Barbara Gasper - Head, IR Ajay Banga - President & CEO Martina Hund-Mejean - CFO.

Bill Carcache - Nomura Securities Sanjay Sakhrani - KBW Matthew Howlett - UBS Darrin Peller - Barclays Capital David Togut - Evercore ISI Chris Brendler - Stifel Nicolaus Tien-tsin Huang - JPMorgan Don Fandetti - Citigroup Moshe Orenbuch - Credit Suisse Jamie Friedman - Susquehanna Financial Group Bob Napoli - William Blair Chris Donat - Sandler O'Neill.

Good morning. My name is Sean I will be your conference operator today. At this time I would like to welcome everyone to the MasterCard Fourth Quarter Full-Year 2015 Earnings Conference Call. [Operator Instructions]. Head of Investor Relations, Ms. Barbara Gasper, you may begin your conference..

Thank you, Sean. Good morning, everyone and thank you for joining us for a discussion about our fourth quarter and full-year 2015 financial results. With me on the call this morning are Ajay Banga, our President and Chief Executive Officer and Martina Hund-Mejean, our Chief Financial Officer.

Following comments from Ajay and Martina, the operator will announce your opportunity to get into the queue for the QA makes session. Up until then, no one is actually registered to ask a question. Even if you think you have already dialed into the queue, you will need to register again for the QA following our prepared comments.

This morning's earnings release and the slide deck that will be referenced on this call can be found on the investor relations section of our website, www.mastercard.com.

These documents include some reconciliations of non-GAAP measures to their GAAP equivalents so I would like to call your attention to the several appendix slides at the end of the slide deck. The documents have also been attached to an 8-K that we filed with the SEC earlier this morning.

A replay of this call will be posted on our website for one month. Finally, as set forth in more detail in today's earning release, I need to remind everyone that today's call may include some forward-looking statements about MasterCard's future performance. Actual performance could differ materially from what is suggested by our comments today.

Information about the factors that could affect future performance are summarized at the end of our press release as well as contained in our recent SEC filings. And with that, I will now turn the call over to Ajay.

Thank you, Barbara. Good morning, everybody. I'm very pleased to be able to deliver strong results for both our fourth quarter and the full year performance, even with the mixed global economy.

For the fourth quarter, after we adjust for the euro and the Brazilian real translations, we report net revenue growth of 9% and EPS growth of 22% driven by solid underlying metrics. And for the full year, we saw net revenue growth of 8% and EPS growth of 18%, excluding special items.

And most importantly, when you remove the impact of the functional currency translation, as I just said, for the euro and the Brazilian real, but also for what we call local FX which is the impact from other transactional currency pairs. Our fourth quarter net revenue growth was 12%.

And on that basis, for the full year net revenue growth was almost 11%. Moving onto the global economy, we continue to see challenges in many parts of the world. The U.S. economy seems the most resilient and had good growth in both consumer spending and jobs.

In Europe, growth is expected to increase at the fastest pace since 2011, although this is at a lower-level, driven by stronger domestic demand and exports. However, several big emerging market economies, China and Brazil being examples, are experiencing either week or slowing growth.

And of course oil prices and their impact on oil-sensitive markets around the world, political instability, security concerns in some tourist destinations, these are all concerns that bare careful watching.

We're globally connected as a Company and so what you've got to do is to work to successfully navigate through these challenges exactly as we have in the past. So with that backdrop, let's get into our business. Our business continues to grow and our fundamentals remain strong.

We saw double-digit volume and transaction growth across all regions except for the U.S. We saw growth in the mid to high single digits. In additionally, our services businesses provide a nice complement to our volume-based core business and continue to show good growth.

So moving onto a few highlights of the year and some of our recent business activity. Overall, I'd say 2015 was a year that had its economic challenges and maybe also had a deal of foreign exchange volatility.

And as I said earlier, not just in the euro or Brazilian real which are functional currencies, but in the other local transaction currency pairs as well.

But despite all that, I think we have navigated these circumstances well and we but significant points on the board as a result of our investments in digital payments in safety and security as well as in a financial inclusion.

And this year we've talked about winning some significant customer deals and called on many of those in previous calls, but to cap off the year, let me mention a few that we had in the fourth quarter.

So this past quarter we renewed and we expanded our relationships with a number of our larger customers including, in this case, Citigroup's commercial card portfolios in Asia-Pacific, in Europe and the United States. The HSBC premier consumer credit business covering 28 markets around the world.

In Italy we signed the long term debit agreement with both Italian to migrate their Maestro cards to debit MasterCard. But we also expanded advisor services to help them drive financial inclusion and digital products for their customers.

In Russia, VTB24 which is the second largest bank and the card issuer in that country, is converting their debit card portfolio to MasterCard. And another example, we signed the long term renewal with Qatar National Bank, one of the largest banks in the Arab world, for their debit card portfolio.

Turning to China, I don't have anything new to report to you about the opening of the domestic market. That's still a work in process. But we're executing on certain elements that have already been in the draft regulations, such as building out our technology underground.

Meanwhile, we're continuing to work with our Chinese customers as they, themselves, prepare for the next wave of payments growth as well as to expand into the digital space. So let me give you two or three examples to give you some color on what are doing.

We were closing with Bank of China and ICBC, these are two of China's top five state hold commercial banks, to launch their mobile payment products in China. They're utilizing our organization and cloud-based technologies for that.

And while waiting for the new regulations, some banks are beginning to issue single-branded cards with international networks. In 2015 we have launched 32 single-branded programs in China, including one this past quarter with the Bank of Communications for their first single-branded EMV credit card. They also utilize our fraud management products.

Now what I mean by single-branded is that we're the only network brand on that card. There is no China union pay on that card. That is what single-branded mean. Finally, we're also seeing more issuance of commercial card products.

In the fourth quarter, we won new business to the Bank of Beijing and with the Agriculture Bank of China for their commercial card portfolios. And 2015 was a big year for us in the digital space. We're actually pleased with our progress in our MasterPass. We've launched in 13 new markets this year in the fourth quarter.

Japan, Sweden, Ireland, Slovakia were the latest markets to go live and that brings the total number of MasterPass markets to 29. In 2015 we launched the total of 64 new MasterPass enabled wallets with some of the more recent additions being Axis Bank in India, Nedbank in South Africa and the first wallet in Japan with UC Card.

We're busy expanding acceptance with premier merchants representing the largest volume opportunities in the marketplace. And you've read about Walmart and Sam's Club, Staples, Sears, JetBlue, Barnes & Noble, College, Crate and Barrel, et cetera, et cetera -- all of whom are launching MasterPass in this coming year of 2016.

And in our third quarter earnings call I talked about the launch of the MasterCard Compass for every device program to enable any consumer gadget, any accessory available, whatever, to become a payment device. We also mentioned we were working with fashion designers, with auto makers, with smart band developers.

And last quarter we announced our partnership with General Motors to integrate our digital enablement system into their own OnStar platform. And we're actually continuing to build on that momentum because this month, earlier at the consumer electronic, show along with Samsung, we announced Groceries by MasterCard.

That's basically a new app that allows consumers to order groceries directly from their new Family Hub refrigerator. We've also announced the partnership with Coin, that's the consumer electronics and financial software company.

They will help us to bring MasterCard payments to a wide array of fitness bands like those from Atlas Wearables or Moov or smart watches from Omate and other available devices.

While none of these is expected to be big on their own, it kind of demonstrates the breadth of the opportunity in digital payments and our engagement to that opportunity as every device over the next two years begins to enable commerce. Another area of focus for us in 2015 was safety and security.

And there have been some big moves in this space, including significant progress in the U.S. EMV migration -- even though the industry was slightly short of its forecast of 50% of issued credit and debit cards being chip-enabled by the end of the year, they're pretty close.

As volume from chip-enabled cards continues to grow, we still expect almost all U.S. cards to be upgraded before the end of 2017. And merchants are continuing to enable new terminals and ATMs are being upgraded as well. So this is kind of a work in progress but in the right direction.

Looking beyond the U.S., we deployed a number of security solutions from tokenization to Selfie Pay to something called Safety Net. And Safety Net is our real-time fraud solution. What it does is it detects attacks upon threats globally across all products, all channels -- that's point-of-sale and ATM.

And it's a great example of how we're leveraging the unique capability of our global network and analytical capability. It can identify, isolate and stop cyber-attacks often before the bank is even aware of them. And as a result, now more than 80% of our issuers around the world and are using Safety Net as a service from us.

That's an example of the kinds of products we're building in our services business which is, as you know, advisors consulting information services with all these safety and security products. And loyalty and rewards are all apart of this services effort that we're putting into place.

So last year as part of our financial inclusion efforts we signed about 600 new government programs, including, I think, some very innovative ones. The example of the Egyptian government comes to mind.

We were going to extend financial services to more than 54 million Egyptians by linking their national digital ID, something the government is issuing, to a mobile wallet to receive government benefits, employer payroll as well as a P2P capability across all banks and all telcos, by the way. It's a countrywide effort.

And finally we've worked through various regulatory challenges, including being the first network to migrate domestic card transactions to the new Russian NSP card switch [ph] as well as implementing the new European payment regulations. So that's 2015.

Some business wins, something about what we're doing and digital and MasterPass, what we're up to in services and safety and security and the work in financial inclusion and as a backdrop behind the revenue numbers I gave you. But looking forward 2016, we expect this year to similar to what we saw in 2015. It's a complex environment.

I consider that currency will remain a challenge over the course of the year. The dollar is going to keep strengthening. But our plan is to stay focused on executing our strategy to displace cash, to play a defining role in digital and innovate for the future. And that means expanding our services businesses as well.

We've got to grow our processing capabilities so we can see more transactions that then enable us to provide greater insights through analytics as well as providing robust safety and security solutions so we can offer better protection for our cardholder, for merchants and for our issuing bank partners.

We're going to continue to pursue profitable market share while diversifying our revenues. And at the same time, I think you'll find us continue to work hard to manage our expenses so we can allocate more resources to these growth areas And with that, I'm going to turn it over to Martina for an update on our financial results and operational metrics.

Martina?.

Thanks, Ajay and good morning, everyone. As you just heard, despite strong FX headwinds, we closed out the quarter well. Let me give you some highlights on the fourth quarter starting with page 3 where you can see the difference between asset reported and FX adjusted gross rates. So EPS growth was 14% or 22% after adjusting for currency.

Continued revenue momentum, good cost control, executing on our tax strategies and purchasing shares all contributed to that performance. Acquisitions that we made in 2014 and 2015 drove $0.03 of EPS dilution in the quarter.

Included in our other income and expense line was $83 million of impairment charges, predominantly related to some of our very early investments in mobile. A number of these investments have performed well, while others have not met our expectations.

Next, our tax rate of 13.1% in the quarter was more favorable than we expected due to the benefits that resulted from the impact of settlements with tax authorities related to the tax audits that I have mentioned as a possibility at our investor day last September. Share repurchase contributed $0.02 per share to our fourth quarter results.

As of January 22, we have $4.2 billion remaining under our current authorization. Lastly, cash from operations was $1 billion. We ended the quarter with cash, cash equivalents and other liquid investments of about $6.7 billion. So let me turn to page 4 where you can see the operational metrics for the fourth quarter.

Our worldwide gross dollar volume or GDV, was up 12% on a local currency basis, down 1 PPT from last quarter. Overall, our U.S. GDV grew 8%, made up of credit and debit growth of 9% and 8% respectively. Total U.S. GDV had a continued almost 2 PPT headwind from lower gas prices.

Outside of the U.S., volume growth was 14% on a local currency basis, down to PPT versus last quarter with mid-teens growth in each region.

And on cross-border volume, we grew 12% on a local currency basis, lower than the 16% we saw in the third quarter, primarily driven by the political instability and economic conditions around the world as well as the lapping of some recent wins in Europe and Canada.

Turning to page 5 you can see global process transaction growth was 12%, the same as what we saw in the third quarter. We continued to see double-digit growth in all regions outside of the U.S. And globally, the number of cards grew 7% with $2.3 billion MasterCard and Maestro branded cards issued.

Now let's turn to page 6 for some highlights on a few of the revenue line items. Net revenue growth was 4% as reported or 9% FX adjusted, given currency headwinds. Additionally, the impact of local currency exchange rates was higher than we expected, more than 3 PPT, driven by currency such as the Venezuelan bolivar and the Canadian dollar.

After eliminating both currency impacts, our underlying net revenue growth was about 12%. Rebates and incentives were slightly higher than we expected due to the timing of some deal in the works and acquisitions contributed about 2 PTT to net revenue growth, up slightly from the 1 PPT we saw last quarter.

Looking quickly at the individual line items -- revenue line items on an FX adjusted basis. Domestic assessments grew 10% while worldwide GDV grew 12%. This 2 PPT gap is primarily due to the impact of local currency, somewhat offset by pricing. Cross-border volume fees grew 13% while cross-border volume grew 12%.

Of the 1 PPT gap, the majority is due to a higher mix of intra-Europe activity, some local currency impact and lower inbound U.S. cross-border volume -- essentially offset by pricing. Transaction processing fees grew 13%, primarily driven by the 12% growth in process transaction.

Finally, other revenue grew 26%, driven primarily by advisors as well as our an APT and TNS acquisition. Moving on to page 7 you can see that total operating expenses increased 1% in the quarter or 4% on an FX adjusted basis.

This growth was essentially all driven by M&A activities as we focused on integrating the acquisitions we made in 2014 and 2015. So you can see the underlying expense growth was essentially flat from last year.

The non-recurrence of a significant severance charge in the last -- in last year's fourth quarter was offset by several factors including additional personnel expense as a result of our investment and strategic growth areas, higher processing costs due to both more transactions across our network as well as the fees paid to NSP card for processing [indiscernible] Russian transactions and lower foreign currency related gains versus the prior year.

Let me turn to slide 8. And here we can discuss what we have seen in January through the 21. Most of our business drivers are a bit higher or similar to what we experienced in the fourth quarter. But here are the numbers through January 21. Starting with processed volume, we saw global growth of 14%, up 2 PPT from the fourth quarter. In the U.S.

our processed volume grew 13%, up almost 4 PPT from the fourth quarter, with higher growth in both credit and debit. Gas had a 1 PPT negative impact on our January growth compared to the almost 2 PPT drag in the fourth quarter. Processed volume outside the U.S. grew 16%, the same as the fourth quarter with doubled digit growth in each region.

Globally processed transaction growth was 13%, up slightly from the 12% we saw in the fourth quarter. And growth outside the U.S. slowed just a bit, primarily due to the lapping of some business wins as well as a slowdown in Brazil. U.S. growth was up 2 PPT, driven by improvements in both credit and debit.

And with respect to cross-border, our volumes grew at 12% globally. That's the same that we saw in the fourth quarter. Now let me start out talking about our long term performance objectives which as you know exclude the translation impact of our euro and Brazilian real functional currencies.

On that basis, for the 2013 to 2015 period net revenue growth was 10.5%, close to the low end of the range. Beyond the euro and Brazilian real, we experienced extremely strong foreign exchange headwinds from the other local currency pairs that Ajay has just referenced which resulted in about 2 PPT impact to our compound annual growth rate.

Therefore, the underlying net revenue growth for this period was over 12%. We achieved our margin commitments and delivered a 19.2% compound annual growth for EPS over the period excluding the tax benefits we saw in the fourth quarter of 2015. Again, when I exclude the impact from those local currency pairs, the EPS CAGR was over 20%.

Now let's move on to our 2016 to 2018 objectives which are net revenue CAGR of low double digits, operating margin of at least 50% and an EPS CAGR in the mid-teens. Remember, these objectives are on the constant currency basis and exclude any new M&A activities.

Going forward, you should be using a pro forma 2015 EPS figure of $3.12 as the starting point for the three-year EPS CAGR calculation. The pro forma number is calculated based on a normalized 2015 tax rate of 30.4% which adjusts for several one-time tax benefits.

The largest of these is from the significantly favorable outcome of some tax audits that concluded late in 2015. And consistent with the methodology we have used in the past, it also excludes the impact of special items. As you heard from Ajay, we expect 2016 to be a continuation of 2015. For the U.S.

and European economies are showing signs of strength but the rest of the world remains challenged. In addition, foreign exchange volatility will continue to be with us into 2016.

We have navigated through periods like this before and we will continue to run the Company for growth, both on the top and bottom line as well as balancing our investments with astute expense management. So as we look at full-year 2016, our underlying business fundamentals remain strong.

However, we expect to be at the low end of our were three-year performance objectives due to current FX levels relative to where they were back in September when we first developed these objectives. These objectives already included some level of local FX headwinds, though they are now expected to be higher than what we assumed in September.

And I know as you model all your numbers on an as-reported basis, you need to adjust for the impact of our euro and Brazilian real functional translation. And at current rates, that results in a 2 PPT headwind on net revenue growth and a 3 PPT headwind to bottom line growth.

For 2016 let me call out a few additional items that you should also consider. For rebates and incentives we expect to see slightly lower growth this year than the 20% as-reported growth rate that we saw in 2015 which is much different than what we see in some of your current models.

On expenses, just a couple of comments you just heard Ajay talk about putting money into our growth areas. Well for 2015 that was focused on a number of acquisitions. With that integration process well underway, this year we will accelerate our investments in digital, certain geographies such as China as well as in safety and security.

Also, in last year's first quarter we had $40 million of FX gains in the G&A line associated with the events in Venezuela that are not expected to recur this year. As a result, you should expect our total operating expense growth to increase in the high single-digit range.

Now having said, that as you all know, we always plan our investments with a certain degree of flexibility depending on the market or macroeconomic environment. We're already prepared with contingency plans to adjust expenses, should the need to course correct the necessary.

In the other expense line, interest expense associated with the euro denominated debt that we issued last November at roughly $10 million to our normal underlying run rate of roughly $15 million per quarter. So this is $15 million per quarter.

You should assume a roughly similar tax rate for 2016 as the 30% normalized rate I just spoke about four 2015. And finally we realize that it's becoming more difficult for many of you to model our business as FX rates continue to move around. We're thinking how to make this entire topic more transparent so stay tuned on this.

Now let me turn the call back to Barbara to begin the Q&A session.

Barbara?.

Thanks, Martina. We're now ready to begin the question and answer period. And in order to get to as many people as possible, we ask that you limit yourself to a single question and then queue back in for additional question.

Sean?.

[Operator Instructions]. Your first question comes from the line of Bill Carcache from Nomura. Your line is open..

Martina, I had a question on the 2015 base. There is some confusion since the three-year guidance that you guys gave at the investor day was on a constant-currency basis. But it looks like the 312 that you guys are pointing to an appendix D strips out some significant items but doesn't add back FX headwinds yet.

In appendix C you guys include the FX adjustment for the 2012 to 2015 period.

Can you just walk us through the thought process behind that please?.

Yes. So first of all when you look at the objective from 2013 to 2015, you have to start with the base of 2012. Right? And the base in 2012 are basically actual numbers adjusted for only one line item, which was the tax line item -- basically our special tax benefits that are not expected to be repeated. So that's the $2.14.

When you walk to 2015, what we did there is you have to adjust for foreign exchange for the euro and the BRL because that is -- when we do our performance objective on an FX adjusted basis -- so you put basically back in $0.21 on top of the EPS that we print. Right? So you start with an EPS of $3.35.

You add in the special items of $0.08, which is $3.43. You add back the foreign exchange, which is $0.21. You are adding back the acquisitions and you are adding back these one-time tax items, all of which we called out, which gets you to the $3.62.

And when you do the differential between the $2.14 to the $3.62 you are getting actually that 19.2% compounded annual growth rate. So that is the history. Now let me focus on 2015 and going forward. So for the 2016 to 2018 financial objectives -- 2015 you are not starting with the $3.62 because that is an FX adjusted number.

Of course we're going to have to start with the real number -- with an actual number, right? So you start again with a $3.35. That's exactly our as-reported number in the financials. You adjust for that for the special items, which is the $0.08. So you are going to $3.43.

And then you are putting in -- and then you are taking out the tax items $0.31 of that. And that's how you get to $3.12. So you are on actual FX rates for the starting point, you adjusted for the special item and you self-adjusted for the special tax items.

That's how you get to the $3.12, which is the basis upon which we calculate our future EPS performance..

The next question comes from the line of Sanjay Sakhrani from KBW. Your line is open..

Martina, following along your thought process line -- so when we look ahead 2016, what we would do is take that $3.12, grow it by the mid-teens and then account for the 3 percentage point headwind of the local currencies? Thanks..

Yes, that is what you're going to have to do--.

15 at the high end -- it will be 12% growth off the $3.12..

So first of all, Sanjay, you start with the $3.12. You grow it for whatever number you want to grow it at for the next three years. My statement for foreign exchange was only an outlook for 2016. Right? I have not given you an outlook for 2016 to 2018.

So when you look at your 2016 numbers, whatever numbers you are going to come up on topline to net revenue, to get to the as-reported you are going to have to take 2 PPT out. When you look at the bottom line, both for net income and EPS, you are going to have to take 3 PPT out in order to get to your as-reported.

But that's a 2016 statement, not a three-year statement..

I'm sorry to follow up on that.

On the low end of the targeted range of -- for low -- or for mid-teens is?.

Look, we have low double-digit growth. That is our three-year guidance. And we are at the low end of the low double-digit..

So just to be clear, all we are saying -- bake through all this stuff -- all we are seeing is 2016 is turning out to be a crazier year than we thought in September only because between September and December lots of local currencies moved around. And those normally are inside our revenue number. We're just trying to make you understand that.

That's all we are doing. Beyond that, the euro and the real are the euro and real. They are functional currency's. You guys are more used to that one. In that there's a 2 PPT headwind on revenue and a 3 PPT on net income and EPS. I'll she's trying to do is clarify that for you for 2016. We'll be at the lower end of our numbers.

And when you do actual as-reported as compared to FX, just make sure your account for the euro and the real. That is all we're trying to provide you with guidance on. Other than that, we are conducting our business the way we normally conduct it. We're going after business, volume, revenue, diversification, services and the rest of it..

The next question comes from the line of Matthew Howlett from UBS. Your line is open..

Can you just clarify the trends you said? In January you said everything was trending up over 4Q?.

Yes. So in January 21, just to repeat that, processed volume we actually saw growth of 14%. So that's up 2 PPT from the fourth quarter. In the US actually we grew 13%, up almost 4 PPT from the fourth quarter. And then outside of the US it was pretty much the same as the fourth quarter at 16%. Our processed transaction growth also up slightly at 13%.

We saw 12% in the fourth quarter. And then cross-border was pretty much the same. The cross-border growth was right at that 12% that we saw in the fourth quarter..

And then just on the China region, with the wins you are having over there, is that going to take all the offset? We just noticed a weakness in that region.

Can you just maybe just go a little bit more in detail in terms of what you're seeing overall versus the wins you are gaining?.

Yes. So look, I don't think it that China's wins per say on these single-banded cards and the like. They all take time to build as numbers. I do think that China spending is what you are concerned about. And what you will find interestingly is not that Chinese tourists are not traveling. They're traveling to different places.

Earlier, instead of going to greater China, Hong Kong, Taiwan, a lot of that, today they're going more Japan, as an example. Japan has actually seen a surge of 115% in tourist arrivals from China compared to the prior year. So, current direction and location is changing. Domestic spending is certainly impacted in China.

I was in China last week and you could see it there. So I don't know that merely winning a few more deals will change the nature of revenue growth trajectory in China over the course of one year. Over the course of a couple years, absolutely. It can help.

But I wouldn't assume that China's revenue growth will be exactly as it used to be just given the amount of economic change that is going on in that country..

The next question comes from the line of Darrin Peller from Barclays. Your line is open..

It's nice to see the solid expense management when you need to. And I guess we looked at how this quarter -- your expenses did grow by call it mid-single digit on a constant-currency basis, including acquisitions. But excluding deals, you guys had roughly flat expenses in the quarter.

I know you mentioned investments in China and digital and security but I also thought you guys were doing that throughout this year. So I guess just some clarity on why that couldn't be roughly low-single digits again or flattish even with the same reinvestments in China and digital.

Especially if your acquisitions are coming down, I think, now, right?.

Well our acquisitions are actually starting to be really part of our base business and doing very well, I have to say. But what really we have to dial up, and we talked about that quite a bit in September with you, is two areas. One is China. Ajay was already mentioning that we have started to put our investments on the ground.

2016 will be a fairly heavy-duty year for that. And that will require some investment. And the second area is still digital. As you heard, we already rolled out MasterPass in 29 countries. There's a heck of a lot more that we have to do and we have to gather a lot more banks issuers as well as merchants onto that platform.

So those are the very -- the two big areas where we will now focus on..

You'll see us honestly investing in that and you'll see us investing in all the services businesses, information services, of consulting, of processing, of safety and security because without processing more transactions -- and I've said this a few times. Look at Europe. We only process 40% of our transactions.

Now that is from where we used to be but it's still only 40% because of all the local schemes that exist in every country. And clearly the opportunity for us is to process more transactions so we see more data and we use that data for our services. Our services business depends on that data.

It's all about the analytics that get created and the transactions we see. So that's the kind of investments that we think we should be making in 2016. But, Martina, if you talk to our business people in the Company, you will hear from them that Martina is a relatively painful person because she tracks it by quarter.

And then she alluded to her astute expense management that's otherwise called a gatekeeper. She gives it to you every quarter based on what she thinks the trends are for how the Company is going.

And so she is able to manage her expense management, both for strategic investment and the underlying core, built to suite the cloth that we are dealing with. That's the idea that we're trying to communicate to you..

But there should be a step down in the incremental integration expense related to acquisitions this year--.

Absolutely. From the current acquisitions -- absolutely correct, now look, we do some others, which is a different thing. But all that we've -- and now in our basin, basically as you said, by the second year they go into our basin. We deal with them as part of our core expenses..

The next question comes from the line of David Togut from Evercore. Your line is open..

With domestic credit and debit interchange caps going into effect in Europe in December 9, can you comment on any impact you have seen on your card issuing banks or any thoughts going forward on whether payment acceptance in Europe could increase as a result?.

Nothing has changed in six weeks. Europe doesn't work in six weeks cycles. You know a different Europe from what I know. But frankly, I would tell you this. The conversation about the impact on banks, the impact on merchants, the likely on acceptance, that conversation has been going on from the day and the regulations have been complement.

There's nothing new to tell you from what we've discussed earlier. Banks are clearly worried about the impact of their revenue stream. They are clearly looking at ways to make up that, either through fees or through other methods. Clearly merchants with a lower cost of acceptance should be willing more to accept electronic payments than they used to.

As you know, Europe is a relatively underpenetrated market on electronic payments compared to its sophistication as a destination. And so there's a lot of opportunity there as well.

And then there are all these local schemes that are re-looking at their context, given the digital change and the investment that is required to upgrade themselves to digital. That is how we have been winning more domestic processing over the years. All of that is pretty much a trend, even now..

So in fact, David, as we were running up to the December 9 deadline, a lot of work was done by our people, especially by our advisor people in our consulting business, helping banks as well as merchants to be getting ready for that.

And that's the opportunity that actually Ajay was referencing -- is that there are real life engagements that we could be doing -- we did do in order to get them ready and make sure that their portfolios are in a shape that they can take it profitably forward..

The next question comes from the line of Chris Brendler from Stifel Nicolaus. Your line is open..

Just want to focus on your comments around cross-border in Europe. You mentioned a grow-over issue. Can you quantify that at all? Is it relatively small? And any more detail on what those wins were last year? And a separate question, you mentioned the processing share in Europe.

It looks like process transactions are growing a little slower than your overall volumes at this point. Is that just a mixed issue? And if it is a mixed issue, what is causing the slower growth in transaction? Thanks..

Yes. So first of all, in Europe we won actually some wins some time ago in the Nordics. And they are now lapping. And that's where you see some of the impact in our volume numbers, including the cross-border numbers, including the transaction numbers, by the way.

They were terrific wins but they're lapping at some point in time so they are going to our baseline. Other than that, there is really nothing different going on than what we've seen in prior quarters..

And those wins, were they airline programs?.

No. These are banks. Banks of the Nordics -- SEB Bank, Nordea, Danske, all of these in the Nordics..

The next question comes from the line of Tien-tsin Huang from JPMorgan. Your line is open..

Just a couple clarifying questions, if you don't mind.

Just first on the fourth quarter operating expense, how did that come in versus plan? Did you pare back spending based on something you saw? Or was it more just FX? And then your high-single digit comment for 2016 in OpEx, is that a reported or local currency growth comment?.

So, Tien-tsin, for the fourth quarter, fourth quarter was we managed through fourth quarter the way that we actually have expected to manage through fourth quarter. And as Ajay said, I'm a little bit of a stickler with the budget and what people can do. So of course we did everything that we could do in the operating--.

I'm going to pay for that comment later, Tien-tsin. I'm getting looks from across the table..

Yes, you're getting looks on that one. So on the operating expense line we made sure that we basically fund those investments that we need to do. Now, all of the numbers that I have called out, both for the fourth quarter as well as for the 2016 numbers, they are all on an FX adjusted basis. Right? Tien-tsin, we always call out the euro and the BRL.

And that's why we've been giving you the headwinds numbers in terms of what you should be assuming going forward. So coming back again, when you look at 2016, for the topline it's a 2 PPT headwind because of euro and BRL. For the bottom line it's a 3 PPT headwind for the euro and BRL.

So we can basically think that operating expenses has a little bit of an issue from an FX headwind point of view too..

Okay.

And just on slide 12 the reconciliation for the three-year CAGR, looking back the 10.5% and the 19.2% revenue EPS -- is that comparable to the prior objectives?.

Yes. So Tien-tsin, this is as I was trying to explain to Bill. This is completely done in the basis that we had put out. Right? So four -- when you look at the revenue line -- the net revenue line, we said it will be adjusted for any acquisitions that we had not announced at that point in time and it will be on an FX neutral basis for the euro and BRL.

So when you look at page 12 and you see our net revenue growth of 9.5%, you see two adjustments which gets you to the 10.5%. And then for the bottom line, very similar to how we laid out the 2012 base number of a $2.14 EPS. We calculated the 2015 EPS in exactly the same way with exactly the same principles.

That gets you to the $3.62 for a growth rate of 19.2%..

So the difference between 19.2% then and the at least 20 that you are targeting can be explained by--.

All by local effects. So that is actually a very important point. I am glad you are bringing it up. The 19.2% had more local effects in there than we would have ever thought about when we put the performance objectives together back in 2012.

Remember, last year's foreign exchange volatility in the market and the way the dollar appreciated has not been seen in over 15 years. It was an extraordinary year. And by the way, I also sat in my prepared remarks, when you look at the revenue line that 10.5% would have been over 12% if we course-corrected for all of those local FX headwinds..

The next question comes from the line of Don Fandetti from Citigroup. Your line is open..

Ajay, your cross-border held up very well relative to Visa over the years. And I think more recently you have been feeling pretty good about it. Can you talk about what's changed and are we seeing trough levels here? I know it's one of your higher-margin products. I just want to get your sense on the outlook..

Yes, Don, we've navigated through this 12% kind of number on cross-border growth earlier. This is my sixth year into the place here. And I have seen 12%, I have seen 16% and up and down from that.

I -- my view of what's going on in cross-border right now is that the fact is that tourism around the world did get impacted in the fourth quarter of last year. There is no doubt that when the Parisian terrorist attacks happened it impacted France for a while. There's no doubt that when the Egyptian plane went down, it impacted tourism into that area.

And so that's just reality. A lot of these tend to bounce back over time. Paris did come back. Not exactly to the level that it was growing at. Remember, Paris is the world's number one tourist destination, the world's number one.

And some portion of it comes from tourism, some portion of it comes from corporate travel, some portion of it comes from e-commerce. And these different elements have been impacted differently by the way the world is seeing its geopolitical circumstances over the last two or three or four months.

That's why I think our numbers are still running even at 12 in the first 21 days of this year. And they are not going higher or lower. It's kind of where we are. We're sitting there. I'm going to watch that very carefully because it does impact my revenues.

Sort of every transaction and sort of many other things but cross-border is a particularly interesting part of it. And so we watch it carefully.

And that is part of the reason why we believe that in 2016 one of the reasons where we're saying take a look at us being at the lower end of our revenue guidance to you for the three-year period -- is all these factors are inside that thinking of our budget for the year..

The next question comes from the line of Moshe Orenbuch from Credit Suisse. Your line is open..

I was very impressed with the acceleration in January in the US. And it sounded like from the comments that one percentage point of it was in fact from less of a drag on gas prices but another 3 PPT seems to be coming.

Is that partners that are doing better? Are there other things we should be aware of, either wins or losses in the US to affect the balance of 2016?.

You have a number of factors going in there. Of course gas is -- because of the lapping effect has one impact. But we are also doing better on the pin side. Okay so we have more volume coming through there. Secondly, we have a number of clients who actually picked up their volume. And so we are seeing some of that.

And lastly, we also are getting in the more fully lapping period from the loss of Chase..

Remember we had loss of Chase. We've had our wins. That complex intermix is coming into play. And then some of our -- it's our mix of clients as well. We have had a couple of years of some of the clients -- we've had the larger ones -- were struggling on their own growth.

If you like the scores, you look at the numbers that are publicly released, those folks are doing better over the last few months. That helps us. So it's a mix of all of that. So that's a good thing..

Correct. Absolutely.

And how does USAA factor in?.

Not yet because they are still on our books. But the migration will happen over time. Credit will migrate and then debit will migrate over the last 12 to 18 months at a certain pace and process. And that will certainly go away from some of our numbers. But you know what? You get wins and losses.

I would not rotate on any one win or one loss otherwise you will drive yourself crazy..

The next question comes from the line of Eric Wasserstrom from Guggenheim. Your line is open..

This is Jeff Kay [ph] on for Eric. [Indiscernible] technology is increasingly on the reader in the payment space, particularly with cross-border. I think we are at the stage of the hype cycle where the reality no longer matches some of the more aggressive assumptions as far as what the technology is really capable of.

So I was wondering if you could just help frame the public conversation, specifically with respect to what you're seeing in terms of internal opportunities and also if you could share your views on its perception as an external threat. Thanks very much..

I want to make sure I understood your question. You're trying to have a dialogue with us about how we think about digital as an opportunity as a disruptor, as a transformation in the commerce place of the plane.

Is that what you are looking for -- broad conversation around that?.

Correct. A, how you would potentially use the technology. And B, what your opinion is of it as an external threat..

You're talking about Blockchain specifically? Are you talking about digital transaction as a whole? Are you just talking about -- I just want to make sure I give you a substantive answer..

With respect to digital please. Thanks..

Digital over all. Okay. So first of all, my belief is that this thing is going through its cycle. Four or five years ago, the conversation was that the mobile payment operators would be able to create their own payment systems because they had both consumers and email, voicemail, phone connectivity with millions and billions of consumers.

Why would they need anybody else to provide? As you saw over time, we have now got 50 of those [indiscernible] around the world signed up as our partners. And some of them, in fact, we have entered the JVs with that have done well, others have not done so well. That is actually one of the write-downs that Martina was referring to.

Over time, they're going to invest in different directions. Some of them will do well, some of them will not. And a couple of those haven't done as well as we would like to. My general sense is the mobile network operated payment system for person to merchant has yet to prove itself in scale in any marketplace at all.

From person to person payments there is a little more going on. Okay, so I just -- I think that's a bit of a challenge on where those are going. I think on non-mobile network operator, that is to say hardware-based Samsung and Apple, Google -- there's some interesting new developments we are seeing with contact-less payments and in-app payments.

I don't know yet that browser-based payments will go where with that bunch of digital giants. But remember, browser is the largest portion of digital payments today. And frankly, out three to four years it will still be overwhelmingly the large percentage of digital payments. So that's another one to be card through.

I do think that the biggest conversation that's going on in digital is the safety and security of those transactions. And a lot of our effort and energy has definitely gone into organization, not just for MasterPass for our banks and merchants but even for -- not just new transactions but even for cards on file.

Because frankly, with EMV in the US, where do you think fraud will migrate to? It's going to migrate to online. And that's what happened to every country around the world. So our focus here is not just in solving Band-Aids with EMV, it's on making the whole payment system more secure over time. That's why tokenization is key.

And a large amount of our investment and those of our competitor is going into that space. That's why we agreed on industry standard for tokenization so we shouldn't create fiction between banks and merchants on which standard to work with. So you're going to see a lot of energy and effort in that space.

And I think the other piece that will come into play in digital will be the intelligence that will drive the capability of banks and merchants to drive better transaction, better relationships with their consumers. And that's why the effort on services and analytics. So you kind of -- that's why I think about digital.

I think of it as a big opportunity. When 85% of the world's transactions are still in cash, there is a lot of space out here. And it's the same view I have about existing competitors in the payment system.

Rather than say domestic debit scheme in a country or it's the larger competitors or it's a China union or anybody else, my view is there is a lot of space here. You've got a get off the 85%. We can all growth in there and still have a pretty good run rate for this industry for some years to come..

And within that, what Ajay was saying, obviously, we are exploring any new technologies, be it the Blockchain, be it biometrics, be it what's happening in the mobile space.

And we obviously work with many partners around the globe in order to make sure that we can deliver the products and services that consumers and merchants are demanding that the banks want to deliver and so new technology is nothing new to us. We're going to have to be on the forefront of that every day of the year..

The next question comes from the line of Jamie Friedman from Susquehanna. Your line is open..

I wanted to ask about the commercial corporate market. One of your competitors, one in New York not in California had called out weakness in the corporate market. I wasn't sure if their loss was your gain or something more structural..

You're trying to triangulate stuff. Okay. So I don't know what somebody else was saying. I'm not going to comment on that. That's their business and they're a very good competitor. So let them do what they are doing.

My general opinion across the world on the commercial market for corporate clients is that it's still healthy and something that there is opportunity for us to grow on. And remember that even through this last cycle of economic difficulties in 2007, 2008 and 2009, the commercial corporate market is in a growth market.

That's because business people are still traveling. And there is a lot of space there in travel. There is space on B2B cards. There's space on purchasing cards. There's space on B2B flows and large cards. All of those are what's inside our commercial business.

So just from a number point of view to give you some context. For all of 2015, the commercial market actually grew at low double digits -- actually not a bad growth of all. It did come down a little bit but still double digits in the fourth quarter. So it is growing very healthy..

Your next question comes from the line of Bob Napoli from William Blair. Your line is open..

Just a quick on the rebates line and with a little clarification, if you could, Martina, on the percentage of revenue -- maybe you were talking about on confusion on some models. But my real question is on just the services business. The -- which I think you had said at your conference is 25% of revenue -- has much lower margin.

I was just wondering what your outlook is for the growth of that services business over your three-year time horizon and any thoughts on the margins in that business as well..

Okay so first of all from a rebates and incentive point of view, I didn't give a percentage of growth. What I did is I gave you a view on what the growth would be 2016 over 2015. In 2015 we saw a growth rate in rebates and incentives around 20%. I said for 2016 it will be just a little lower than that 20%.

Okay? So that's the growth rate and it's the 20% that you saw in 2015. By the way that's and actual reported number. So for the services business, yes, I tried to give you a few points back in September at the investor day saying that our core business is substantially 75% of the Company and the services business is about 25% of the Company.

All of those growth expirations that we have in services -- and you can actually see in the revenue line where we have most of the services in there -- it grows very, very fast. All of those expectations are actually embedded in our overall net revenue guidance.

So I am not splitting for you apart in terms of what our core business versus the service business does.

The other thing that we said in September, and I have no different expectations at this point in time, is that the services business, while its lower in margin than what we have today than what we have in our core business, that we do believe that over time there will be some margin improvement in the services business..

It's all the question of scale. Right? That's one of the reason that it's a lower margin. Although that's not the only reason. It's also the nature of the business. In some parts of it is more people intensive. In some parts of it it's more technology. Where it's more tech intensive, it's more like our core business.

Where it's more people intensive, it's a lower margin business. And therefore, as you build up a volume and scale on top of those businesses, you get better revenue and better margins out of them. That's what we are doing.

In fact our advisor consulting business in the six years that I have been in the Company, I have seen Martina work it with the team there on improving the margin of that business through better utilization of people, lower downtime of consultants, creating centers of excellence, essentially the steps that have been taken to improve that business.

So that is the kind of thing that is underlying our commentary on lower today on margin. But we have every expectation of continuing to improve that margin over time..

Your last question comes from the line of Chris Donat from Sandler O'Neill. Your line is open..

I'm going to ask one that's a little bit off the beaten track here.

But with the change in sanctions rules and laws for Iran and your experience you have had over the last few years in Burma or Myanmar, can you comment on how long you think it might take to get to a business in Iran and with Iranian banks and if there is any meaningful revenue opportunity in the next 5, 10 years?.

Next 5, 10 years, Chris? Yes. Next one year? No. So let me give you an example from Myanmar. Myanmar was handled -- once the government of the United States opened up its relationship with Myanmar, the removal of sanctions in Myanmar happened pretty quickly after that.

And companies like us and our competitors were able to go in and begin to first enable ATM networks and then enable acceptance and then enable issuance in the country. With all that, because Myanmar has a relatively underdeveloped payment system, that entire thing is relatively slow.

Now Iran, on the other hand, has the payment system domestically, merchants to accept electronic payments already. It's not Myanmar in the form of being a completely cash economy. So if you could plug and pay, you could probably get quicker results than in Myanmar but the United States government is still to lift its sanctions.

You just saw that the Iranian president came out and signed a fairly large set deals on planes from AirBus -- hasn't even signed anything at Boeing. That is all part of what is going on. There has to be a whole change in the sanctions regime that allows companies like us and our competitors and banks to operate freely in Iran. That has yet to be seen.

So I would say Iran more interesting because of a literate population with a relatively functioning electronic payment system. But until the sanctions actually get lifted, this is all very nice but we can't do very much..

Okay. Questions done. Closing comments. So thank you all for those closing questions. Let me give you a couple of closing thoughts. You saw it come through in what Martina and I were saying. We think we've navigated a tough economic environment this year, particularly the foreign exchange.

And honestly, the local currency tangent to your question -- that came at us even faster in the last two, three months of the year. We met you in September, talked something about local currency. By the time December came around, it was a different picture. December is self was a different picture from November and October.

That's how rapid the local currency movement, vis-a-vis the dollar has been. But you know what? We've navigated that and delivered strong results through a variety of prospective financially, volume, share growth, bill, innovation. 2016 look similar to 2015. So we're going to stay very focused on executing our strategy.

We're going to try and play a defining role in the digital opportunity. We're going to keep trying to innovate for the future, grow revenues from both our core and our services businesses and work really hard to manage our expenses so we create the space for us to invest in our future. The payment space I think remains a great place to be.

Our business continues to have strong momentum. We're going to keep perusing profitable market share. We're going to keep trying to drive the conversion of cash to electronic payments around the world. I continue to believe that run rate is an enormous runway of growth.

We intend to maintain our leadership in the industry effort in digital payments, in safety and security, in financial inclusion. And I am quite confident we can run the Company for growth and will try to deliver on our three-year objectives. I just appreciate your ongoing support for the Company and for all of us. And thank you for joining us today..

Ladies and gentlemen, this concludes today's conference call. You may now disconnect..