestones.

We executed our largest ever transaction in our merger with Heartland, successfully raised $4.5 billion to finance growth, completed our first stock split in 10 years, and lastly were added to the S&P 500 Index. Importantly, we accomplished all of this, while also producing strong financial performance throughout the year.

Total company net revenue for fiscal 2016 was $2.17 billion, reflecting growth of 11% versus fiscal 2015, or 17% on a constant currency basis. Operating margin expanded 50 basis points to 29.2%. On a constant currency basis, operating margin expanded 120 basis points.

Cash earnings per share increased 18% to $2.98 per share, or 29% on a constant currency basis. For each of these measures, we exceeded our cycle guidance on a stated basis, and substantially exceeded it on a constant currency basis.

For the fourth quarter, total company net revenue was $621 million, a 25% increase over the fourth quarter of fiscal 2015, or 27% on a constant currency basis. Operating margin was 28.1%, an expansion of 40 basis points. On a constant currency basis, operating margin expanded by 70 basis points.

Cash earnings per share grew 14% to $0.73, or 16% on a constant currency basis. Relative to our expectations in April, currency impacted fourth quarter cash earnings per share by roughly $0.01 to $0.02.

Naturally, fourth quarter performance reflects the results of Heartland from April 22, which were in line with the expectations we shared during our April call. Now for detailed segment highlights for the quarter.

Our North America segment, which now includes Heartland, saw net revenue growth of 36%, and operating margin expansion of 30 basis points, despite unfavorable currency trends in Canada. On a constant currency basis, operating margin expanded by 50 basis points.

Normalized organic net revenue growth in our US direct channels, calculated as if we owned Heartland and the FIS Gaming business in both this period and in fiscal 2015 was high single-digits for the quarter. Canada once again, delivered solid growth in local currency, in line with expectations.

The weak Canadian dollar impacted North American net revenue growth by over 100 basis points for the quarter. As Jeff noted, our European business performed well again this quarter, posting revenue growth of 7% on a constant currency basis.

Reported net revenue growth for Europe was 3%, due to significantly unfavorable foreign currency exchange rates, particularly the pound and euro. As a reminder, we also annualized our acquisition of Realex in the fourth quarter of fiscal 2016.

European operating margin was 47.8%, declining from prior year, primarily due to investments we were making to further expand our omni-channel solutions business and foreign currency impacts. Asia net revenue grew 15% or 19% on a constant currency basis, despite ongoing macroeconomic weakness in our greater China markets.

Organic constant currency revenue growth, adjusting for both the BPI and eWAY transactions was high single-digits for the quarter, accelerating sequentially from our fiscal third quarter. Once again, we're particularly pleased with operating margin in Asia-Pacific, which expanded by over 400 basis points to 26.3%.

This was primarily driven by the continued strong growth in our Ezidebit business, as well as the expense management program we implemented in the fall of 2015.

Shortly after closing the Heartland merger, we entered into a $50 million accelerated share repurchase agreement, bringing total share repurchases in the quarter to 711,000 shares for approximately $53 million. Subsequent to the end of the quarter, we repurchased a further 638,000 shares for approximately $44 million.

Now turning to our fiscal 2017 outlook. On a constant currency basis, we expect fiscal 2017 net revenue to range from $3.25 billion to $3.35 billion, reflecting growth of 50% to 54% over fiscal 2016.

We anticipate foreign currency headwinds will impact net revenue growth by 200 to 300 basis points for the year, resulting in expected reported net revenues of $3.2 billion to $3.3 billion. Operating margin is expected to expand by up to 70 basis points on a constant currency basis.

After reflecting the anticipated impact of foreign currency headwinds, we expect reported operating margin to expand by up to 40 basis points.

We are particularly pleased with our outlook for operating margin expansion, as we expect to be able to absorb the anticipated margin degradation from Heartland, and still expand operating margins on a constant currency basis toward the high end of our cycle guidance.

We expect cash earnings per share on a constant currency basis to range from $3.50 to $3.60, reflecting growth of 17% to 21% over fiscal 2016.

After giving rise to anticipated foreign currency headwinds, particularly the significant weakness we have seen in the pound resulting from the Brexit referendum, we expect reported cash earnings per share to range from $3.40 to $3.50, reflecting growth of 14% to 17%.

We are forecasting the most significant foreign currency impacts in the first two quarters of the year. As a result, we expect roughly 47% to 48% of our cash earnings per share to be contributed in the first two fiscal quarters, and the balance to be realized in the back half of the fiscal year. This is essentially the inverse of fiscal 2016.

With respect to the more detailed assumptions that underlie this outlook, we expect North American net revenue to grow nearly 70% in fiscal 2017, including FX headwinds from the Canadian dollar.

This growth reflects the addition of Heartland, and our expectation that our combined US direct businesses will generate organic growth in the high single-digits. Canadian net revenue growth assumptions remain in the low single-digits in local currency.

We expect North America operating margin to expand for the year, as we anticipate being able to more than offset the margin impacts of Heartland with operating efficiencies and synergies. In Europe, we expect net revenue on a constant currency basis to grow in the mid-teens, including the impact of the Erste transaction.

FX headwinds in Europe, especially the British pound, are forecasted to impact net revenues by several hundred basis points, resulting in expected reported growth in the high single-digits.

Operating margin in Europe is expected to decline in fiscal 2017, largely due to integration costs associated with our Erste joint venture, and the impacts of foreign currency headwinds.

Much of the degradation is anticipated in the first half of fiscal 2017, when we expect to realize a substantial portion of the integration-related expenses, and absorb a considerable amount of the foreign currency impacts. Asia-Pacific is expected to deliver US dollar net revenue growth in the low double-digits.

Operating margin is expected to remain relatively consistent in fiscal 2017, as compared to fiscal 2016. Our effective tax rate for fiscal 2017 is projected to approach 30%, and our diluted weighted average share count is expected to approach 156 million.

We anticipate that we will invest approximately $140 million in capital expenditures in fiscal 2017. With the completion of the Heartland merger, our near-term capital allocation priority is to reduce debt, and return to our targeted leverage ratio. As such, we expect the majority of our free cash flow in fiscal 2017 to support debt reduction.

However, we have sufficient capital available to continue to pursue select acquisitions that augment our strategies, like the eWAY partnership we executed in Q4. You should also assume we will continue to be a consistent buyer of our stock, as a means by which to return capital to shareholders.

That said, our outlook for fiscal 2017 does not include any assumptions with respect to future share repurchases. As Jeff referenced, we're pleased to announce that our Board of Directors has approved a change in our fiscal year-end, from May 31 to December 31. Our first fiscal year on a calendar year basis will begin January 1, 2017.

As a result, we will report a seven month fiscal period for the period June 1, 2016 to December 31, 2016. We will host our Q1 and Q2 fiscal 2017 earnings call as customary, and we'll then transition to calendar quarter reporting, beginning with the first quarter of calendar year 2017.

With our forthcoming change in fiscal year end, we're providing an early preview of our outlook for calendar year 2017 to assist with this transition. Building off of our constant currency guidance for fiscal 2017, we would preliminarily expect constant currency net revenue of approximately $3.375 billion to $3.5 billion for calendar 2017.

In addition, we would anticipate cash earnings per share on a constant currency basis to be in the range of $3.75 to $4 for calendar 2017. I will now turn the call back over to Jeff..

Thanks, Cameron. Building on the solid foundation from fiscal 2014 and 2015, we delivered yet another year of strong results in fiscal 2016. As our fiscal 2017 and cycle guidance post Heartland suggests, we remain committed to accelerating growth across our markets.

We've had a terrific run over the last several years, but we are just as optimistic today, as we were back in October of 2013. We have the right people, in the right places, with the right business model. Early results of our partnership with Heartland, our largest investment to date, point strongly toward continued success for fiscal 2017 and beyond.

We could not be more pleased with where we are today, but more importantly, we could not be more excited about where we are headed.

Andrew?.

Before we begin our 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. Thank you. Operator, we will now go to questions..

Thank you. [Operator Instructions] Our first question is from Glenn Greene with Oppenheimer. You may begin..

Thanks. Good morning. Lots of numbers to digest.

But I guess, at a high level, maybe to sort of frame how you've thought about and included in your fiscal ‘17 and calendar ‘17 guidance the, both the Heartland payments, cost synergies and revenue synergies, how should we be thinking about that?.

Sure, Glenn. It's Jeff. I'll start, and I'm sure Cameron and David will add to this. First, on the cost synergy side, as I said in the release this morning, we're well down the path on where we expect to be on expense synergies.

In particular, relative to the $50 million that we talked about in fiscal 17, today we believe we're running ahead of that target of $50 million for fiscal 2017 realization. That falls in the buckets that we talked about back in December and April, primarily on the executive side, on the operating side, and on the technology side.

On the revenue enhancement, as you know, at the time we announced the transaction in December, as well as in April, we talked about 1% to 2% incremental revenue growth over the cycle. As I mentioned in my prepared remarks, we've already had some early wins coming from our work, out of our work with the folks over at Heartland.

But we haven't yet included that in our fiscal 17 estimates, as we do not include those in the guidance we gave in December and April.

Cameron, do you want to --?.

The only thing I would add there, Glenn, is as we look at synergies on the expense side for fiscal 17, as Jeff noted we are ahead of the target that we originally established back in December, when we announced the transaction.

Perhaps more importantly, however, I think we're very much on track to realize the full run rate synergies that we had targeted, with respect to the transaction, the 125 million in fiscal 18 and beyond.

So I think from an expense point of view, we feel very good about where we are, have a lot of positive momentum going into fiscal 17 to exceed the expectations we had for the full year. But as I said before, we're very focused on that ultimate run rate number, and are well on track to achieve that expectation..

And Glenn, it's David, maybe a little more color on the revenue. I think I'd say the same thing about revenue that Jeff and Cameron said about expenses. I think we're a little ahead of where we might have thought we'd be right now.

Those obviously take a little bit longer to execute, require obviously closing sales, et cetera, in some cases, some product development. But if you told me a few months ago, we would've already closed our first cross-border deal in Canada, I'd have been surprised, really pleased at the way the sales forces are working together.

So we are equipping that Heartland sales force to do cross-border sales as we speak, with an initial focus on Canada, followed by Europe and the UK.

We're also adding in targeted, I would call almost surgical additions to sales folks in white spaces, white space territories we don't have full coverage, which is outside the plan and kind of a unique synergy we've run across in the last few months.

And maybe as interesting, to go back to some of the things as we've talked about in earlier calls, we're enabling the technology businesses, the software businesses like TouchNet, the campus solutions business to sell software and Global Payments processing in Canada and Puerto Rico, with UK and Europe to follow shortly.

And the same for the commerce businesses around the world, and beginning the process of enabling those going forward..

So the other question, look, I'll ask a couple, and then just jump back into the queue.

But as it relates to the revenue synergies, is it early to sort of be thinking about potential pricing benefits, or how have you thought about that, and the timing of that? And the other question is unrelated to the synergies, maybe just sort of the OpenEdge expectations into ‘17, and what you're assuming in terms of the benefit from the European, or this UK interchange reduction? Are you going to keep that? It seems like some of your other peers are sort of passing that through, and I'll jump back in.

Thank you..

So Glenn, it's Cameron. I'll start with the first couple of items. As it relates to pricing, there is no assumption in our fiscal 17 guidance for any sort of pricing changes, with respect to the Heartland portfolio. So that's a fairly easy one to address.

With respect to your second question around interchange, the interchange benefits came into effect in December, as we talked about in the UK.

Obviously, the interchange benefits themselves are transitory benefits, as they have been in other markets where we've seen such changes over the course of time, including the US back in 2012, and of course, Spain in 2014. So over the course of time, we do expect the market to rationalize those pricing benefits.

We're seeing in the UK, what we expect to see, and have seen in other markets, as it relates to these transitory benefits. Over time, they'll get rationalized away, and spreads will return to pre-interchange reduction levels over a 12 to 18 months’ time frame, and I think the UK's very much on that track currently.

One element to note with the UK, is we did see some early adoption of the SEPA rules in Q4 of ‘15. So Visa reduced some debit interchange in Q4 of ‘15, MasterCard also reduced some credit interchange in fiscal 2015.

So we have started to begin to annualize some of the early benefits from SEPA, but the largest changes obviously came into effect in December of 15..

I'd also say, Glenn, on OpenEdge, our assumption fiscal ‘17 is that it continues that mid to high teens rate of growth that we've been describing, probably over the last two to three years..

All right. Great. Thanks, guys..

Thank you. Our next question is from Dan Perlin with RBC Capital. You may begin..

Thanks. Hey, guys. So I wanted to make sure I got this right.

So you said 70 basis points of margin on a constant currency basis, and I thought I heard you say, Cameron, 40 basis points on reported for the total Company? Is that right?.

That's correct, Dan, yes..

Okay. So when we run that through, and you talk about Europe being down, Asia flat, and I look through this kind of organic growth of high single-digit in North America.

And we certainly are layering in the cost synergies, it sounds like there might be maybe meaningful costs that you guys are taking out of the core business? Is that right to assume that, in order for you guys to have that 40 basis point increase? And if so, I'm just wondering how sustainable, or you how quickly does that come in?.

Well, I think, Dan, I'd point you to our cycle guidance that we updated on the heels of the Heartland transaction, where we indicated over the cycle, we expect to be able to expand margins by up to 75 basis points annually. So I think the constant currency guide that we provided today is towards the high end of that expectation.

I think we're particularly pleased with that, as we said before, because as you know Heartland comes in at a lower margin than Global Payments has operated at historically. So I think we've been able to absorb that degradation, and expand margins this year at a level consistent with our cycle guidance on a constant currency basis.

So I think when you roll it all together, we obviously, are expecting margin expansion in North America. We are expecting a little bit of margin headwind in Europe as I noted on the prepared remarks, largely as a result of integration costs for the Erste transaction and currency.

In Asia, we expect to maintain the significant margin improvement that we achieved in fiscal 16. When you roll that together, obviously with North America now being almost 70% of the combined business, the margin expansion in North America really drives the total Company margin expansion..

Yes. That's great.

So the organic growth of high single-digit again in North America, how do we parse that in terms of - you guys consolidating share up, with maybe the integrated model increasingly, volumes and then pricing opportunities? I know you said, you're not repricing the Heartland portfolio, but that continues to be a pretty strong number, in a market that I think secularly isn't growing that fast.

So maybe you could just parse that a bit? Thanks..

Yes, I mean, I think I'd start with, Dan, both us and Heartland pre-transaction, were growing at a faster rate than the market rate of growth.

So I think when you put these two businesses together, and you're able to accelerate growth, the way that we believe we'll be able to, I think we feel very good about that high single-digit organic revenue guide - organic revenue growth guide for FY17.

If you deconstruct the parts a little bit, our core direct distribution businesses in the US, which includes our traditional go-to-market [indiscernible] business, OpenEdge, our gaming business, again still growing high single digits, that's our expectation next year, led obviously by OpenEdge as Jeff mentioned earlier, which we continue to expect to grow in the mid to high teens level.

If you look at the Heartland side, again their direct sales business we expect to grow high single digits, consistent with the trends we've seen in that business. Their integrated businesses, similar to ours are growing double-digit.

You roll all that together again, and you have a business that's very well-poised to grow organically in the high single-digit range in FY17 and beyond, and that's consistent with the cycle guidance we provided historically..

And Dan, it's Jeff. I would just say, as I said in my prepared remarks, we announced the Heartland deal in December, we closed in April. Here we are sitting in July.

And as I mentioned in the prepared commentary, that Heartland has experienced one of the strongest periods of new sales growth since April in the last three months, well post the announcement and into the close. So we couldn't be more delighted with the ongoing rate of performance at Heartland, as well as our legacy global business.

So it's very easy to see a scenario, if we announced something in December, and you don't see that kind of acceleration. But we've seen exactly that kind of acceleration into Heartland, gives us a lot of confidence heading into FY17..

That's great. Thank you, guys..

Thanks, Dan..

Thank you..

Our next question is from Bryan Keane with Deutsche Bank. You may begin..

Hi, guys. Good morning. Just want to ask about Europe. I think Europe grew 7% constant currency. That was down from a big quarter last year -or last quarter, I think it grew 16%.

So just trying to figure out the delta change there on the top line in Europe?.

Yes, Bryan, it's Cameron. I'll lead off. There's really two things. First of all, in Q3 it was 15% on a constant currency growth basis, and that included inorganic growth from Realex, which we didn't have this quarter, as Realex annualized in the fourth quarter. So that's a big chunk of the difference as a starting point.

I would say, the second element that impacted Europe in Q4 is I mentioned earlier in my comments, we've started to begin to annualize some of the early benefits from interchange reductions in the UK in particular. Last year, MasterCard in the fourth quarter of 2015 lowered credit interchange from on average roughly 100 bips to 80.

And Visa changed debit interchange from the 8p a transaction to 20 basis points plus 1p. So those early benefits from the SEPA regulation that didn't actually become effective until December, we began to annualize in Q4 of this year, which created a little bit of headwind. Europe still grew high single-digits on a constant currency basis.

That's in line with our overall expectation for Europe. So I would say it was a quarter, Europe-wise, that was very much consistent with our overall expectations..

Okay. And then going forward, it sounds like it goes back up mid-teens constant currency in Europe.

Is that the Erste JV pushing that up, and what would it be ex Erste, I guess JV?.

Yes, that's a good question, Bryan. So we do expect Europe to grow next year in the high single-digits on an organic basis. And then, of course, the Erste joint venture is adding inorganic growth to top line revenue expectations for Europe in FY17. So those would be the component pieces next year..

Hi, Bryan, it's Jeff. I think you'd also see Spain finally start to annualize, the annualization of the original benefits starting on September 1.

So as I mentioned in our prepared remarks, that Spain hit yet another double-digit volume and transaction growth quarter, I think their fifth consecutive in the quarter in a market that's probably going half that. And you're finally going to see that accelerate into the beginning of our second fiscal quarter in 2017..

And that's in the high single-digit growth expectation organically for Europe for the full year. We'll annualize (multiple speakers) the benefit of the UK interchange reductions as you know in December..

Okay. And then, just to close the loop here. On the international operating margins, they fell a little bit on a year-over-year basis, and obviously were down sequential.

Just any - I think it also has to do with some of the pieces on the top line we talked about, but anything else to think about there, that caused the drop in the international operating margins? And congrats on the quarter..

Thanks, Bryan. Appreciate it. No, I think you've got it right. Obviously, currency had a fairly significant impact on margins, particularly in Europe. The other item I mentioned in my prepared remarks again, relates to investments we're making in our e-com omni-channel solutions business in Europe. We're continuing to invest in that platform.

We are preparing to launch a bundled solution in Spain, similar to what we launched in the UK earlier in the fall. That's coming in the next few months. So we did make investments to prepare for that market rollout, which we think will obviously be helpful to accelerating growth in Spain.

So those investments were a little bit of a drag on margin in Q4. But in the grand scheme of things, we really try to target margin expansion for the total Company. Which once again, we achieved this quarter and we're very pleased with the level of margin expansion that we achieved in the fourth quarter of 2016.

Europe being nearly 50% margin, our goal is to largely sustain, or close to sustain that level of margin, and really looking to drive total Company margin expansion through North America primarily..

Great. Thanks..

Thank you. Our next question is from Steven Kwok with KBW. You may begin..

Hi, thanks for taking my questions. Most of them have been answered, but just wanted to go back on Brexit, in terms of the contingencies. Can you just talk a little about the contingencies that you had in place? And then if things were to let's say, deteriorate further, what are the other steps that you can take? Thanks..

Hey, Steven, hi, it's Jeff. I'll start on that. As I said in our commentary, we anticipated that this might happen, even though it wasn't our preferred option. As a result, immediately after the referendum, we took a number of steps by way of contingency, to prepare the business in the event that the macro environment in the UK deteriorated further.

Those were along the lines of a bit of deferral on some investment we were going to make, Steven, by way of headcount, and product in the UK, and in Ireland. We also had plans, in the event that things change further, we also have plans to make additional decisions around our European businesses, if that's what's needed.

I would say though, if you back up, that hasn't happened today. So as we said in our commentary, that post Heartland, our UK business is single-digits, as a matter of revenue of our businesses.

I think we've shown, with what we've done in Asia over the last year, that to the extent that there are emerging headwinds, that we'll get ahead of those, as we did in the fall of 2015 in Asia. So I think sitting here today, we're as well-positioned as could be and obviously, we're here to manage proactively if things change.

But that's not the case today..

Got it. And you mentioned on the call, around select acquisitions.

Could you talk about what are some of the opportunities that you're seeing that's out there?.

Sure, Steven. It's Jeff. As always, we start with what's available for sale. We're really looking for things that are in our wheelhouse from a strategic point of view, and have the right partnership and culture to really drive the business forward, relative to our other alternatives for our capital.

I would say sitting here today, a number of those opportunities are really in the Asia-Pacific region. Cameron, I think talked about the eWAY transaction that we consummated in the fourth quarter of 2016, driving additional omni-channel and e-commerce activity in Australia and New Zealand.

We're looking at a bunch of technology-related businesses in Asia primarily. Obviously, we think we're relatively full-up here, post Heartland, in North America. And as Cameron mentioned, we just closed our Erste JV on June 1, and we think we have a fair amount of work ahead of us, to continue that integration over the next period of time.

So I think we look at opportunities. Sitting here today, those are likely to be more weighted towards Asia. But of course, we're flexible, and it depends on what comes available for sale..

Great. Congrats on the quarter again, and thanks for taking my questions..

Thank you..

Thanks, Steven..

Thank you. Our next question is from George Mihalos with Cowen. You may begin..

Great. Congrats on the quarter, and thanks for taking my questions, guys..

Thanks, Georgios..

Maybe just to kind of kick things off, appreciate your talking about calendar 2017, and kind of giving the constant currency guide of $3.75 to $4.00.

But could you also kind of give us a sense of what that might be on a reported basis, kind of what you're thinking there?.

George, it's Cameron. I'll maybe start. You can see from our FY17 guide, that we're forecasting anywhere, maybe $0.10 to $0.15 of currency headwind in FY17, as a result of - primarily weakness in the pound stemming from the Brexit referendum in the UK. So you can sort of extrapolate that further into calendar 2017.

But sitting here today on July 28, it's very difficult. I think with any sort of accuracy to predict what currencies may do in calendar 2017. Frankly, at some point, I hope to annualize these fairly significant headwinds. I sort of view flat, as the new up, from a currency point of view.

So I think when you get to flat, you can kind of get a sense from the guide we've given for calendar 2017, as the earnings power of the business, that we're able to generate, notwithstanding the FX headwinds over the past couple years.

But if we can get a normal FX environment, obviously 20% cash earnings per share growth on a constant currency basis is fairly attractive and well ahead of our cycle guidance, and well ahead of what I think our peers and other industry participants are able to produce..

Yes. No, that's fair.

And just kind of moving on, focusing again on the US market, just what are your expectations in FY17 for ISO growth? And then, are you guys thinking - I know right now with all the confusion going on with EMV certification and the like, but as you think about calendar 2017, would you consider implementing EMV noncompliance fees?.

Let me start with the ISO comment, that's the easier question. I'll give David the harder question around EMV. On the ISO side, we're expecting essentially flat growth, or roughly no growth out of the ISO channel.

As we talked about historically, with the pivot we've made to direct distribution, particularly on the heels of the Heartland transaction, where we've essentially invested over $4 billion now in direct distribution in the US market, that is the focus of our business going forward. It's obviously the driver of the growth.

We'll continue to serve our ISO partners well, but that is not a focus for our business, and we're certainly not expecting any tailwinds from the ISO channel. We expect it to be relatively flat..

And then, George, on EMV plans, our focus to date has been on the transition for our customers, making it seamless, and really delivering to them security solutions bundles that really can drive maybe some nominal market share gains.

So I think the way to look at what Cameron and Jeff have been describing, is there is no assumption of economic benefit from EMV whatsoever, but that is something we're exploring.

As we get deeper into 2017, we're certainly going to have to think about where the risks are in the industry, where we've added value to our customers, where we may not be being compensated. But it's nowhere in the expectations. It's just something to think about as a marketing matter..

Okay, great. And just last question from me. Just again as it relates to the EMV certification issues that we've seen with some small merchants.

Has that had any impact on your business at all?.

No, it hasn't. And I guess, I appreciate you asking the question. I know that there have been folks out talking about certifications, about backlogs, some folks talking about acquirers delayed in certifications. I can tell you this, we have no backlog in our infrastructure anywhere, whether it's a direct channel or an integrated channel.

So whomever is talking about those types of things to you guys, whether it's an opinion, or it's some other delays, it's not Global Payments..

Great, thank you..

Thanks, George..

Thanks, George..

Thank you. Our next question is from Paul Condra with Credit Suisse. You may begin..

Great, thanks. Good morning, all. I guess, I wanted to ask first just about Canada. You talked about launching OpenEdge there, and some of the cross-border business.

Is it your expectation that growth rate there could accelerate at some point, or just could you talk about that a little bit?.

Yes. Paul, this is David. Our expectation is indeed that we can accelerate Canada with really a couple of things. One is bringing in these new global initiatives like more e-com business, some of the fastest growing part of that market. And certainly with OpenEdge, where we're up to 30 partners.

And we're just really beginning to build that sort of purpose-built ecosystem I've talked about before, partners, campaign management, and our sales teams to accelerate growth. So early stages. Hence, you've seen from Cameron very traditional Canadian expectations for now for 2017, which I'm expecting our Canadian team to beat this year.

And then beyond that, it's the Heartland synergies. So being able to take the products, whether it's education products, or the commerce point of sale cloud software across border to Canada.

And just being able to take the US-based customers and prospects that our Heartland sales force will close in the coming months and quarters, and take those and extend those to Canada as well. So we think we've got lots of tools to accelerate Canada now, really for the first time in the last five years in Global Payments..

Thanks. That's good to hear, and thanks for that detail. I guess, just as a follow-up, you also talked about some e-commerce enablement.

And I'm wondering if you can talk about, in the US, your e-commerce strategy, how important is that, how you think you can get bigger there, if that's something that you really want to go after?.

Yes, it's certainly something we want to go after. It's obviously a growth pool in the United States, and it's one of the hidden benefits of the Heartland transaction, to be frank. First off, we finally have a real substantial direct sales force in the US, a strategic distribution asset that we did not have before.

We also have OpenEdge, which is a fantastic business, and our vertical gaming and credit giving [ph] businesses, but we've not had a direct sales force like this. And another hidden benefit of Heartland, they have a true e-commerce solution for the United States as well.

Great product folks, a great development team, and actual product in market, that's seeing success. In fact, we actually signed a record number of e-commerce customers in Heartland during the June quarter as well.

So we're seeing increasing momentum that fuels our confidence, both about integration overall, and the type of accelerated growth the two companies can deliver that Cameron described earlier..

Okay, thanks. I don't know if you could maybe size that, or give us any metrics around it? And then I'll jump. Thanks a lot..

I think it's tough to size on direct metrics. Obviously, you have the two fastest organic growing acquirers in the industry combined. We think we can accelerate that growth, so we're pretty confident, it's pretty fast-growing..

Thank you. Our next question is from Andrew Jeffrey with SunTrust. You may begin..

Hi. Good morning. Thanks for taking the question, guys..

Good morning, Andrew..

Wonder if we can dig in a little bit on sort of the North American, specifically the US competitive environment with regard to ISVs? One of your competitors talked about ramping sales and marketing this morning around that business and other fast growth channels. So wonder if you might just talk about perhaps residuals in that business.

And then also, if you have any view on the PayPal Visa relationship, and whether or not you'd expect perhaps PayPal to try to become a merchant of record in physical world, if that's something you've thought about at all internally?.

Yes, Andrew, it's David. I'll start with some of the integrated ISV talk. Obviously, our industry is highly competitive, but I don't think there's a sea change at all in the competitive nature of what's going on around ISVs and integrated payments.

I think in particular if you think about the results we posted in 2016, our confidence in Heartland to date, and then the expectations for 2017, we're expecting another mid to high teens delivery from OpenEdge. They continue to drive across into new verticals.

We don't see some of the larger competitors you're describing in our specific verticals in the OpenEdge business. We continue to drive that growth in the dentist, the pharmas, the things we talked about. Again, a highly competitive, every deal is competitive in this space, but we win more than our fair share with the integrated solution we drive.

On the Heartland side, you've got the education verticals, the two, the one for K through 12, the one for university, that combination is double-digits as well. And the same thing, competitive deals, but we're driving and winning more than our share.

I think the final piece of this is really the commerce businesses, where we've got new assets where we're just beginning to pursue restaurant and hospitality. There we're going to see more competition, but it's all going to be incremental to us. So we're very excited about our growth opportunity on that side..

Okay, Andrew, it's Jeff. On Visa PayPal, we're a very good partner of both Visa and of PayPal I think, anything that drives toward more adoption of card-based usage, whether it's relative to ACH, relative to cash and check, et cetera, is really nothing but good news for our businesses.

I would note, that in that partnership in particular, that's a US-only deal. Visa PayPal is the way it's been described externally. Most of our business with PayPal, as you probably know is outside of the United States, and in particular, mostly outside of North America, primarily in Europe and Asia.

So I don't think by itself, it's going to have really a direct impact, just because of the geography that's been described. I think as a concept, to get to your other point, the idea that there's more volumes going through digital wallets, through two partners like Visa and a PayPal, is really nothing but good news for our business longer term..

Okay. Thanks, guys. Appreciate it..

Thanks, Andrew..

Thank you. Our next question is from Jason Kupferberg with Jefferies. You may begin..

Thanks. Good morning, guys. So it sounds like you're running ahead of plan on both revenue and cost synergy for Heartland, which is obviously good to hear.

So should we assume that you may do better than the mid single-digit EPS accretion target from Heartland in FY17? Or what's actually baked into the FY17 guidance, is it still the mid single, or is it something a little north of that?.

Yes, Jason, it's Cameron. I'll maybe start with that one. So if you think back to December when we originally announced the Heartland transaction, consensus for us for our FY17 was around $3.32. And we guided to mid single-digit accretion which kind of gets you to $3.47 [ph] or so.

If you think about where we are now, we just guided on a constant currency basis $3.50 to $3.60. So a midpoint of $3.55. That kind of implies high single-digit accretion year one, which is pretty attractive from our point of view, and obviously, an acceleration from what we originally announced on the deal in the December time frame.

Obviously, we've seen a $0.10 of - $0.10-plus maybe of incremental FX headwinds. There's a little bit of noise around FX. But on an apples-to-apples basis, we're kind of looking at FY17 being high single-digit accretion from Heartland, and that's pretty exciting..

Okay. That's real helpful.

And then, just two other quick ones related to 2017 [ph], just your plans for growth in that direct sales force, as well as the interest expense expectations?.

Yes, Jason, David here. We do plan to keep growing the sales force. It's measured. It's surgical. As I said a little while ago, we've identified white spaces, where we want to accelerate growth and sales coverage as we speak. So we will keep growing that sales force, measuring it against demand and opportunity.

But there's a lot of room for growth, in terms of just headcount adds, as well as in coverage that you'll see in the coming quarters..

On the interest expense side, I think we've provided a little bit of color around interest rate expectations back in the Q3 call. We have about $2.8 billion of incremental debt associated with the Heartland transaction, actually we'll pay a little bit of that off the course of the year.

Our weighted average cost of debt somewhere around $3.75 [ph] to $4.00 [ph], so in that ballpark. And then as a reminder, the legacy debt that we had, was repriced as well as part of the transaction. So there's probably an incremental 100 basis points on that. So it's going to be in the same, sort of probably $3.50 range for the historical debt.

So all-in, that gets you to an interest rate expense assumption that's going to be in the north of $160 million range for FY17..

Thank you, guys..

Thanks, Jason..

Thank you. Our next question is from Dave Koning with Baird. You may begin..

Yes, hey, guys. I guess, a couple of things. First of all, is Spain - I know you're growing really well there, transactions and volume.

Has revenue caught up with that? And if not, like when does revenue catch up with the same transaction and volume growth?.

Yes. Hey, Dave, it's Cameron. Great question. Revenue is essentially flat now. So we have caught up, in the sense that we've gotten revenue to its flat to slightly up.

As we get to September, and annualize the annualization of the interchange benefit - I know it gets complicated - we would expect revenue growth to trend back to the same level of transaction and volume growth that we're seeing in that market, which is double-digits to mid-teens. So we're very bullish on our execution in Spain.

We, I think, are looking at our fifth consecutive quarter of growing transactions and volumes in the double-digits. We're growing well above the rate of market growth, and couldn't be more delighted with our partnership with Caixa [ph], and we see nothing but really tailwinds in that market.

GDP has remained very solid in the market, and our execution has been terrific. So as we get into FY17, and get past the first quarter, we expect Spain revenue growth to return to that double-digit level. And it's obviously an important driver for overall expectations for European organic growth in FY17..

Great. Okay. And then, the minority interest line, that one's always a little tough because there's been some of moving parts in and out, and now with Erste coming on.

How do we think of that on a cash earnings basis in FY17?.

Yes, David, it is a tough thing to model, and we've had joint ventures that we've unwound. We've added new joint ventures, and I recognize that's complicated. So with the addition of Erste, I would expect it to be up year-over-year relative to FY16 in aggregate by roughly 50%, relative to what we just reported for FY16. So that's kind of a rough guide.

And we can obviously provide a little more color on that, if we have an offline conversation..

Great. Thanks. Nice job..

Thanks, Dave..

Thank you. Our last question comes from Ashwin Shirvaikar with Citibank. You may begin..

Thanks, guys. So my question is about the cadence of how we think of 1Q and 2Q? I guess, the other quarter's would be part of the new calendar reporting. And the reason I ask is, last year's August quarter was pretty much the perfect quarter, and very strong.

So can you help from a modeling perspective with that?.

Yes, Ashwin, it's Cameron. I tried to give a little bit of color on that in my prepared remarks, because we recognized a couple things. One is, the quarterly distribution of earnings in FY17, because of the FX headwinds in particular, are likely to be sort of the inverse of what we saw in FY16.

So we expect 47% to 48% of the earnings to be distributed in the first two quarters combined, and the balance, 52% to 53% in the back two quarters, which to your point, will roll into the new calendar year. For the full FY17 guide, obviously, we're going to see the most FX headwinds in Q1 and in Q2 in particular, but primarily Q1.

So still expect good growth in Q1 over FY16, and same for Q2. But it will ramp in the back half of the year, as we hope currency headwinds will begin to abate, number one. And number two, it's important to recognize that synergies ramp over the course of time as well.

So as we're executing on synergies, and taking expenses out of the business, the benefits of those actions ramp over the course of the fiscal year, as we roll into FY18 as well. So those two things combined create an environment where, the back half will be a little bit stronger than the first half.

But the overall expectations for the year, I think are very attractive..

Okay. And I guess, that's a good segue to the next question I had, which is a synergy question.

So if I think of the $50 million synergy for FY17, layer in that you're making investments basically for the first half of the year, that would imply a fairly strong move from investment to benefit in the latter half, which would mathematically seem to carry us to a synergy pace about $125 million.

And I think, you partly addressed this, in a previous reply with regards to the EPS guidance.

But why not just bring up the synergy target at this point, if you're already seeing that, is the question?.

Yes, Ashwin, it's a really good question. So what I would start with is, when we look at our FY17 expectation, there's a lot of activities that are in progress today. We have dollar amounts tied to every one of those activities, but there's obviously execution that needs to be done to realize those synergies.

So as we sit here today, we expect to achieve synergies in excess of the original $50 million-ish guide that we provided when we originally announced a deal in fiscal - at the end of, I'm sorry, December for FY17.

But more importantly, as I said in my comments earlier, we're well on track to meet the overall run rate synergy expectation, by the time we get into FY18 and beyond of $125 million a year. As you know, with synergies, you have realized synergies in a particular period.

But then, you also measure the run rate of the actions you have taken, and how they're contributing to the overall run rate expectation that we have of $125 million. So I think it's a little early, to I think try to put more specific numbers around where we think we're going to end up from a synergy point of view.

But I would want to leave you with certainly, our perspective which is we have a high degree of confidence on being able to accelerate synergies for FY17, relative to what we originally anticipated, and certainly feel very, very confident in our ability to deliver on the total run rate synergy, that we had premised in the original transaction economics..

Understood. Thank you guys..

Thanks, Ashwin..

Well, on behalf of Global Payments, thank you very much for joining our call this morning..

Ladies and gentlemen, this concludes today's conference. Thanks for your participation, and have a wonderful day..