環匯 (GPN) 2014 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to Global Payments' FY2014 fourth-quarter and year-end conference call. At this time all participants are in a listen-only mode. Later we will open the lines for questions and answers.

(Operator Instructions)

As a reminder today's conference call will be recorded.

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

Thank you.

Good afternoon and welcome to Global Payments' FY2014 fourth-quarter and 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 the conference call contain forward-looking statements which are subject to risks and uncertainties discussed in our SEC filings including our most recent 10K. These risks and uncertainties could cause actual results to differ materially. We caution you not to place undue reliance on these statements. Forward-looking statements made during this call speak only as of the date of this call and we undertake no obligation to update them.

In addition, some of the comments made on this call may refer to certain measures such as cash earnings, which are not in accordance with GAAP. Management believes these results more clearly reflect comparative operating performance. For a full reconciliation of cash earnings to GAAP results in accordance with Regulation G, please see our press release furnished as an exhibit to our form 8-K filed earlier today. The press release is also available in the Investor Relations area of our website, www.globalpaymentsinc.com.

Now, I'd like to introduce Jeff Sloan. Jeff.

Thank you, Jane, and thanks everyone for joining us this afternoon.

Before I begin our formal commentary I would like to introduce Cameron Bready, our new Executive Vice President and CFO. I am delighted to have him as part of our team. On that same note, this marks David's last earnings call as CFO, and I am pleased to now have David as the Company's President and Chief Operating Officer. I look forward to working with both Cameron and David in their new positions.

We are pleased with our strong performance for fiscal FY2014 with revenue growth of 8% to $2.6 billion and cash earnings per share growth of 13% to $4.12. We also returned over $450 million to shareholders in buybacks and dividends and made a key $420 million acquisition.

These results reflect continued execution of our strategy to expand direct distribution, leverage our technology footprint to bring innovative products to each of our markets, and prudently balance and deploy capital. We made tremendous progress on our strategic initiatives in FY2014. We enhanced our integrated payments solutions business with the acquisition of PayPros, and we have made significant strides in our integration efforts, including for example, by establishing a new leadership structure and combining our sales forces. This has already shown early wins.

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

We approach each of our markets with significant global knowledge and capabilities, yet remain focused on leveraging our local expertise. We combine this approach with a disciplined capital allocation strategy. Over a 3-to-5 year cycle we believe our model will deliver low-double-digit cash earnings-per-share growth including acquisitions and buybacks driven by mid-single-digit organic revenue growth and operating margin expansion.

Now for quarterly highlights, we exited the year with strong momentum. Revenue growth for the quarter was 9% to $674 million, and cash EPS growth was 11% to $1.09. We are delighted to report that our North American business continued to deliver solid results in both the United States and Canada.

The US results were driven by strong performance across our direct channels, including the addition of PayPros. Canada delivered another quarter of stable performance in local currency with 3% growth for both revenue and credit transactions. We are also pleased with the performance of our international business, reflecting solid execution across all of our markets with particularly strong revenue growth in Spain and our eCommerce channel.

As we look toward FY2015, I am confident that we will continue to make progress on our strategic and capital deployment initiatives building upon our direct distribution footprint and overall market presence. We will remain focused on solving tomorrow's payment technology needs today by fulfilling our customers' needs and continuing to deliver scalable, innovative products and services.

In addition we continue to pursue a well-disciplined corporate development roadmap, and have a strong acquisition pipeline of opportunities in the Asia Pacific region, Europe, and the Americas, that have the potential to augment our strategy. Finally, our Board of Directors approved an additional $200 million share repurchase authorization, further demonstrating our ongoing commitment to prudent capital management on behalf of our shareholders.

Now I will turn the call over to David.

Thank you, Jeff and welcome Cameron. We're glad to have you on board.

We are pleased with our momentum exiting the year and with performance across all of our markets in FY2014. As anticipated, Canada's revenue grew 3% in local currency and network assessments annualized in the fourth quarter. Canada's revenue declined by 4% in US dollars as a result of currency translation.

US revenue growth for the quarter was 9% driven by transaction growth of 11%. PayPros performed as expected in the quarter and added 2 percentage points to total North America revenue growth of 7%. North America cash operating income grew 3% to $82.7 million and cash operating margin of 17.2% was about as we anticipated.

International revenue grew 14% for the quarter in US dollars. Europe delivered strong revenue growth of 16% fueled by performance in Spain and from our eCommerce business. Asia Pacific revenue grew 5%.

International cash operating income grew 16% to $66 million, and cash operating margins increased about 60 basis points to 34.6%. As expected, total Company cash operating margins for the year expanded by about 20 basis points to 19.5% excluding the 2014 incremental security investment of nearly $17 million.

We generated Free Cash Flow of about $80 million this quarter and nearly $320 million for FY2014. We define Free Cash Flow as net operating cash flows excluding the impact of settlement assets and obligations, less capital expenditures, and distributions to non-controlling interests.

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

Now let's turn to 2015. We expect FY2015 reported revenue to grow 6% to 8% and range from $2.69 billion to $2.76 billion. We expect cash earnings per share to grow 10% to 12% and to range from $4.52 to $4.62. We also expect core cash operating margins to expand by as much as 30 basis points in FY2014. We expect North America revenue to grow at a mid-to-high single digit rate with mid-to-high single digit revenue growth in the United States and Canadian revenue growth in the low single digits in local currency. We expect North America cash operating income to increase in the low double digits compared to last year. We expect cash operating margins in North America to expand in 2015.

As you know, one of our largest US sales partners was acquired by another company in June. Due to the recent closing of this acquisition, our current financial expectations assume no change in the nature of our relationship with this customer. Importantly, if the nature of our relationship with this customer were to change during the fiscal year, we would not expect any significant effect on our FY2015 expectations for North American operating income or total Company cash earnings per share.

We anticipate that international revenues and cash operating income will grow at a low-to-mid single digit rate in US dollars, including currency translation headwinds in certain markets. We expect international cash operating margins to decline modestly. International expectations reflect assumptions for mid-single-digit revenue growth in US dollars in Europe with consistent local currency performances from Spain, the UK, and our eCommerce business, coupled with a tempered view of growth expectations for Russia, which represents less than 3% of total Company revenue.

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

We expect our effective tax rate to approach 28% and diluted weighted average share count to approach 70 million shares for the year. We expect the distribution of quarterly cash earnings per share as a percentage of annual earnings per share to be roughly consistent with that of FY2014 and we anticipate that FY2015 capital expenditures will total about $95 million.

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

Now I'll turn the call back to Jeff.

Thank you, David.

We delivered strong results for FY2014 with high-single-digit revenue growth improving margin trajectory and double digit cash earnings per share growth, all in accordance with our stated business model. We are committed to driving sustainable growth in each of our markets and remain dedicated to creating value for our shareholders, partners, customers, and employees. As our FY2015 guidance suggests, we expect another strong year.

Now I'll turn the call over to Jane.

Thanks. Before we begin the question and answer session, I'd like to ask everyone to limit their questions to one with one follow-up in order to accommodate everyone in the queue. Thank you, and Operator we will now go to questions.

Thank you. Ladies and Gentlemen we will now conduct a question-and-answer session.

(Operator Instructions)

Our first question today will come from the line of Ashwin Shirvaikar with Citibank. Your line is open.

Thank you. Congratulations to Cameron and David on your new positions, and let's start with saying it was a good quarter.

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

So that's kind of what my first question was with regards to, if you can walk through the ups and downs of how you arrive at your revenue assumption?

Sure, Ashwin, it's David. I'd be happy to.

I think you really have to pull all of the pieces apart to think about how the revenue growth comes together without splitting hairs over PayPros specifically, you certainly can make your own assumption there. I would tell you in aggregate we feel very good about the trajectory of the Company, the momentum heading into 2015 that were on the model that Jeff described. We feel very good, obviously, about the 10% to 12% cash earnings per share growth to complement that in the margin expansion.

With that as a preamble, let's talk about the pieces and recognize that, when we go into any given year, we first start with the macro situation and all the markets we serve and start to begin to build the budgets from there, and think through how the pieces of macro affect GDP which might affect the consumer, which then might affect FX or anything else that goes with that. And really what I think you get when you come back to that total picture is really nice progress consistent with what you'd expect from each of our markets. So let's walk through them specifically.

PayPros adds very nice revenue to the United States picture. Remember, the big channel there, ISO, continues to slow, which, as you well know, is happy news for us at the margin line and neutral news for us at the income line. So we're very happy to have the pieces of the US revenue come together with great performance in the integrated business, married to a slowing ISO channel and solid performance from the rest of the US channels, all of which aggregates to mid-to-high single-digit revenue growth from US.

In Canada we're looking at low single-digit growth in local currency and then you get the effect of currency taking you potentially the wrong direction. A range obviously always allows for currency in any given market, so you have got a couple of different pieces you have got to think through that will eventually affect your overall range, about which you were asking a moment ago.

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

When you think about international, again you think about the various pieces of the market, we're expecting consistent performance from all of the assets you're familiar with across our international portfolio of businesses. That's a mid-single-digit growth UK business, same in a place like Malta, maybe mid-to-high in Spain, which has consistently posted high-single-digit growth and sometimes low-double-digit growth in that market. Our global solutions eCommerce business would be a strong double digit grower, just as it did last year.

Now with Russia we have a tempered expectation, which reflects macro there as you might expect. Macro is a little bit challenged there, obviously we can all read the headlines, so we allow for a little tempering there momentarily, and when you bring those folks together, those assets together, you've got mid-single-digit overall growth in Europe and really solid mid-single-digit growth in Europe.

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

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

Understood, thank you for that rundown.

I guess my second follow-on question is, operating leverage obviously a good thing, especially considering you guys are making the investment in the business. So with that 30 basis points, is that something we should expect here on out, if you will, are you going to set a range here to say going out multiple years that 30 to 50 is a good range to expect? Any color there?

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

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

Just on top of that, Ashwin, as David described, without giving specific time periods, our operating model, as I mentioned in my prepared remarks, a key feature of that is operating margin expansion and we don't expect that to reverse. That's how you go from the organic revenue guidance to the earnings guidance that David laid out. But the key function of that model therefore would be, over time, increasing margins, and I think you saw that in FY2014 and our guidance in FY2015 reflects that as well.

Absolutely. That's a good thing. Thank you guys.

Thanks, Ashwin.

Your next question comes from Dave Koenig with Baird.

Hi guys, great year. Just two questions.

My first one, you mentioned cash margins being up in North America year over year in FY2015. Is that primarily due to mix or should we expect some of the individual items to generate increasing margins across, I guess, ISOs and direct?

Yes, David, it's actually -- I guess you'd think of it as both in that we expect our core integrated solutions business, so even pre Pay-Pros, to continue to grow and expand margins as it has since we bought APT a year and a half or so ago. Beyond that same model for our direct business and our gaming business, we have the assumption of continued slower growth than we would historically recall with the ISO channel, which, while not a margin enhancer, is less of a headwind against the margin growth we expect from the core business.

On top of that is the PayPros business, which we talked about before at what stage it came into the Company, and over the course of this year we expect it to be a piece of the margin expansion story as well, as we get integration straight and continue to make progress there. And then your final element is we have a still-stable, we believe, Canada in local currency.

Now could FX move against us there to serve to give you a headwind there? It's quite possible, so what we will track there is that the core stays stable. That mix of credit transaction growth and spread that's been manageable for us for a few quarters now, that that continues. So if I boil down your question, it is mix because of the channels but within that to the point of the first part of your question, it's the individual channels themselves performing at or above expectations.

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

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

Great and just a quick follow-up.

I think you said PayPros added 2% to North America revenue growth. That would only imply something like $10 million or so of rev, and I thought we were on like a $25 million quarterly run rate.

We are on that quarterly run rate as we exited. We can check a little bit of that math as we go through the pieces later on tonight but we are on the $25 million run rate. You're exactly right, Dave.

Thank you.

Your next question comes from George Mihalos with Credit Suisse.

Hi guys, thanks for taking my questions and congratulations, David and Cameron.

Just wanted to ask a question sort of parse out the US growth again. Outside of the ISO channel, are you seeing any of the direct business slow down at all? Or is all the slowdown really coming from the ISO channel still?

Yes, George it's Jeff. I'll start answering that qualitatively. David of course will add additional commentary.

No we aren't seeing a slowdown in the remainder of the businesses. When we look at our integrated businesses, we are now going to annualize PayPros, so we don't have an annualization impact, and those businesses are still performing well into the double-digits organic revenue growth, George. Excluding any annualization impact. So we're not seeing a slowdown there whatsoever.

When we look at our other direct businesses like our gaming business, in my opinion -- those businesses are growing well north of where the market is for that type of business, and the same thing I believe is true of the rest of our remainder of our direct businesses in the United States, so we're not seeing that trend whatsoever in any way in our direct book in the US.

Just a slight drill down, the traditional bank-based referral business does not have a fundamental change in trajectory from last year to the year before to the year before that, so you are kind of left with more of a slowdown in the ISO channel, the law of large numbers being a piece of that mathematical conversation as well.

Okay, great. That's helpful.

And just as it relates to the operation in Russia, obviously a small piece of your business but the conservatism that you're looking at for 2015, I'm just curious, have you seen a slowdown in the fourth quarter of 2014? And that's what's leading you to be more conservative? Or you just assume it's going to slowdown in the near future?

Yes, we don't parse any growth rates by market but I would say we had a solid Q4 but now as we sit here in July we're looking ahead 12 months of performance. And as I said earlier, when we start thinking about any market whether it's the United States or any other, we start with macro and say, hey, is there anything about which to be cautious as we begin the idea of how are transactions and volume going to grow going into the year, where will we take market share, etc.

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

Your next question comes from Bryan Keane with Deutsche Bank.

Hey guys, just a follow-up question on the US market.

If I say it's going to grow mid-single digits and I subtract $75 million from PayPros, I'm basically getting flat year-over-year revenue growth in the US business, and I'm just a little surprised by that so maybe you can help me understand how that could be?

You know, we would have to pull apart your model, Brian, but I think the mid allows for a big range of outcomes, lots of risk, FX and Canada etc. At the end of the day if you pull the pieces together it wouldn't surprise me if you're higher than the bottom of that range and thinking about the pieces.

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

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

Brian, I think what David said -- just to be clear because I know we're conjoining US versus Canada. So in the US our prepared remarks are mid-to-high single-digit rate of growth in revenue in the United States. It's only when we blend in the Canadian business, that low single digit and local currency, that you get to what I think you were just positing in terms of your question?

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

Does Comerica and the dissolution or the breakup of that alliance, does that have an impact there? And then last question from me is just on international margins. I think that is going to be down year over year in FY2015. Just trying to figure out what's causing that, thanks.

Sure so let's go back to the pieces again. On your core comments about US in mid -- wherever your math is getting you down in the range or below the range, remember that allows for further slowdown in the very big ISO channel, which would have no concurrent effect on cash earnings per share. So that's how we create that range and that range of outcomes of mid-to high-single.

Do we expect to be at the bottom end of that? No, we don't that any year, but we create a range for any number of risk factors. The primary one in the range about which you're asking would be how fast the ISOs perform and do they grow much slower than we think and do they decline in aggregate? Which again frankly doesn't matter from an earnings perspective or from a materiality perspective.

On that same theme, Comerica doesn't matter for this conversation either. And so I just want to be very clear about Comerica, those of you who have seen the filing. It's not material to the Company, to give a little bit of color to that we had a 51%-49% joint venture with Comerica Bank; we had 51% ownership of that. We have agreed with Comerica to split the joint venture, we will retain our share and they will retain theirs. We are currently working with them on the mechanics of the split. It's as simple as mechanics.

So to boil that down to answer your question, Bryan, whatever the mechanics of that split turn out to be, it's not going to change our financial outlook for the year and it does not drive the growth rates for the Company much less for North America or for US, so let's set that aside and we go back to ISOs and some of the other pieces -- the integrated business is growing in such great fashion over the course of 2015 and that creates our US and then total Company expectations.

Now on international margins, which is the sneaky third question you managed to get into this call, so a couple things there.

I've been doing this for awhile. I'm kind of a professional.

(Laughter) That's right. This isn't your first rodeo.

So we do expect it to be down modestly and there are a couple of things involved in that. The first is we're expecting continued strong growth from what we call global solutions, which is the eCommerce channel we operate, which operates at lower margins than the rest, and that has an impact in any given quarter, whether it be Q4 2014 or our expectation for FY2015.

We obviously have the tempered view of Russia, which has been a part of the margin expansion story over time. We certainly allow for currency at sort of the bottom end of whatever some of those expectation ranges would be, particularly in specific currencies like the Euro or maybe the Ruble, back to the macro commentary a moment ago.

And we probably have another year of some moderate investment at the margin in Asia as we continue to build out the distribution channels there to try and drive the long term growth of Asia as a bigger contributor to global 2-, 3-, 4-, 5 years down the road. But those are the big pieces of why we expect -- I think our commentary is down modestly in terms of operating margins in international year over year.

Okay appreciate the detail, thanks, guys.

Thanks, Bryan.

Your next question comes from Jason Kupferberg from Jefferies.

Thanks, guys. I just wanted to start on the margin side.

I think you guys said it will be up as much as 30 bps year over year in FY2015. But if we assume that you're getting -- if my math is right, about 70 bps of year-over-year lift just from the absence of the $17 million in security costs from last year, what are the offsets against that?

So Jason, I'm a little confused by your question. The security costs don't go away. In fact they are growing in 2015 and we are covering them in other parts of the expectations, so the $17 million was not a one-timer, it was a new run rate for the Company from a security investment expense So as we pull the pieces together, we expect security to begin to scale like the rest of the infrastructure but we will not scrimp on security.

That means it would have to grow -- and it's growing quite substantially next year -- that means in other parts of the Company, particularly in the infrastructure, whether it's accounting or any other corporate area, those things need to scale to allow for that investment and/or we need to drive increased revenue growth. So the margin story really is a little bit back to an earlier question. You drive really nice progress in the US and get a little bit of help maybe over the course of a year and late year at the margin from an acquisition. You have a stable Canada, you have these factors that take you back in international even though you're growing revenue nicely, all-in it comes together on top of a scaling infrastructure and you get approaching 30 basis points of margin expansion.

Yes, I think Jason the way I think about it is in David's prepared commentary it was 20 bps of margin expansion in FY2014, excluding for apples-to-apples purposes, the security increment and that 20 Jason compares to the 30, so that's how I take that rather than saying the 20 in 70 and all those other things. We're growing to margin more quickly next year than we did this year and that's how I think about it.

Okay that's helpful clarification and just a quick metric question.

What was PayPros contribution to US transaction growth in Q4 there? I think the total number was 11%, and then just anything you can tell us about FX headwind for revenue for FY2015?

PayPros adds a couple of points to create that 11%. And then would you ask the second part of your question again, your sneaky third question? Because you cut out for a second there.

I copied Bryan. The FX headwind on revenue for next year. I know you said a modest headwind on EPS. Is it similar for revenue?

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

Okay, understood, thank you.

Thank you.

Your next question comes from Kevin McVeigh with Macquarie.

Great, thanks, and let me add my congratulations as well.

You folks had talked about kind of low double digit cash EPS over the course of the cycle. Can you just drill down on that a little bit, and what are the components of buyback versus acquisition versus organic?

So Kevin, it's Jeff. I'll start.

Thank you.

Obviously as we said in the prepared remarks, it's over a 3- to 5-year period, so in any year you could be plus or minus, Kevin, the targets. But I would say in general if you look at mid single digits organic revenue growth and then you add that a little bit better than mid single digits operating income growth to try to get toward EPS and that is the genesis of my comments around operating margin expansion; before you get into M&A and the like. So mid-single digits organic revenue is a bit better than mid-single digits operating income growth. Then in any given year realizing it throughout the cycle, Kevin.

I would say that it's probably around 2% earnings growth from buybacks in any given year, Kevin. And probably around 2% any given year increment in year from acquisition activity in that year, so that's how I would think about it in terms of ranges. But you do realize that as we've said before, when we balance corporate development pipeline by way of return, we very much think about what is the return from a buyback relative to the acquisition we're doing from an IRR point of view, and we also think about what's the return from an earnings-per-share accretion point of view. So to a certain extent, Kevin, I view that 2% to 4% as being not quite fungible but being tradeoffs in the context of acquisitions versus repurchase.

Understood, and then is it fair to say that's probably the type of range we have dialed into the 2015 guidance as well?

Yes, I think it's fair to say that we're pretty much, as I mentioned in my prepared remarks, pretty much right on that guidance for FY2015. Now of course we're only just into the fiscal year right now and these things by way of acquisition in particular,

Kevin, these things tend to come up during the course of the year. As I did mention in my prepared remarks we do have a very full pipeline particularly in Asia Pacific, Europe, and the Americas, probably in that order, so we'll have to see how those play out throughout the course of the year, Kevin. But putting it aside for a minute I view that all in the bucket of the 2% to 4% area.

Great, thank you.

Thanks, Kevin.

Your next question comes from Glenn Greene with Oppenheimer. Your line is open.

Thank you. Couple questions.

I just want to go back to the US or North America revenue growth but make sure I heard it right. Are you contemplating the potential for an ISO revenue decline within that guide, Dave?

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

Which would imply, all else equal, better North America margins and you sort of said ISO was somewhat up, but directionally that would mean even more than directionally somewhat better than that?

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

Okay. And maybe if you could just update us on the PayPros integration efforts -- how far you guys have progressed on that and is it likely that we'll complete that by the end of the year and have sort of a clean slate going into FY2016 where we get sort of a full-blown integrated payments business between PayPros and APT with a much improved margin profile exiting the year?

Yes, happy to provide that, and let me start by saying to the tail end of your question the answer is yes, and I'll come back to that in a second.

We're actually really pleased with the integration to date. I think we noted in Jeff's prepared comments the leadership team is in place. We've moved quickly to do that.

We have a very solid integration plan for the technology, the platforms and the products and how they will come together over the course of primarily this fiscal year. From a reporting perspective, sort of the metrics and what happens in the corporate office around accounting and HR, feeling very good about those pieces, we brought the employee base into the manner in which we operate and pay, which is always an important thing to do when you bring an entrepreneurial type company into a corporate environment -- how do you keep that spirit while bringing them into the corporate fold. All that really being managed very well by the core PayPros leadership team and our existing APT leadership team that have come together very nicely.

To go to the most important part of that, which is really the second part of your question, as we look at this year we've got a lot of work to do. I don't know that we'll exit 2015 finished with everything but we will be in terrific shape from a product bringing one product to market, one platform and one set of customer-facing technologies to each new customer at that point.

We already have one face to the customer from a sales perspective that's going great. We had one very large win you've already seen just a few weeks ago. So I do believe to your point that when we exit the year whether or not every little bit of integration is finished, we won't be talking about integration any more, we will be talking about a Company really growing nicely and really contributing even more to the margin story we're expecting from the United States and North America.

Can I squeeze one more in here?

Sure why not.

Yes, why not. I guess I appreciate the -- sounds like various conservatism around the globe in terms of revenue growth and some people have asked around these questions -- but are there any specific customer-dampening growth losses or books of business that are coming off here your portfolio, that is dampening revenue growth, or is it more bits of conservatism here and there or you had some Russian headwinds, some FX headwinds, I don't know if you get the gist of my question?

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

We've taken a look at all of the markets; other than the specific ones I've called out a little bit earlier which are really currency around the globe here and there, a little bit of tempering in the market with some macro challenges right now. There's nothing specific beyond that and we expect a really solid FY2015.

Okay, great. Thanks a lot.

Thanks, Glenn.

Your next question comes from Jim Schneider with Goldman Sachs.

Good evening. Thanks for taking my question.

First of all on the PayPros I was wondering if you could give some color for FY2015 on how you're thinking about the growth rate of PayPros specifically off the base of the run rate you're at today, and then as you exit the year how big do you think the integrated channel is going to be as a percentage of total sales?

Jim, this is David.

I'd parse PayPros in and link it to APT to answer the first part of your question and come back to the second. We think each of these two businesses are solid double-digit, mid-teens top-line growers for the foreseeable future, so the core PayPros business is right in line with that. We actually think, to go back to Glenn's question, we can perform and we put the two really together with the right technology and product plan and execution, maybe we can squeeze out a little bit more growth from that over some period of time. So the core PayPros as it comes into global matches the core APT really beautifully. The verticals don't overlap but they are both growing a really nice double digit range, so think about that as you head for your model for 2015 and beyond.

I don't believe I'm going to parse the revenue lines enough to give you exactly what piece of the Company is going to be integrated payments come 2015. But I would say if you think about the math, which you know PayPros when it came into the Company a little less than two years ago -- I'm sorry, excuse me, APT when came into the Company a little a little less than two years ago, no PayPros just a few months ago and you think about the growth rates, I think you have enough in front of you to realize that it's already a really big piece of the Company, and it's a really nice fast growing defensible channel that is going to help, as Jeff said a moment ago, drive that margin expansion in and out of North America that we are expecting in the model for the 3-to-5 year timeframe we are talking about.

That's helpful thanks.

And then just as a follow-up on the M&A pipeline you've talked about different potential deals in Asia and EMEA in the past. Can you talk about where we might likely see a deal first come to fruition?

Yes, sure. So what we have said in particular in Asia since we started there, Jim, is there are three countries in Asia that we're not in directly today that we would like to be, and those are Australia, South Korea, and Japan. And where we end up in those markets is really a function as I've said before about what types of partnerships are available and what those returns look like, but I would look to those three as to where we've been spending our time as it relates to Asia.

Second in Asia, there are markets that we're already in, that we feel like we need to be bigger in because we don't have enough scale, and I think what we said before is in particular India, mainland China, and the Philippines are three markets where we are physically present today but we don't feel we have enough scale to accomplish the goals that we have as a Company and in those markets we're also looking continually to expand our existing footprint. We've been able to do that today organically but we do believe, and our model suggests, that we do have to augment that through inorganic partnerships which is what we're trying to effect.

What order those things happen in and the timing of those things are really a function of who the partner is and what the returns look like but that's where we're spending most of our time.

Perfect, thank you.

Thanks, Jim.

Your next question comes from Andrew Jeffrey with SunTrust.

Hi guys. Thank you for taking the question.

Sure.

So we've seen a lot of change now in the integrated channel or the direct channel, obviously your acquisitions and then Vantiv going after Mercury, could you just talk about sort of the competitive environment -- it was a lot of momentum behind the ISVs and it sounds like that's at least partially why you're feeling pretty sanguine about North American profitability recognizing the ISOs slowing down too.

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

Yes, Andrew, it's Jeff.

So what I would say is we've been extremely happy with the growth rates, the spreads, and really the retention rates and the lack of attrition in the integrated channel both in the case of APT in the year and a half that we've owned APT, as well as in the case of PayPros and the quarter, a little bit more than a quarter that we've owned PayPros and to be candid, sitting here today I don't really see that changing all that much. It's a key thing in those businesses.

The key thing in that business, Andrew, is that we're in about 40 different vertical markets between APT and PayPros and it's what is your value proposition, I believe, in those markets, in those vertical markets that we're attacking. So as you probably know from our Investor Day when we talked about APT, which we owned at the time it was very much geared toward dental, veterinary, auto repair, those types of markets.

PayPros, as David alluded to, very complimentary and didn't overlap all that much and it's primarily geared toward self-storage and of course there was a joint one that we've announced about a month ago in Reynolds and Reynolds which David was alluding to, which of course is in the auto channel where both really had a presence. So I think that the answer initially to your question is, what is your value proposition in that go-to-market vertical channel? And I think APT and PayPros have been able to show we're very good at those vertical markets and we think we have differentiated solutions in those 40 channels that we've been alluding to.

That's kind of point number one.

Point number two, how I think over a cycle, not really the next 12-24 months, but in a cycle that that may evolve; I do believe with those acquisitions, as well as with the partnership with CyberSource which we announced two and a half years ago at this point, I do think we're becoming more of a technology services Company and I think you've seen this in us and you've probably seen this in some of our peers' announcements.

At the end of the day the mode of differentiation for us and our business going forward is not going to be the type of device that something resides on but instead the value of the software providing it as a service. So to go back to my commentary around APT and PayPros and integrated it's very much are we catering to the specific needs of the dentist's office, of the pharmacist in the case of healthcare, of the auto repair shop in the case of the auto dealer, and do our applications address their concerns.

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

I think we like to think about our business, Andrew, especially in that channel as largely device agnostic, and that's how we think about delivering our value. I think the last thing I'd say, Andrew, on the mode of differentiation is our ability to do it cross border. So you've seen from us the announcement with APT that we brought that functionality into Canada and in particular, we have nativized it, for example, with Interact in the Canadian marketplace. That's very different than having, Andrew, a customer in the US that wants to do business in Canada.

Instead our APT product is designed for Canadian customers with the Canadian business of course in Canada, so I think our ability to bring that kind of service functionality not just as a solution in one market but as a solution in multiple markets where the language reflects the nature of those markets, the certifications reflect the nature of those markets, is a very important point of differentiation. So as I look 3 to 5 years out I'd say our ability to bring those models around the world is one of the ways we are going to win and I think we've seen it initially with us in Canada with APT.

Okay, that's very helpful. Appreciate that.

And with regard to the international acquiring business, it sounds like that continues to perform very well. Are there initiatives to expand that, either geographically or through additional partnerships, how should we think about that or is that just going to continue to just benefit from nice organic growth the way we have seen it in the last couple years?

I think it will still look to all of us, Andrew, like an organic grower but it does have its own dedicated sales team, actually its own dedicated product team for that matter too, is to your point we think about the different flavors of partners or crossing different borders with these eCommerce transactions.

So some of the enhanced growth, or expanded growth we've seen in the last year, comes from existing customers growing their own businesses organically and delivering pieces of that growth to us. Some of it came from existing customers routing a little bit more volume our way, and some of it, a small but growing piece, comes from net new sales we made a year ago beginning to come into the base and we would expect the quota-carrying sales force there to continue to keep adding net new customers to that solution in 2015 and beyond.

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

I'd add to that, Andrew, that if you look at the changing regulatory environment particularly in the EU market, I think our view and the ability to take our solutions cross border in a relatively seamless way is a very important mode of differentiation from what we're trying to accomplish. So the footprint we have in those markets or in many cases we're doing business there already, our ability to offer one seamless solution as rates come down starting in calendar 2015 and ultimately thereafter through EU regulation.

We're finally starting to see over some period of time SEPA probably come into effect by way of regulations and network action and I think whether it's through our international acquiring business or otherwise, I think we're well positioned to capture share as those costs come down for merchants.

Great, very helpful, thanks.

Thank you, Andrew.

Our last question will come from Tien-tsin Huang with JP Morgan. Your line is open.

Great, thanks. Sorry if I missed this.

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

Yes, Tien-tsin, it's David.

I think the slowdown has been going on for some time. I guess I'd remind everyone on the call to start. It is broad based, perhaps almost by definition, but the channel overall is slower than it was two years ago, much slower than it was four years ago. When we look at it, it certainly feels like part of it has to be the law of large numbers, a very large amount of revenue, very large amount of transactions. I think though it's inescapable when you look at the mix of business we operate to not conclude at some level that we're placing capital investments and organic investments in channels we expect to grow for the short, medium, and long term.

That growth has to come at the expense of something else across the market, and so I think you can conclude from that we believe firmly the channels in which we are investing, that growth is coming potentially at the expense of some of these other channels. Are there other channels that may be slowing as well across the market? Perhaps.

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

Sure thing, just follow the capital. Just on the Asia-Pac side, the revenue did step down a little bit sequentially. What's going on there, anything unusual?

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

I think as you know, the Asia business is one where we're still focused on continuing to invest and drive the growth we can while focused on what else can we do from a distribution and acquisition standpoint to enhance that growth in the future. So the business kind of is operating at a certain level right now. We expect it to improve over time but beyond that one customer not a whole lot of one-timers operating inside the business.

Last one and I'll let you guys--

You get three too, huh?

Yes, sorry David. Hey man, it's your last call as CFO.

I'll give you one more easy one for the long term -- we like you guys setting up that long term guidance, it's nice to have that. So just wanted to clarify though that this years EPS guidance -- are you assuming buybacks in that number and the EPS range or not? I wasn't sure.

Yes, so I'm glad you actually finished with that, I think it's a great thing to clarify again. Buybacks to date, the buybacks we did last year obviously are in the guidance.

We are assuming no future buybacks, no potential future buybacks with the current $320 million remaining authorization, our expectations for cash earnings per share assume no additional buybacks out of that authorization.

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

Thanks very much. I look forward to it.

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

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