Global Payments Inc. (GPN) Q4 2015 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. And welcome to the Global Payments’ Fiscal 2015 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]. And as a reminder today’s conference 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 morning and welcome to Global Payments Fiscal 2015 conference call. Our call today is scheduled for one hour. 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 this conference call contain forward-looking statements, which are subject to risks and uncertainties discussed in our SEC filings, including our most recent 10-K and any subsequent filing. 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 and net revenue which are not in accordance with GAAP. Management believes these measures more clearly reflect comparative operating performance. For a full reconciliation of cash earnings, net revenue and other non-GAAP financial measures to GAAP results, in accordance with Regulation G, please see our press release furnished as an exhibit to our Form 8-K filed this morning and our trended financial highlights, both of which are available in the Investor Relations area of our website at www.globalpaymentsinc.com. Now I'd like to turn the call over to Jeff Sloan, Jeff?

Thank you Jane and thanks everyone for joining us this morning. We are pleased with our strong performance in fiscal 2015, demonstrating another year of solid execution that resulted in substantial growth across our markets. For the year, we delivered reported revenue growth of 9% and grew cash earnings per share 18%. Additionally, we increased margins by 60 basis points, representing the first reported annual margin expansion since 2006. We expect continued positive momentum in fiscal 2016 as we execute our strategy to expand direct distribution, leverage our technology and prudently deploy capital. In fiscal 2015, we enhanced our geographic footprint by entering Australia and New Zealand with the addition of Ezidebit, and Ireland with the acquisition of Realex Payments. Coupled with our acquisition of the FIS Gaming Business in the United States, our 2015 acquisitions really augmented our product and technology capabilities and added significant additional distribution. We remain focused on expanding distribution in strategic markets globally. Together with our partner CaixaBank, we recently announced the Joint Venture with Erste Bank Group, one of the largest multi-national banks in Europe to provide merchant acquiring and payment services in the fast growing Czech Republic, Slovakia and Romania markets. As we have said recently now is a favorable time to invest in Europe and we intend to leverage our proven sales capabilities products and technologies to drive accelerated growth. We look forward to generating attractive returns with our partners in these new direct markets. Fiscal 2015 was also an important year for successful launches of new product and services in the United States, including AmEx OptBlue, ApplePay and Global Shield and Edge Shield, our security solutions for EMV, tokenization and encryption. Our global footprint combined with our unified worldwide operating environment and scalable technology platform streamlines our ability to efficiently launch similar products into other markets. For example we were the first payment technology company to introduce AmEx OptBlue into Canada in June. We also launched Apple Pay in the United Kingdom earlier this month. We remain committed to providing our merchants with value added, innovating solutions, as we introduce today the technologies of tomorrow. We committed nearly $1 billion of capital in fiscal 2015. In addition to the nearly $600 million allocated to the previously noted acquisitions, we've returned almost $400 million to our shareholders through share repurchases and dividends. We remain committed to actively managing our capital base as we enter fiscal 2016. Now for quarterly highlights; we are delighted that our North American business continued to deliver solid results for the quarter. Our U.S. direct channels generated 13% organic revenue growth and Canada continued its steady performance in local currency, resulting from stable business fundamentals and effective execution. Our international results exceeded our expectations, primarily driven by organic performance in Europe. We continue to see double-digit volume and transaction growth in Spain for the quarter. Europe results also include the Realex acquisition that was completed at the end of March. As a reminder, Realex is a leading e-commerce and payment gateway technology provider in Europe. The Realex and Erste Bank transactions highlight our commitment to maintaining a pre-eminent position in Europe. Asia delivered consistent organic revenue growth. We also are delighted with our Ezidebit business which performed in-line with our expectations and we look forward to closing our joint venture with the Bank of the Philippines Islands. We expect our recent investments in Asia Pacific to enhance our rate of organic growth across those markets overtime. Looking ahead to this fiscal year and beyond we have completed the pivot towards the scale direct distribution model that we have been describing publicly for the last two years. Going forward we will now provide extra reporting metrics that better match the way we manage the business and provide for easier comparative analysis. We’re also modifying and raising our expectations for revenue growth, margin and cash earnings per share growth over the next three to five year cycle based on the progress we have made in transforming our business. We now believe our organic net revenue growth will be in the mid to high single-digits, operating margins will be significantly raised on a net revenue basis with sustained expansion of up to 50 basis points per annum and we expect to deliver low to mid double-digit cash earnings per share growth annually. Now I will turn the call over to Cameron.

Thanks Jeff and good morning everyone. I'm also pleased with our fiscal 2015 performance, particularly in light of the significant negative foreign currency impacts included in our reported results. For the full year total company reported revenue was $2.78 billion, a 9% increase over fiscal 2014. On a constant currency basis, revenue growth was 12%. Cash operating margins expanded 60 basis points to 19.4% and diluted cash earnings per share increased 18% to $4.85. For the fourth quarter of fiscal 2015 total company revenue was $707 million, reflecting growth of 5% over the prior year or 10% on a constant currency basis. Operating margins for the quarter expanded 50 basis points to 18.6% and cash earnings per share increased to $1.22. Highlights for the quarter include the following; North America revenue growth was 4%, with operating income growth of 3% including the impacts of significant unfavorable currency trends in Canada. On a constant currency basis North American margins expanded by 30 basis points. U.S. revenue growth was 6% reflecting strong organic growth of 13% from our direct channels and low single-digit growth in our ISO channel. As a reminder our PayPros acquisition annualized at the beginning of the fourth quarter. Canada’s revenue grew 5% in local currency, resulting from consistent execution and stable fundamentals. In U.S. dollars Canada’s revenue declined 7% as a result of unfavorable currency exchange rates. International segment revenue growth was 6% in U.S. dollars with margin expansion of 310 basis points. On a constant currency basis Europe revenue growth in U.S. dollars was 19% while reported revenue growth was 1% as a result of exceptionally unfavorable currency exchange rate, particularly for the Europe. This performance continues to be fueled by strength in Spain as well as the addition of Realex during the quarter, offset by under performance in our Russian business. Asia Pacific revenue grew 27%, driven by mid-single digit organic revenue growth trends, in line with our expectations and the Ezidebit acquisition. International cash operating income grew 16% including the impact of significant foreign currency headwinds. We generated free cash flow of approximately $72 million this quarter and $371 million for fiscal 2015. 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 $36 million for the quarter and $93 million for the full year. During the quarter we purchased 1.3 million shares at an average price of $95.59 per share. Subsequent to the end of the quarter we settled our previously disclosed accelerated share repurchase program and retired an additional 162,000 shares. Lastly our total available cash, including working capital at the end of the year was approximately $195 million. Before moving to our fiscal 2016 outlook I would like to call attention to the new disclosures we are providing today. As Jeff noted these metrics are to better align our reporting with how we managed and measure our performance internally, as well as provide for improved comparability with our peers. First, we were introducing a new net revenue disclosure that reflects the economic benefits of certain wholesale lines of business, such as our ISOs on a net basis. We will now deduct gross-up related payments associated with these channels from our GAAP revenues and operating expenses. This disclosure does not impact our cash operating income or diluted cash earnings per share, but will affect our cash operating margins. Further for fiscal 2016 and beyond we are modifying our reporting convention for cash earnings to exclude expenses associated with share based compensation. As noted we believe this will provide for improved comparability with our peers. Going forward we intend to both guide and report, utilizing our net revenue metric and our new cash earnings convention. In addition operating margins will be presented on a net revenue basis. For convenience we have provided fiscal 2015 results including quarterly data consistent with this methodology on schedule 10 to our earnings press release. Now let's turn to our fiscal 2016 outlook. We expect our annual fiscal 2016 net revenue to grow 6% to 8% from fiscal 2015 and range from $2.06 billion to $2.10 billion. Note that this growth rate is approximately 300 basis points higher on a constant currency basis or 9% to 11%. We expect cash earnings per share to grow 11% to 15% from fiscal 2015 and range from $5.60 to $5.78. We also believe cash operating margins calculated on a net revenue basis will expand by as much as 30 basis points in fiscal 2016 on a constant currency basis. Actual cash operating margins on a net revenue basis are likely to be roughly flat due to the impacts of unfavorable foreign currency trends. On a GAAP basis we expect annual reported revenue to grow 4% to 6% in range from $2.87 billion to $2.95 billion. Again this growth rate is approximately 300 basis points higher on a constant currency basis or 7% to 9%. As a reminder one of our larger ISO partners was acquired in June 2014 and our outlook assumes this ISO will begin migrating off our platform in calendar 2016. Although this impacts our GAAP revenue for the year, it is not expected to have a material impact on our net revenue, operating income or cash earnings per share. In fact our ISOs in the aggregate are becoming an increasingly small portion of our business. For fiscal 2016 we expect our ISOs to represent approximately 17% in North American net revenue and 13% of North America operating income and roughly 11% of total company net revenue and 8% of total company operating income. We anticipate the distribution of quarterly cash earnings per share as a percentage of annual cash earnings per share to be roughly consistent with that of fiscal 2015. With respect to the more detailed assumptions that underlie this outlook, net revenue for our North America segment is expected to grow at a mid to high single digit rate which includes FX headwinds of approximately 200 basis points. U.S. net revenue growth, which reflects ongoing strength in our direct businesses and the addition of our FIS acquisition which closed on June 1st is expected to be in the high single to low double-digit range. Canadian net revenue growth assumptions remain in the low single-digits in local currency. We expect North America cash operating income to increase in the mid to high single digit range compared to last year. North American margins are expected to expand in fiscal 2016 despite the anticipated FX headwinds from Canada. We anticipate that international net revenues will grow at a mid to high single-digit rate in U.S. dollars, including currency exchange head winds across all markets, particularly in the first half of fiscal 2016. We anticipate these FX headwinds will impact growth by approximately 500 to 600 basis points for the year. We expect margins to be roughly consistent to down modestly largely due to currency impacts. We expect annual net revenue growth for Europe on a U.S. dollar basis could be low single-digit; but high single to low double-digits on a constant currency basis. Asia is expected to deliver U.S. dollar revenue growth in the high teens driven by the addition of BPI and Ezidebit which annualizes in October. International expectations include impacts from the Realax acquisition and the BPI transaction which is expected to close towards the end of the first quarter. However our outlook does not include the announced joint venture with Erste Bank which we do not expect to have a material impact on the company’s fiscal 2016 cash earnings per share or capital plans. For fiscal 2016 we expect share-based compensation expense being excluded from cash earnings to amount to approximately $0.20 per share, roughly the same as fiscal 2015. Our effective tax rate is projected to approach 27% and our diluted weighted average share count is expected to approach 66 million shares for the year. Consistent with past practice our guidance does not include any future share repurchases. Lastly we anticipate that fiscal 2016 capital expenditures will total approximately $105 million. For fiscal 2016 we will continue our disciplined and balanced approach to capital deployment. Consistent with that strategy our Board of Directors approved an additional $300 million share repurchase authorization which expands our total capacity to approximately $400 million and further demonstrates our ongoing commitment to prudent capital management on behalf of our shareholders. I will now turn the call back over to Jeff.

Thank you, Cameron. Building on the solid foundation from fiscal 2014 we delivered yet another year of strong results in fiscal 2015. As our fiscal 2016 and new cycle guidance suggest we remain committed to accelerating growth across our markets. We have now completed our pivot toward direct distribution. We are confident that we can attain our heightened net revenue, cash operating margin and cash earnings per share growth goals even though the bar continues to be raised. We believe our positive momentum, ability to successfully execute on our growth strategies and capital deployment capabilities will continue to drive value for our shareholders, partners, customers and employees. Before I turn the call back over to Jane we will be hosting an Investor Conference in Atlanta on October 20th. More details regarding this event will be forthcoming soon. We hope to see you all there. Jane?

Thank you. Before we begin the question-and-answer session I would like to ask everyone to limit their question 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. [Operator Instructions]. And our first question comes from the line of Tien-tsin Huang from JPMorgan. Your line is open.

Great, thanks. Good morning everyone. I will ask first on Canada maybe, just been doing some research there. I heard the low single-digit outlook for the year. I am curious what the spread assumption is for guidance, or what the spread dynamics are today given some of the changes going on there?

Hey Tien-tsin, it’s Cameron, good morning. I would say for Canada for fiscal ‘16 the outlook is roughly consistent with what we’ve seen over the last probably two years. Canada for us continues to be a stable market, which is really the combination of transaction growth and spread and we expect that trend to continue as we look forward to fiscal ’16. For ‘15 as you noted I think we performed a little better than our guidance, which is low single-digits growth in local currency, but as we roll into ‘16 I think we still view Canada as a low single-digit growth market in local currency and that’s going to be the combination of stable transaction volumes and spreads over the course of time.

Got it, and I heard the new targets, make sense. The sustained margin expansion of the 50 bps is that primarily just coming from better incremental margin business from the direct channel you are building on and did I hear correctly that in ‘16 you are looking for 30 bps in constant currency, if so what’s delta between the 30 and the longer term 50?

Yeah, Tien-tsin it’s Jeff. I will start and then Cameron will join in on the ‘16 guidance. So the answer to question is yes. It’s from a better mix of businesses as well as leveraging our infrastructure and our technology platforms. So if you look at first the fiscal ‘15 results for the U.S. direct business organically we're really in the double-digits organic revenue growth all year in fiscal '15 in U.S. direct. And as Cameron guided for '16 we expect that to continue. So we invested pretty substantially across our businesses but in particular in the United States on the direct business. Now I think we're reaping the benefits of having made that investment. I'd also say that we talked in our prepared remarks about our unified operating structure we put in a place the last couple of years as well as new product development. So of course Tien-tsin you know we've been very successful with American Express OptBlue here in the United States and now also we've rolled out in June in Canada. So we think if those things give us sustained accelerated growth in the United States and North America with better margin characteristics Tien-tsin than the corporate average. Cameron you want to talk about the guidance?

Sure, just a couple things to note on the guidance. So as we said our cycle guidance is up to 50 basis points annually. For this year we're guiding up 30 basis points on a constant currency basis for margins. A couple of things to note about '16 in particular, one is, is it’s July. So I would bear that in mind as you contemplate the guidance we're providing. Secondly, we did a lot of transactions in fiscal '15. Now there is a fair amount of integration work that’s still ongoing with respect to those transactions including Ezidebit. We closed the FIS gaming business on June 1st, we have a couple of other transaction we expect to close during the year. So in the near term, obviously as we're integrating those businesses there is a little bit of headwind on margins but we are still able to grow through that and expand margins through that. So I think it positions us well for fiscal '17 and beyond.

Understood, thanks for detail.

Thanks Tien-tsin.

Our next question comes from the line of Dave Koning from Robert W. Baird. Your line is open.

Yeah, hey guys, thanks for all that disclosures, super helpful and good job. And I guess my first question is just the UK interchange adjustments that are coming on in December, is that really much in the guidance, it didn't look like in Europe you're guiding to anything overly aggressive. So I'm just wondering if that was kind of in there in or not.

Dave, it's Cameron. I would say yes, it's in there. The important thing to recognize about Europe is just the impacts of FX headwinds in fiscal '16 that is having an impact on the local currency growth that we would otherwise expect to realize for the year. As we said for Europe, we expect low single digit revenue growth for fiscal '16. On a constant currency basis that's going to be high-single digit. So that's really going to be driven by what you're expecting in the UK in the back half of the year with the benefit of the lower interchange regulations coming into play. As well as, as you remember we’ve annualized the benefits we've seen in Spain come at the end of the first quarter. So that obviously is a grow-over that we have for the back half of the year as well. So when you balance those things out on a local currency basis we would expect high single digit revenue growth in Europe, which is I think accelerated from what we have seen largely led by the strength in the UK on the heels of the benefits of the EU regulation coming into effect.

Okay, no, that's helpful. And I guess my follow up question separately the ISO business -- the net revenue presentation now you said it's 11% of total revs this year and about 8% of EBIT. I would have actually thought that on a net basis that ISO processing business was a really high margin above the company average but obviously it's below given it's less of an operating income percent than revenue. So I'm just -- I would have thought like 40% margins maybe you can just talk a little bit about the margin dynamics.

Yeah some of it is the convention that we're utilizing for addressing the business. So we're backing out residuals but assessments are not being backed out. So that's part of the reason that the margin profile maybe a little bit different than you would expect perhaps on paper. So I think that's part of the driver. I think on a wholesale basis the margins aren’t terrible dissimilar to what we see from our retail basis business around the globe. But it is probably a little bit wider when the assessments are in revenue as we brought them.

Yeah, David, it's Jeff I would just add to that. As you think about where we’ve been investing especially in the United States with the OpenEdge, those are very high margin businesses, the direct business we've been investing in. So OpenEdge Gaming for example in the United States and then of course we said this at the time when we invested in Ezidebit in Australia and New Zealand, but Dave I think we said that would have about 40% margins at the time that we did the deal a year ago. So I think that we have the happy answer of having significant investment and expansion of our businesses with very attractive margins. And that's how we look at it Dave rather than so much the ISO businesses in one place, I would say the other businesses that are growing very quickly has a far better profile than the average.

Great. Well thanks, good job.

Thanks Dave.

Thanks Dave.

Our next question comes from the line of Ashwin Shirvaikar from Citibank. Your line is open.

Thank you guys and congratulations for good solid results here. My first question is on capital deployment. So you guys mention that you will be focused on integration of the deals already completed or in progress. Would that then imply that you are less focused on M&A, that the M&A outlook is maybe muting out a little bit and any incremental thoughts on capital structures?

Yeah Ashwin it’s Jeff. So we've announced I think it’s five acquisitions now, in the last twelve or thirteen months, but we still have a very full pipeline, particularly in Europe and Asia. So I would say that we don't see any diminution in the outlook for M&A. Of course as we said it takes the right partner in all these transactions but I wouldn't look at any of the announcements we've made or statements to indicate it’s anything other than kind of full steam ahead on the capital deployment.

Okay. And if Cameron, if you could walk us through sort of the -- a lot of moving parts here, so the year-over-year comparison of what goes on with FX, with the acquisitions, with the changeover of the accounting, if you could kind of give us a bridge? You might have had that if so I missed it up, I apologize but if you could give us a bridge of how do you get from the exit growth rate to sort of full year growth rate for the next year?

Sure. I'll be happy to, let me start with just providing a couple of specific indications in details in case you didn’t capture them in my prepared comments. First of all you were guiding to net revenue growth of 6% to 8% which is really 9% to 11% on a constant currency basis. So to me that's the right sort of starting point for the conversation is 9% to 11% number on an adjusted net revenue basis. So I think as you think about the way we've been talking about our direct distribution business this year that 9% to 11% is fairly consistent with the growth that we've seen in the direct distribution business throughout the course of fiscal '15. So when we look at the organic normalized growth rates, 15% to 16% they are going to be roughly the same, they are 7% to 8% on a constant currency basis depending on the quarter which aligns, I think very well with the organic growth we've been generating in the business on a normalized basis this year. So I think the growth trends are very much intact year-over-year. You're obviously there is a lot of moving pieces as you correctly described but when you normalize for all the transactions and you address currency you're going to see a normalized organic growth rate in the 7% to 8% quarter-to-quarter and we feel like that is obviously a trajectory that we can continue to achieve as we push forward in time. I am happy to address any other specific questions but that would be my general comment about how we look at fiscal '16.

No, that's very helpful, thanks.

Thank you.

Thanks Ashwin.

Thank you. Our next question comes from the line of Dan Perlin from RBC Capital Markets. Your line is open.

Thanks, and good morning. The kind of longer term cycle guidance from margins of 50 basis points per annum, I was wondering if you could, I guess maybe help conceptualize how we build up to the 50? Are you contemplating the ability to have more pricing opportunities long term, just given kind of the nature of the industry or is it that you really feel as though you've got kind of the economies of scale and you can drive your unit cost down to have the confidence to have 50 basis points, or is it just an incremental mix benefit as well. I know you're going to say all but if you could parse it, that would be helpful.

Yeah, Dan, it’s Jeff. I’ll start and ask David to join in too in a moment. So the first thing I’d say is on a comparable basis that you look at ‘15 over ‘14 we would've seen a very similar margin expansion similar [ph] to the 50 basis points that we're describing today on a constant currency basis. So I really, first view Dan is an extrapolation of how the company’s been operating for the last couple of years kind of point number one. Point number two, in our business the margin economics are very good in what we do. So we tend to think that the vast majority of an incremental dollar of revenue for 80% tends to fall through our bottom line as an operating matter. So of course the faster we grow the more transactions that we do generally the higher the margins and the more profitable that we are. That’s particularly true as we pivoted more toward direct distribution and more of the retail business in a way a bit [ph] from the historical legacy of the company as they -- as a wholesale business. So those things lifted margin in '15 over '14 and we expected to lift margins '16 over '15. We've also been benefiting from the investments we've made in product and technology. David you want to talk a little bit for example some of the things you've done at product?

I'll happy to, Dan. When you think about the cycle it becomes a fairly easy conversation around the operating company piece as the guys described in the prepared comments. As we operate as one company, we've the opportunity to drive products and drive additional leverage all across the company as we make progress. So for example the one we talked about before is American Express OptBlue, which has rolled out brilliantly in the United States. It's beginning its roll out in Canada after a very good start. It will find its way to Europe over time as well as you know and eventually to Asia. We've a similar inventory of products like that, that we expect to help us drive growth and drive incremental profitability over the next several years. At the same time we have the opportunity to operate the company more efficiently with the same paradigm, whether that's operations credit risk and again even product and product development. So those pieces come together nicely and then we're working closely with all the businesses around the world to roll out what I would call global capabilities or things like integrated payments and omni-channel ecommerce. You saw us purchase Realex to add to our stable of products to be able to drive any kind of transaction anywhere in time. That kind of omni-channel processing is where we are going to drive enormous amount of highly profitability growth we believe over the next several years. And then finally maybe the most apparent one to you, as you look at, particularly our U.S. results today is the success in integrated payments. There we’re driving continued organic mid-teens volume out of the open edge business in United States and the Ezidebit bussiness in Australia and New Zealand with the ability to expand those globally. Right now we are working hard on taking that sort of dedicated ecosystem of partners, lead generation and sales closure into Canada as we speak and really it's exciting for us right now. One of our largest partners in the United State is expanding with us in the United Kingdom as we speak. So you can see the beginnings of a global approach to integrated payments. That's really something unique that only Global Payments can do right now.

Great and then just quickly on the recently announced JV, I'm just wondering, I know it's not going to -- doesn’t sound like it's going to be material in '16, but with like Asia and the other opportunities that you have built out is there other parts of like the portfolio that we are just not paying attention to that could also be bolted on into other JV's, to make them more meaningful in '16 and then is there opportunity to kind of leverage your legacy MUZO business given that the Czech Republic has always been kind of a hit or miss market for you guys? Thanks.

Yeah, Dan. It's Jeff. I think the answer is absolutely part of the guidance around '16 is that we need three regulatory approvals in three different jurisdictions. As it relates to Erste, our Czech Republic, Romania and Slovakia. So it's a little bit of just to get pre-approval takes a little more time Dan. So I think it’s less a comment about the economics of the transaction and more a comment of that will take us a little more than we typically we do, and obviously we'll be updating that as we get closer. But that's one answer. The second thing I would say is absolutely if you look at what you refer to as MUZO, when we call Global Payments Europe. Today that is a business prior to the Erste JV that was 90% what I would call indirect add, meaning our customer was the bank but not the merchant and 10% direct, meaning 10% of the business has the merchant as the bank customer. Pro forma for the JV that's pretty much closer to 50-50. So if you think Dan what we've tried to do here and the rest of our businesses globally, but especially here in the United States, we spent over a $1 billion of capital in the last several years migrating to more of a retail business and a direct merchant relationship business for all the reasons that you are familiar with. We think we are doing the same thing now with GPE. So if we can continue that trajectory and turn into more of a direct business, a very opportune time in Europe where the common European payments area, with cost coming down for our customer base, while the exchange rate in this area going in our favor, we think we have the ability to create a really meaningful cross border omni-channel business the way David described it a few minutes ago strategically. We think it's a very, very important step for us and our GPE cohorts.

I think Dan, it’s David I would say one other thing. I think we have a pretty good track record of taking ventures like this, integrating them, migrating platforms as appropriate so we can lever the product and drive the kind of direct distribution we believe we were good at operating around the world and then driving increasing returns and actually the same pattern for that deal as has been for our previous deals.

Great. Thank you guys.

Thanks Dan.

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

Thanks, good morning.

Good morning.

First question, I just wanted to touch on open edge specifically APT and PayPros, maybe get an update there, are they sort of still tracking toward high teens revenue growth and I know you had the integration of PayPros going on and sort of dragged down margins for a bit, but more specific within fiscal ‘16 how should we think about the aggregate margin profile for the open edge business?

Glenn, it’s David. And I think you put your finger on the correct metrics. At the end of the day we believe we’re going to drive organic mid-teens to high-teens volume and revenue growth in Open Edge as we’ve done since we first purchased Open Edge three years ago and we added PayPros to it but first -- excuse me APT three years ago and add PayPros to it a little over a year ago. So that business is right on track with U.S. performance. It is actually fully integrated, we got some platform work to do but at a sales force level, the piece of it that drives the initial sale and net organic growth, fully integrated and operating as one unit as we roll into 2016 which allows us now to think about the global expansion of Open Edge that I described a little bit earlier in answer to Dan’s question, as we complete our migration into Canada and actually think about other markets in Europe going forward.

Okay, and then Jeff I know previous to the change in the -- adjusted revenue reporting you had been talking about a long-term operating margin goal of 25% and obviously with the change in reporting that could kind of blow that out of the water but how should we be thinking about the long-term, and I know you’ve talked about the 50 basis points annually but is there sort of a reasonable expectation over a five year period where you think aggregate margins could go to?

Yeah, Glenn it’s a great question. So I think I can get to the low 30s. So yesterday’s mid-20s Glenn is probably tomorrow’s low 30s.

Okay. And then the final question just to level set us all, on a GAAP revenue guide perspective how much is the Mercury drag?

Glenn it’s Cameron. We haven’t specifically sort of identified in our guidance how much of drag Mercury migration will be in fiscal ’16. We expect them to begin migrating in the first part of calendar ’16. So the back half of our fiscal year. I think the way I would characterize it is the range that we have provided, I think accommodates a variety of outcomes for Mercury, from they migrate fairly quickly at the beginning of calendar ‘16 to they migrate more slowly and tend to be off more towards the middle of calendar ‘16. So I think that’s part of the reason we have a little wider range on the GAAP revenue is to accommodate a variety of outcomes on Mercury.

Okay, great. Thanks guys.

Our next question comes from the line of Steven Kwok with KBW. Your line is open.

Thanks guys, good quarter. I just have one quick question. Just around given some of your peers, maybe one of your larger peers maybe looking to go public by the end of this year, can you talk about the competitive landscape within the space today and do you envision that changing once your peer is public? Thanks.

Yeah, Steven it’s Jeff, that’s a good question. So no, I don’t think it’s going to change all that much. I would say that first of all across all of our businesses and our markets we operate in a very competitive environment. That’s been true for very long time and I expect that to continue to be true kind of point number one. Point number two, I think it’s nothing but good news for us and I think for our peers to have more public comparable data points for you and our analysts and also for our shareholders. We think we are pretty transparent with the way that we provide our disclosure. As you can see today we’ve supplemented that, so that we can provide you more disclosure around how we are operating. We think that compares very favorably to existing public companies and new public companies. So as I would say our peers performing well on a comparable basis is really good for the industry and really good for us.

And then just as a follow up. In terms of what are the specific regions that you guys compete in?

Yeah, so you are right in what you said Steven it does vary by geography. So I think operating [ph] regionally is the right way to go about it. So for example here in United States it’s largely day in, day out First Data, U.S. bank for [indiscernible] and then a number of the First Data joint ventures, certainly DAA merchants services Wells Fargo and the like is a good partner for us too but I would say it’s largely bank driven and of course First Data too with a number of our bank partnerships as well as Vantiv although I would say that everyone of those companies, I just mentioned has a slightly different strategy than we view, but it’s certainly across the board those are our peers in United States. In Canada of course Moneris has the largest share in that market which is you know the two banks. In Europe it tends to be country specific but certainly United Kingdom it’s [indiscernible] and Barclays, constantly it varies by country, Caixa and our Comercia joint venture has a leading share in that market but certainly [indiscernible] there and BBVA would be examples of peers in that market. And then Asia Steve, it’s really market by market. It’s kind of hard to say. We certainly see banks like Citibank in a number of those markets. In the Philippines where we've announced our BPI joint venture it’s [indiscernible] BVO who’s got the largest market share there. We have the second largest post the consummation of our JV. So as you can tell by all the different names Steven it really varies by market.

Got it. Thanks for the color.

Thank you.

Our next question comes from Bryan Keane from Deutsche Bank. Your line is open.

Hi, good morning, guys. Cameron, I was just hoping you would go through the international margin expectations for fiscal year '16 again. Sounds like there is some FX that has an impact and then maybe you could just break it out between Europe and Asia Pacific?

Sure Bryan, it’s Cameron. We haven't provided sort of the disaggregated margins by Asia Pacific and Europe, but I will try to give you a little bit color on those. If you look at the international margins on a net revenue basis kind of year-over-year we did guide to roughly flat to slightly down. That's largely due to potential impacts of FX in fiscal '16, that's included in our outlook. The other thing I would note is those margins are in the low to mid-40s. So in fairness when you're at margin levels at that range, again maintaining those margins, I think is a fantastic outcome. Obviously we'll see a little bit of FX pressure on that, but again we do expect them to be roughly consistent, may be down modestly year-over-year but not dramatically. As it relates to Asia and Europe in particular, I think Europe’s where we're going to see the most pressure largely from FX as I mentioned before. I think Asia margins we expect to expand largely due to the continued contribution of the Ezidebit now in the Asia Pacific region which has a higher margin profile as described earlier relative to our sort of business as usual Asia Pacific business, that's operating in 11 Asian markets. So from an Asia point of view I think the combination of both Ezidebit and the introduction of the BPI joint venture will do a couple of things, one is accelerate growth and then importantly continue to improve the margin profile in the Asia Pacific region.

Okay. And when you are thinking about then longer term about the 50 basis points on a constant currency basis, is that mostly coming in from the North American side versus international, since international already had such high operating margins?

I think that's probably a fair characterization. If you look at the North American business now and you look at the U.S. business in particular, our largest business and a net revenue basis in the U.S. is now Open Edge. It’s approaching $300 million of annual revenue, growing in the mid-teens. So the US business on a net revenue basis is going to be roughly $1 billion. 75% of that is direct and the largest portion of that is Open Edge. And that is where we're seeing a lot of margin expansion in the business coming from mix, in addition to all the other things that Jeff and David described earlier around how we're operating the business on a global scale, how we're innovating new products and services that are higher margin relative to the traditional economics of the business. All that's factoring into the margin expansion we expect to realize but a lot of that is going to come from North America and principally the U.S.

Okay. Great, thanks and congrats on the results.

That's Bryan.

Our next question comes from the line of Jason Kupferberg from Jefferies. Your line is open.

Thanks guys. Good morning. I just wanted to start making sure I’ve got the pieces of the bridge from the 6% to 8% revenue growth guidance for fiscal '16 from the 11% to 15% on the bottom line. I know you said there’s about 300 bps of FX headwind on revenue, so not sure how much of that also makes it down to the EPS line, because I know on a reported basis you're looking for kind of flattish margins and you're not building any more share buy back into the EPS guide. So can we just walk through that bridge?

Sure. It’s Cameron and I will start and ask David or Jeff to add in any additional color. You're right on where you started. We are sort of 6% to 8% on a FX adjusted basis for net revenue growth year-over-year. We are expecting margins on an FX adjusted basis to be roughly flat. And obviously then on an op income basis we are expecting kind of mid to high single digit growth on op income. So we are driving up income growth that is incremental to our net revenue growth, due to the mix of the businesses where FX is having an impact and where it is not. That's obviously dropping to the bottom line in addition to share repurchases we've executed in ‘15 that we will fully annualize in ‘16 are helping to drive the incremental cash earnings per share above and beyond the top line revenue growth and operating income growth that we’re forecasting.

Yeah, and the other pieces Jason, this is David again are really the cross sales and the additional product roll outs I was describing earlier. The ability to roll out OptBlue into Canada, to lock in the kind of local currency growth we have, locking the profit improvement, setting aside FX entirely for a moment, that sets up then how we deal with the FX adjusted growth. Same with the Realex and the omni-channel sales will do across the UK and then across the rest of the Europe, eventually as well and I’ll set this up for highly leverageable, highly leveraged growth over the middle term to long-term and even we’ll see some of those benefits from Open Edge on some of the other businesses including Ezidebit in the short-term in ‘16 to setup then the parameters that Cameron just walked you through.

Okay. And then just as a follow-up given the huge presence you guys have in the SMB market in the U.S., I wanted to get your perspective on EMV roll out within that merchant base, what you are kind of seeing now what you are expecting as we kind of get to the quasi finish line here in October and then beyond because part of our thesis has been that between EMV and Apple Pay and other mobile payment solutions a lot of the merchant acquirer and processors have been embracing more of kind of a technology led consolidated sales approach as opposed to just going in and bidding on processing. So what’s your perspective on that?

Yeah, our perspective aligns almost perfectly the way you just described Jason. At the end of the day you are seeing some fundamental changes. They start with the fact that this is a merchant choice, at the end of the day. So you need the help of your technology provider you are acquiring traditional terms to help you think that through, think through the business case for your industry and for your particular business, and also relieve you with a burden of dealing with all the security issues that happen in our industry, so you can focus on running your business. I love the way you phrased the question because this really is all about SMEs at the end of the day. The large merchants will make their own choice of their own point of sale devices. So for us we’ve obviously been deploying -- for quite some time it’s about enabling EMV terminal space, we’re really comfortable with our progress, we’re rolling through the upgrade to technologies, we’re the certification you might imagine. But really what we’re trying to do is help our customers think about their own security needs overall. EMV is just the piece of the puzzle. So we’re selling through Global Shield which is the security solution we have for our direct business and the edge shield, which is the solution we have for the integrated business, a suite of security solutions that you can tailor to your business. The point-to-point encryption EMV, token, token vault and obviously come with whatever is appropriate in terms of PCI compliance and then you really do perform that consultative role as out of the town [ph] dealing with small merchants it’s a one on one conversation helping them think through what to do and when. So setting aside any metrics as I said before we’re very comfortable with our progress to-date but at the end of the day we’re actually gaining a little share, nominally particularly in integrated because we were among the first to roll out integrated security solutions, we can take across that base. And really that’s the sale we’re making for the long-term as well. It’s that relationship based sale where we’re driving a serious value proposition that allows them to focus on running their business, whether it’s a pharmacy or a vet or any other sort of vertical and let us focus on the complexity of payments, let us help you deal with Apple Pay, Samsung, Android all the rest of the pieces you might imagine in this evolving technology world and you’ve heard us use the phrase technology-led distribution, technology-enabled distribution that’s the business we run today, you are exactly right Jason.

Okay, I appreciate the comments.

Thanks Jason.

Our next question comes from David Togut from Evercore SIS. Your line is open.

Thank you, good morning. What are some of the acquisition opportunities Jeff that arise from the new regulatory reforms in Europe? In particular how do the interchange caps for example affect a bank’s ability to stay in the merchant acquiring business as opposed to considering a portfolio or so?

Yeah it’s a great question, David. So first we got a real live example from yesterday which is the announced Erste JV in continents like Europe. So most banks run the acquiring business together with the issuing business. So David as the interchange caps come on board in the most markets in Europe that’s going to be early December, given the EU adoption of those rules. It means David on one side of the ledger they will be losing potential revenue and fees as interchange comes down on the issuing side. Therefore as they look at their portfolio of businesses that they have won in cards they then look at the acquiring side and depending on the acquiring nature of their market if they can find the right partner there is an opportunity they would hope and we expect to be able to grow the acquiring business more quickly to offset any diminution on the interchange side of the issuing business. So for those banks who choose to exit, they've made the decision that they don't think they can grow more quickly, or haven’t found the right partner. But for those banks David, like Caixa in Spain with whom we did the JV in 2010, or in particular Erste with whom we and Caixa now did yesterday, I think they have made the decision that if I can grow my acquiring business more quickly, benefit from the changes in the EU market place with rates coming down, having a common acceptance area, perhaps I could offset or even grow my overall card business to offset the interchange hit coming on the issuing side and that's how it works.

And maybe at the other end of panel, David, it’s David, to do with the partner in terms of thinking through the ramifications of the technology, the platforms that deal with that complex regulatory environment. You are asking a lot of legacy platforms inside of banks. So the idea of dealing with the partner we can actually leverage that same technology platform capability across the globe is really an attractive situation on the other side.

That's certainly [ph], the level of investment as we heard in the last couple of questions, David in terms of new technology and compliance has only gone up. So if you partner the change in interchange on the issuing side with what David just said, which is that the bar continues to be raised makes it great difficult from most traditional financial institutions, especially in countries in Europe to really go it alone.

Is yours the transaction, the beginning of a longer term trend much the way we saw banks in the U.S. sell their merchant portfolio starting about 30 years ago?

Yeah, I believe it is, David. I mean for a long time and you've been in the industry for as long as we've been. I think for a long time we've been talking about this type of partnership possibility in Europe. But now I think we've seen it in the case of yesterday with Erste and now I think we've seen it come to fruition and I think what's driving that as much as anything is what we just talked out a minute ago which is the common European payments area coupled with technology and compliance team with the banks. So this is one of the number of discussions we are in with banks in Europe and of course we've also announced the partnership with the Bank of Philippines Islands, [indiscernible] by market cap in the Philippines to do the very same things. So I do believe that we're in the sweet spot. What I expect to see to be further JV's across Europe.

Understood, thank you very much.

Thanks, David.

Our next question comes from Tim Willi from Wells Fargo. Your line is open.

Thanks and good morning, two questions. The first one was if you could just give an update on Brazil and Latin America in general the sort of how you are feeling about that operation,

Tim it's David. Thanks for asking about Brazil. We feel actually pretty good about it. We are actually up to about 10,000 merchants. It's growing really quite rapidly. We are adding distribution partners at a steady pace and as you know that's really the key for driving organic growth in that market. We are obviously still quite small at 10,000 merchants when we were zero not really longer. We are very happy with that progress. We also have a new technology platform that we rolled out few months ago and really we're very happy with the product suite and particularly I'm happy with our e-commerce capabilities in that market, because I think that's really the place where we can drive growth as opposed to fighting it out merchant by merchant for brick and mortar business and we feel like we are very well positioned with the e-commerce platform to add additional products on top of that. So really we feel in very good and we are exploring other markets around Latin America really fits into the same answer Jeff gave earlier about M&A and opportunities. Latin America is a key geography for us with our partner Caixa as well, as you might imagine. So much more come on Latin America over time, but we very happy with progress to-date in Brazil.

Great and my follow-up was around sort of e-commerce and omni-channel. You talked a lot about how you are positioning Europe with recent acquisitions. I'm sure it's in the U.S. aside you think about your role either in the direct channel and if you are sort of the integrated payments channel in software is opening up opportunities as those customers that are using the software trying to find cross channel capabilities as they build out sort of e-commerce or virtual businesses on top of physical locations and to what degree I guess also do you hear from your acquirers any opportunities or asking you to advance your capabilities as they hear that from their own customers, give us the sort of the feel on the ground. Is there anything there going on that we should think about?

Yeah, there is, actually it’s a great question, a thoughtful question. The core of the integrated payments industry tends to be face-to-face transactions where you've integrated the payment technology with the software, someone obviously is helping that small business person run his or her business. What’s buried below that and we don't talk about it a lot but it really will be a key source of growth for us over the next couple of years and integrated in United States and globally is the any, any, any nature of payments, the payments they are having increasingly at restaurants and retailers, small ones around the country. So the enablement of present capability, the enablement of any sort of omni-channel payment will really go fuel incremental transaction growth we don't see today as well as the key part of the value preposition to the merchants we're thinking about really working with consumers in the new paradigm today, they are no longer walking in doing a research on a mobile device maybe not transact on that device because certainly at mobile device is not a great experience today, but it’s improving that, allowing them to come in and do the brick and mortar transaction or do it in house but they are also improving the mobile as a core part of the product. So when you think of the assets, we're putting together around the world the marriage of integrated plans, the software that helps the small business person manages our business and the ability to accept and process and manage the fraud compliance and security payment in any channel really is a powerful set of capabilities we're putting together and that's the undercurrent when I talk about the leverage of product and technologies around the world at the time that helps us to support the sizeable guidance that Jeff and Cameron are talking, about all that coming together is really the underpinnings of what we are talking about with this confidence in our cycle guidance.

Great, that's very helpful. Thanks so much for your time.

You're welcome.

Thank you. And our final question comes from the line of James Schneider from Goldman Sachs. Your line is open.

Good morning. Thanks for taking my question. I was wondering if you could maybe address the cadence of operating margins as you head across fiscal '16. You mentioned mix and some of the potential synergies from the acquisitions as being two possible drivers, but are there any other things we should think about in terms of how operating margins progress over the course of the year?

Jim, it's Cameron I'll start off. I don't really think there is anything too terribly unusual in any particular quarter as we roll through the year. I think we would expect relatively stable margins ‘15 to ‘16 quarter-over-quarter, you are going to see little bit of pressure in the front half of the year largely due to FX. That will balance out in the back half of the year, should be roughly flat. And again as we mentioned before we're guiding to sort of reported net revenue base operating margins are roughly flat year-over-year on a constant currency basis. Again we expect them to up 30 basis points sitting here today. So that's really the only color I could give as bear in mind the impacts of FX in the front half of the year, would be more acute obviously in the back half of the year we expect them to dissipate to some degree, although we still expect a little bit of FX headwind in the back half of the year.

That's helpful. Thanks. And I realize it's a relatively small part of your businesses at this point as you provided all that disclosure, but can you maybe just give us a sense about your expectation for the ISO business in fiscal '16 versus '15?

Yeah, it's still a good question, it's still about you know 25% of our U.S. business on a net adjusted revenue basis. So it's is still an important part of our business nonetheless. As we look at fiscal '16 you have a couple of things going on as we talked about before. The growth in that business had been slowing for a couple of years, that trend has not changed. Even on the adjusted net revenue presentation that we're now providing. The other thing that obviously is expected to happen this year as we commented on in our prepared remarks is the migration of [indiscernible] and again we don't have an exact timeframe as to when that will happen and I think our guidance ranges around both adjusted net in gross are meant accommodates a variety of outcomes for Mercury migration in the back half of our fiscal year, recognizing of course on a net revenue basis that migration has very little impact on our net revenue obviously has a larger impact on our gross revenue.

That's helpful. Thank you.

Thank you.

Thanks Jim.

Thanks very much everybody for joining us this morning.