Ladies and gentlemen, thank you for standing by and welcome to Global Payments Fiscal 2017 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode, later we will open the lines for question and answers. [Operator Instructions] And as a reminder, today’s conference call will be recorded. At this time, I would like to turn the conference over to your host, Vice President, Investor Relations, Isabel Janci. Please go ahead

Good morning, and welcome to Global Payments’ fiscal 2017 first quarter conference call. Our call today is scheduled for one hour. Before we begin, I’d like to remind you that some of the comments made by management during today’s conference call contain forward-looking statements, which are subject to risks and uncertainties discussed in our SEC filings, including our most recent 10-K and any subsequent filings. 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. To better conform with recent SEC guidance regarding the disclosure of non-GAAP measures, we now refer to cash operating margin and cash earnings as adjusted operating margin and adjusted earnings respectively. There has been no change to the calculation of these measures. Some of the comments made on this call refer to these and other non-GAAP measures such as adjusted net revenue and free cash flow, which we believe are more reflective of our on-going performance. For a full reconciliation of these and other non-GAAP financial measures to the most comparable GAAP measure 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. Joining me on the call are Jeff Sloan, CEO; David Mangum, President and COO; and Cameron Bready, Executive Vice President and CFO. Now, I will turn the call over to Jeff.

Thanks Isabel and thanks everyone for joining us this morning. We are delighted to report a strong start to our fiscal 2017 continuing the positive momentum we have seen in our business. We accelerated organic growth across our key markets during the first quarter with particular strength in Heartland, OpenEdge, and our United Kingdom and Asia businesses. While delivering these results we also made substantial progress integrating Heartland and are ahead of our expectation in realizing synergies from the merger. For the first quarter, we delivered high single digit organic direct net revenue growth and adjusted earnings per share growth of 15% on a constant currency basis. We are also particularly pleased with our ability to expand operating margins in North America, which includes the addition of Heartland for the full quarter. Our North America businesses performed very well in the quarter led by our U.S. direct sales channels, which generated high single digit organic net revenue growth. This was primarily driven by strength in new sales of Heartland and OpenEdge, each of which accelerated sequentially. Further, Heartland achieved an all time new sales record in August, demonstrating continued momentum in that channel. In Europe, we generated strong local currency revenue growth in the first quarter, including double digit growth in our U.K. business, which accelerated from the fourth quarter of fiscal 2016. Spain impressive results and we again saw double digit volume and transaction growth well in excess of the rate of market growth. We also continue to make strides advancing our e-commerce and omni solutions businesses in Europe and I am delighted to announce that we are now live with Realex in Spain. Our businesses in Continental Europe, including our joint venture with Erste Bank in central Europe that closed in early June performed in-line with our expectations.…

Thanks Jeff and good morning everyone. We reported another quarter of strong financial performance while also making significant progress on our Heartland integration efforts in executing synergy plans ahead of expectations. Total company net revenue for the first quarter was $817 million, a 52% increase over the first quarter of Fiscal 2016. Operating margin was 29.5% or 29.9% on a constant currency basis consistent with our expectations for the quarter. Adjusted earnings per share was $0.86 for the first quarter reflecting growth of 9% or 15% on a constant currency basis. Our North America segment grew net revenues by 79% compared to the first quarter of fiscal 2016 and operating margin expanded 80 basis points despite the inclusion of Heartland, which has a lower margin profile relative to Global Payments historical levels. We are particularly pleased with our ability to expand margins in North America as this is the first period that includes Heartland for the full quarter. Normalized organic net revenue growth in our U.S. direct sales channels calculated as if we owned Heartland in both this period and in the first quarter of Fiscal 2016 with high single digits for the quarter. This was primarily driven by our Heartland sales channel, which generated high single digit organic growth in OpenEdge which produced yet another quarter of mid-teens growth. Canada again delivered solid performance with low single digit growth in local currency consistent with our expectations. The Canadian dollar remained a headwind in the quarter, albeit less severe than we experienced in Fiscal 2016. Our European business performed very well this quarter delivering 11% net revenue growth on a constant currency basis. Reported growth for Europe was 2% compared to the prior year due to significantly unfavorable foreign currency exchange rates, particularly the pound which declined nearly 14% year-over-year.…

Thanks Cameron. From the outset, the goal of our integration has been to ensure of frictionless combination of the two businesses. Building on the momentum that Global Payments and Heartland have each had individually. Although we are still early in the process, we could not be more pleased with the progress we have made. Not only are we ahead of our expectations with respect to integration, we have accomplished this while accelerating revenue growth at Heartland, which will help drive overall revenue and earnings per share growth for the combined company. Isabel?

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

Thank you. [Operator Instructions] And our first question comes from Bryan Keane, Deutsche Bank. Your line is now open.

Hi, guys. Good morning. Just wanted to ask about the European margins, what kind of an impact did Erste JV have? Can you quantify that and the currency headwinds in the quarter? And then is the outlook for margins to stay basically sequentially similar in the second quarter and then improve in the second half? And if it improves in the second half, what drives that? Thanks so much.

Hi Bryan it is Cameron good morning. I will start and then ask either Jeff or David to add any other thoughts they may have. So, I would say in the first quarter, the margin declines in Europe were pretty much exactly what we anticipated, and if you look at the two primary drivers one being Erste integration efforts, specifically around Erste joint venture and the second being currencies, say probably each contributed about half of the decline in margin that we saw in Europe that 450 basis points in the first quarter. So about half and half coming from our Erste and currency. I think as you work through the year, I would expect that to get progressively a little bit better. Some of the FX headwind will begin to update as we get into the back half of the year, and as we continue with the integration efforts on Erste, I would expect most of that work to be done in the first few quarters of the year such that by the time we get to Q4 sitting here today, I would anticipate we’d be back to flat to extending margins in Europe, which as we’ve talked in the past with margins nearing 50%, our objective in Europe is really to stay in that level of margin not really looking to expand those margins for that particular segment.

Bryan, this is Jeff. I would just add to what Cameron said that as we mentioned in our release, our businesses in Europe performed exceptionally well this quarter. Our UK business accelerated its revenue growth into double-digit you may also recall that Spain has now double annualized the interchange reduction as of September 1. So going forward to Cameron’s point, we expect to see continued growth in revenue profitability in our Spanish business, which has been a bit of a headwind over the last 12 months.

Okay, terrific. And just a quick follow-up, on the synergies from Heartland, I think you guys increased those $10 million for this fiscal year. Just to clarify, is that just a pull forward from the total run rate of synergies or is that an additional increase in synergies for what you think you’re getting out of Heartland, and maybe what is causing the pull forward? Thanks so much and congrats on the first quarter.

Yes, thanks Bryan. I will jump in there. So, I would say as it relates to the expense synergies themselves what we are really seeing as far as an acceleration of our plan so we are realizing synergies in fiscal 2017 more quickly than we otherwise anticipated that we could. I think it is a little pre-mature to suggest that the overall run rate, the full expected run rate synergy that we expect from the merger will be higher than the target we provided when we announced the deal last December, but I would say obviously the progress we are making gives us a tremendous amount of confidence that we have the right momentum towards achieving that target and potentially exceeding it over time.

Okay. Great. Thanks.

Thanks Byan.

Thank you. And our next question comes from Ashwin Shirvaikar of Citigroup. Your line is now open.

Hey Jeff, hi Cameron. Congratulations on the quarter.

Thanks Ashwin

The question I have, you have pretty good revenue performance coming out of multiple parts of the business. Is it just basically too early in the year to detect any obvious thing [ph] or is it primarily the FX that offsets expense in the underlying business? Any color with regards to how comfortable, upper versus lower part of the range.

Yes Ashwin, it is Cameron. I will jump in and I will just note, we had little trouble hearing you, I think you are asking about the revenue guide and why the revenue guide perhaps wasn’t increased in the quarter, I think inherently you can think of it as a increase because we are now forecasting more FX headwind than we were when we guided in July, So, I think you can essentially look at it as an implicit increase. We are observing more FX headwind on the topline yet maintaining that overall revenue guidance at 3.2 billion to 3.3 billion. We did obviously increase our expectation around margin expansion for the full year as well, which is driving obviously the increase in earnings per share guidance as well. So, I think we do see obviously revenue tracking ahead of what we would have anticipated, but we are also currently forecasting more FX headwind that we were back, it implies the short answer.

Got it. And then with regards to OpenEdge, at what point might you expect to see some benefit to the Canada growth rate? You’re rolling out OpeEdge in Canada, are you beginning to see some benefits in terms of market share and so on?

Ashwin, it is David on this one. It is a great question. We are beginning to see real progress and tangible progress in Canada. We got the full rollout now and integrated solutions there. We actually have signed new partners for building the pipeline. So, what I would say to you is we really feel good about the season we are planning to accelerate revenue growth in Canada. We expect to see the benefit of that really this year and certainly in calendar 2017 we begin to see some of those trends stand upward in our favor.

Got it. Thank you, guys.

Thank you.

Thank you, Ashwin.

Thank you and our next question comes from George Mihalos of Cowen. Your line is now open.

Great. Thanks for taking my question, guys. I want to start off piggybacking a little bit on Ashwin’s question. You started the year with the revenue growth rate of 52%, the upper end of the 47% to 52% that you guided to. And then I would think the comparisons, as we go to 2Q and 3Q, get a little bit easier year-over-year than what you had in the first quarter. Is there any reason why at least over the next two quarters, the revenue growth rate shouldn’t increase from the 52%?

George, it is Cameron good morning. I think your thesis is right. I would remind you that when we get to Q4, we obviously are going to annualize Heartland or part of Q4 so naturally the growth rate in Q4 is not going to be at that 47% to 52%, but I think it is fair to say as you look at Q2 and Q3 you need to factor in currencies. I’ll remind you of that, but the comps are easy relative to Q1, but I think your overall thesis is correct as it relates to slide acceleration of revenue growth in those two quarters relative to what we saw in Q1.

Okay. Great. And just a point of clarification, Cameron. I think you had said, at least on a pro forma basis, the direct North America business or direct US business was up high singles again, which is what you guided to for the year. Did you break that out for what the legacy GPN business was before Heartland? And maybe you could size the Heartland contribution in revenue for us for the quarter. Thank you.

Yes, sure George. First of all you correct. We did note that the US direct businesses grew high single digits this quarter in line with our expectations including Heartland of course on a normalized basis. Breaking out the component I would say is a little more difficult, not really feasible, you know by virtue of the fact that we are combining these businesses and as more time progresses the more difficult it is going to be to look at the business in the US in particular and say what was legacy Heartland and what was legacy Global Payment. As we talked about on the call we have already combined our direct sales forces in the US market, so where do I attribute that growth that is being driven by the combination of our direct sales forces. We combined our traditional book with Heartland’s direct book, so it is a little difficult to say specifically what Heartland drove in the quarter versus what Global Payments drove. We did however achieve the overall expectation we have for the business which is growing our U.S. direct sales in that high single digit range which we were obviously very pleased with while also continuing to make progress on and progressing some of the revenue enhancements and revenue synergies we expect to achieve over time.

Okay. Great. Thanks for the color, guys.

Thanks George.

Thanks George.

Thank you. And our next question comes from the line of Jim Schneider of Goldman Sachs. Your line is now open.

Good morning. Thanks for taking my question. Maybe following up on some of the metrics you gave regarding Heartland, I understand it’s hard to break it out from the organic global business, but can you maybe give us some color around how the Heartland merchant base growth was in the last three quarters and how that’s tracked in terms of growth rate, just on a directional basis, versus what they were reporting at the end of last year?

Hi Jim it is Jeff. I will get some overall cover and I think Cameron and David can provide some additional detail. So as we said in our prepared commentary Heartland had one of its best sales months ever in August in terms of sales moment and that is a continuation of the trends that I think we talked about in our July call as we talk about our outlook for fiscal 2017. So I say sitting here since we announced the deal in December 20015 and closed in April of 2016 the opportunities we’ve had to talk to you guys twice about it Heartland has only accelerated that growth as it relates to new sales over that period. I would say in terms of the health of the merchant base at Heartland that their attrition is running low relative to their own expectations and our expectations going into the deal as well. So, as Cameron mentioned in his remarks our ability to accelerate their growth minimize any merchant or sales rep disruption while taking the defense action that we have taken in a combined basis is something that we are particularly pleased about my way of background.

The only thing I would add Jim is, it is Cameron, is if you look at Heartland’s other business outside of the pure payments business, if you look at campus solutions, school solutions, Heartland commerce each of those continue to perform very well also. We see good momentum in those businesses, we like those businesses a great deal. The vertical specific approach that they have through those channels aligns well with our integrator strategy we believe and remain very excited about the performance of those business. And lastly, payroll also performed very well in the quarter. We continue to see good momentum utilized Heartland sales force to be able to cross sell payroll solutions across the customer base and into new customers going forward. So I think we are very pleased overall with how Heartland performed in the quarter relative to our expectations.

And may be, this is David, I will add a few pieces to the answer. When we think about running the business, we are running one business in the United States right now. So the answer Cameron gave earlier is exactly the way we are managing the business. We have one US sales force for general payment and it is off to a fantastic start post the acquisition that Cameron correctly said, payroll is accelerating. The payments are accelerating, the additional products are accelerating, but the other products, the other business units are having record sales as well, whether it is campus solution, school solutions where we just had the fastest growing back to school season in Heartland history. All those things operating well, executing well, despite as you might imagine what can be a tumultuous time around synergy and integration of raw. The businesses are focused. The leadership is focused. We are really feeling very good about the momentum we have right now.

That’s helpful. And then maybe as a follow-on, on your comment there, David. If you look at the overall ability to drive sales in the US through increased investment in sales and marketing and you weigh that against the cost synergies you’re obviously getting out of plan with Heartland, how do you think about weighing those two things, if you think you can put a dollar of extra investment into the sales force and marketing activities to grow the US business faster? How do you offset that against what you basically think that you could take any additional excess synergies from the Heartland deal and replow those back into those activities?

Yes you know it is a great question when we talk about all the time here. Sort of the balance of sales productivity, product investment synergies, we are really fortunate in a couple of way, one is Heartland fits beautifully into our overall strategy of running an operating company by creating leverage, getting on common platforms and taking that capital that result and benefit and pouring it into product and distribution that is exactly the calculus we are really running everyday when we think about where to go from here. So, I will give you a couple of examples. While the teams are working hard on how we combine platforms and how we put call centers together and what we do to better serve customers more efficiently. Our sales teams and our marketing is hard working on actually driving topline growth. You can do both of at once. For example, we boarded the first Heartland merchant to a Global Payments. That took a fair amount of technology investment, it puts us well ahead of having new platform migration. Makes the platform migration not an emergency as we get to that over the next year or so that allows the Heartland sales force to give to be that much more productive. They can now sell the entire sphere of products that Global Payments and Heartland have together, and the products don’t [indiscernible] there is a bar integration taht Heartland doesn’t have, Heartland couldn’t sell the cyber source gateway integration for example, Heartland did not have a cash advance product like Global Payments has. All these things can now be sold by that 1500% sales force. We can now sell in Canada and Puerto Rico out of that by enabling the platform by having our teams work on that while separate teams…

Thank you.

Thanks Jim.

Thank you. And our next question comes from Steven Kwok with KBW. Your line is now open.

Hi. Thanks for taking my questions. I was wondering around the revenue synergies that you’ve previously talked about where you can get additional 1 to 2 percentage points over time. Where are we with that? And are the initiatives that you have in place, is that what the ultimate goal is or can it do better than that 1 to 2 percentage points? Thanks.

Hey Steven it’s Cameron. I’ll maybe jump in there. I think David gave a very wholesome answer as it relates to qualitatively what we’ve been doing to drive revenue enhancements across our US businesses. The thing that I would add is, sitting here today, it is important to note that the new enhancements we’ve achieved thus far they are helpful on the margin, but they are not as significant enough to really move the needle as of yet. David talked about continuing to invest in these opportunities such that over time we expect to be able to realize the 1% to 2% incremental revenue growth target that we provided when we announced the deals generated from revenue enhancements. So $30 million or $60 million or so. It is going to take some time to scale these. As you talk about combining distribution platforms combining technology environments to efficiently create opportunities to cross-sell products and enhance the revenue growth of the combined business, it is going to take time to scale that to a point where you are seeing a more meaningful impact from the revenue enhancement that is actually on our performance. So, we expect over the next couple of years to get to that point and we do continue to believe that the overall revenue synergy target that we provided again is a realizable target and we think we have great momentum early towards achieving that goal.

And maybe I will add a little more color. I think is that is exactly the summary that drives our strategy and integration and we think Steven about how to go after the synergies. Certainly my expectation to get out of the timeframe Cameron is talk about is will be at the high end of those and we are certainly shooting to beat that rate. In addition to the direct sales synergies the real strategy that we think about Heartland combined with Global Payments is going all the way across all of the Heartland Global assets figuring out how to combine the best of both and then globalize everything. So very much as Cameron said we’re very much in the mode of planting speeds, doing some spade work now, that will bear this fruit in 2017, 2018 and beyond. In addition to the direct sales synergies I described earlier we are doing the same thing with campus solution. Our TouchNet software platform, the one that powers campus solutions is now integrated with Global Payments, our technology platforms in Canada. That means we can sell net new customers, we can go back with TouchNet’s existing customer base and sell merchants on payments from Global Payments and we are beginning to build that pipeline, that same platform is now certified for Puerto Rico. We are ready to go in Puerto Rico as well. You can see again, planting a few more seeds the same with what’s been historically called Heartland commerce, the point-of-sale cloud software solutions. We just certified our retail point-of-sale solution for Canada. Again for payments in Canada. We have 40 dealers in Canada now with portfolios, we can look to migrate those for our payments. We can obviously sell net new. We are working with target markets then in Europe and Asia to continue expanding that. Lots of really good exciting activity that at this moment is very much at the margin Cameron quite directly said deals here and there as pipeline building all with the focus on 1%, 2% again being at the high end of that range or beating that range at the time.

Great. Thanks for taking my questions and congrats on a good quarter.

Thanks Steven.

Thanks Steven.

Thank you and our next question comes from Andrew Jeffrey of SunTrust. Your line is now open.

Hi. Thanks. Good morning, guys. I wonder, just expanding a little bit on some of the nice sales commentary and the Heartland integration commentary. Cameron, you’ve talked about a through the cycle organic revenue growth rate, given everything you’re seeing at Heartland, and also, it sounds like continued momentum in OpenEdge, is it reasonable to start thinking about North America perhaps being a structurally faster geography for Global?

I think it is. If you think about the cycle guidance that we provided historically Andrew, the high single digit rate of organic growth, that’s obviously what we believe this business can produce over time. With North America now being 75% of the business, if this is not growing near that level, it’s going to be very difficult for the overall company to grow at that level. So, I think it’s fair to say that is our goal as we think about our North American business more broadly. That doesn’t mean Canada is going to be anything different than what we expected to be which it is a low single digit grower in local currency, hopefully Canadian dollar headwind will abate here at some point, but we do believe as we continue to obviously progress the combination of Heartland and Global Payments in the US with North America should accelerate towards that level allowing the overall company to achieve the high single digit rate of organic net revenue growth that we expect to achieve over the cycle.

Okay. And with regard to OpenEdge and Heartland commerce, again maybe qualitatively at least, can you talk about how those two initiatives are working together versus maybe just co-existing, given that they’re going after some of the similar distribution partners, but have had slightly different strategies, one being vertically integrated, in Heartland commerce, and maybe more of a channel strategy for OpenEdge. How are those two things co-exist versus seeing potential synergies?

Yes Andrew it is David, I will take the first part of this. They are actually coexisting beautifully right now. In fact they’re working directly together our go to market strategy, particularly as we think about some of our large competitors in the integrated space that we can chase with these new assets. I’d remind you that when we look at volume look at verticals. Less than 5%, it’s really actually less than 3% overlap between OpenEdge and its verticals that it serves and what we get in Heartland Commerce. That is because Heartland Commerce is primarily restaurant and hospitality, there is very little restaurant and very little hospitality in the OpenEdge portfolio. That allows us to think about channel strategy for hospitality that really has us as the ISP working with dealers and working with direct sales to sell the combined software and payment solutions of the go forward global payments. It allows OpenEdge to continue to focusing on what it does best, which is managing that ecosystem between ISPs and end merchants working on the targeted marketing that sales adding new partners while still working to actually add new merchants to existing partners. I would also say OpenEdge still is in the same position it was a year after, several years of mid-teens growth really successful growth. We’ve got lots of opportunities inside the existing partner base. So, we’ve got a nice little wall like a metaphor right now Andrew between the markets served really by commerce and the commerce asset and the markets served by OpenEdge. As we bring more and more Cloud Technology to market, we can be more and more thoughtful and surgical with our channel strategies and again chase some of the big players in hospitality, which we think is a real opportunity for sales growth over time as well.

Great. Thank you very much.

Thanks Andrew.

Thanks Andrew.

Thank you. And our next question comes from Paul Condra of Credit Suisse. Your line is now open.

Great. Thanks. Good morning, everybody. Just on the EPS guidance, I think, Cameron, you had said for calendar 2017 you were thinking $3.75 to $4.00. That’s FX neutral. Can you just give us a little update on that, just in light of your guidance revision today?

Yes good morning Paul, it’s Cameron. We are not updating that early preview that we gave for calendar 2017 back in July. You know the $3.75 to $4 on a constant currency basis relative to fiscal 2016 was really designed to help you guys in the market in general with the transition to a new calendar year, but we’re not specifically updating that today. We are naturally updating our fiscal 2017 guide, as you correctly stated raising that from $3.40 to $3.50 to our current $3.45 to $3.55. So I think that obviously suggests very good momentum as we are going into calendar 2017. You can draw your own conclusion from that. I think the one obviously I think we continue to have wrapped with this FX headwind. And as I suggested on the call today, we believe in that guide in that race guide on cash earnings per share – adjusted earnings per share that we were going to be observing more FX headwind in those results. So, as we get to calendar 2017, early calendar 2017 we will provide a guide for 2017 that obviously reflects our expectation for the business, as well is what we think the obviously FX impacts will be for the calendar period.

Okay. Thanks. And then on the OpenEdge business, I think you had talked about it today being a mid-teens grower. And in the past, you’ve mentioned mid to high teens. So can you clarify, is there any change in trajectory there or anything you’re seeing?

I would say no. There is no real change in trajectory depending on the quarter kind of bounces around between mid and high. As we think about the business, our expectation is that business continues to grow in the mid-teens level. We go very good about the momentum and the trajectory to be able to do that, but from one quarter to the next it maybe high teens, it maybe midteens, but generally in that ballpark is what our expectation is for the business. So, I will tell you for Q1 it performed exactly in line with our expectations and has accelerated relative to Q4, which I think are both very good points of empahsis.

Okay. Great. Thanks, guys. Good quarter. I’ll leave it there.

Thanks Paul.

Thanks Paul.

Thank you. And our next question comes from David Togut of Evercore ISI. Your line is now open.

Thank you. Good morning. I’m wondering if you could comment more broadly on the impact of interchange caps that went into effect in Europe on December 9 of last year. In particular, is there the potential for an increase in merchant acceptance of electronic payments, as the cost of payments have come down?

Yes David it’s Jeff. So, as we said in our remarks this morning, our European businesses and in particular our UK business has performed exceptionally well during the quarter. So, certainly we think one of the important trends in the marketplace is a lower cost of acceptance, as well as a good macroeconomic backdrop for those markets. As I think, we said over time, reductions in costs to our merchants are really nothing, but good news for our business, but those ultimately get competed away over a period of time. So, I think, it’s good news as their bills go down, the market tends to be efficient over a period of time. So our benefit as time goes on tends to get competed away, yet the merchants continue to benefit with lower cost of acceptance than they had – they had previously. It’s hard to back that out of the underlying economic growth in the markets that we’re in. But if you look at our experience, for example, in Spain, which really adopted the interchange reduction. Here we are now two years beyond the first adoption of the interchange reduction and our business has grown, as we said in our prepared remarks probably one-and-a-half to two times the rate of market growth for each of the last six quarters. How much of that is attributable to the lower cost of acceptance, the fantastic partner we have in Caixa in the Spanish market, is kind of hard to disaggregate. But I think there’s no doubt, David, that around the world lower cost of acceptance for our customers is really nothing but a good thing.

I think too, David, this is David, I’d add in the more developing markets of Central and Eastern Europe, we’re beginning to penetrate with our Erste joint venture, you will find that cost of acceptance being a enhancement, certainly to organic and secular growth in those markets.

Okay, thank you. And just as a quick follow-up, Jeff, I’m wondering what your thoughts are longer-term about Europe. As the banks see pressure from the reduction in interchange, do you see opportunities perhaps over time to acquire some merchant portfolios in Europe as a result?

Hey, David, absolutely. So, as we said in our remarks this morning, we’re very pleased with the initial progress in our Erste joint venture, which encompasses a number of countries in Continental Europe. I do believe that part of the rationale on behalf of Erste Bank for considering a joint venture was a change in competitive and technology dynamics in the markets in which they’re in, in Continental Europe. So we certainly continue to pursue other venture partners in Europe. I think that these number of technological and market-based changes that you’re seeing going around Europe today do nothing, but help our ability to create value for our partners. I think we’ve been able to show over a very long period of time in many markets how we’ve been able to create very good returns for our shareholders and our partners. And I think, the changes in Europe provide us another opportunity to do the same. And we expect that our partners at Erste will be similarly happy. So from that point of view, David, we continue to pursue those ventures and we hope to do more in the future.

Thanks very much. Congrats on the strong results.

Yes, thank, David.

Thanks, David.

Thank you. The next question comes from Bob Napoli of William Blair. Your line is now open.

Thank you. Good morning. Jeff, the – Jeff, you highlighted right upfront and you talked about accelerating growth in all of your markets. And we’ve had very mixed retail data out of the U.S. Asia, I think getting mixed reports on the economic trends there. What is – and you talk about some of your products, and I understand that some of the acceleration. But do you feel this acceleration is driven – are you – do you think some of it is economic improvement? I mean, your acceleration in growth seems out of place with what generally seems to be reported out of retail sales and economic growth in the markets you serve?

Bob, it’s a great question. So what I would say is, I really think it’s a combination of attacking the right markets with the right people and the right model. So in most of the markets which we compete, the United States is a good example, as David alluded to, we’re very specific about the markets that we go after and how we do it, sort of David’s response about, for example, on OpenEdge and the integrated vertical markets, we’re selling technology solutions into markets that themselves like dental, veterinary, et cetera, that are higher growth in the overall rate of GDP growth in the U.S. economy plus the adoption of electronic commerce, and we’re doing it with better technology, better people, better services, and ultimately, therefore better markets. So, I think, Bob, it’s perhaps a reflection of the way we go about the markets that we go about, how we attack them, and our point of value differentiation relative to our peers that really is driving the incremental rate of growth. I’d also stated, there’s an element at very good sales focus and execution. If you look at our results in Asia, for example, we have yet to really laugh some of the macroeconomic headwinds that you saw starting in the second quarter for our fiscal last year in Asia yet business as usual Asian markets for us accelerated their growth, as Cameron and I each noted. In Canada, I just think think that’s very good sales execution in markets like Singapore and Malaysia and the Philippines of with and without our partners at BPI. So the conscious investments we’ve made, Bob, as a company into markets that are large diverse and growing with higher rates of vertical market growth than the average and better margin opportunities are really paying dividends. That’s why I think you’re seeing our results. Conversely, we are really not in the large merchant category, for example, in the United States as some of our peers are, I think a lot of the data Bob that you’re referring to reflects the large retailer, for example, market which in general is not a market we’re particularly focused at either at legacy Global or at Heartland.

Great. Thank you. And my follow-up question is, I mean, Global and the industry as a whole, or some of your competitors have had a great run since 2013, in particular. What is – how – what is – what are you most worried about as far as disrupting the strong trends that you’ve had? How sustainable are the trends that we’ve seen? What are you most worried about that could derail the very strong trends we’ve seen? Is it competition? Is it regulation?

Yes, Bob, it’s Jeff. So, I’ll start and ask David and Cameron to join in as well. But I think, we touched a lot of this in the last question that you asked. But I think what you’re seeing is results of the curative investments that we’ve made in our business over a period of time that is really bearing fruit. I think David very nicely described the investments made in sales in Heartland, in legacy Global Payments that really results of dividend, not just in the United States, that would wrap it around the world the investments we’ve made in our technology environment in fiscal 2012 and fiscal 2013 are really bearing fruit. So, from that point of view, I think, we’re differentiated bit in terms of where we played chips on the table. In terms of what we’re worried about, I think it all starts with for us and our peers of industry, what is the macroeconomic environment look like. Most of us are GDP plus derivative type businesses and therefore, it’s important that we operate in healthy economic environments. For example, we talked about much of this 2016 in Asia, where for a number of quarters, the latter three quarters of fiscal 2016, we had a headwind in greater China. I think we’ve been able to show throughout fiscal 2016 and our results now in 2017, our guidance show, they were able to take whatever actions we need to take quickly to preserve margin and reposition our business quickly. So there’s no doubt at the end of the day, that a healthy economy is an important driver globally of our results. So, I think it’s important in terms of what we worry about a healthy economic environment for us globally continue to grow that as businesses. We also need to make the right decisions around technology investments, which is where I started. Many of the things that we invested now, we will see returns in 12, 18, 24 months from now, it’s important to get those things right. So in terms of what we worry about, we worry about, we think the wrong hit in the wrong place at the table, such that we’ve made investments that haven’t borne fruit, half way that’s not the case. So, we worry a lot at the strategies matter about, whether those are the right investments to make today for returns in the future.

I think that’s right. I think, I’d add to that technology investment. Are we really helping our customers do what they need to do with their consumer. So those investments are right investments as we go deeper in the software. We believe they absolutely are the bearing fruit today. But we’re thinking about those is the right way to think about servicing customers, allowing them to take care and to like their consumers at the point of interaction and point of sale. And obviously, in our industry, you’re always worried about security. We do believe that the combination of EMV, encryption tokenization is great for overall health of the industry overall consumer confidence. When you go back to a secular question that we’re talking about earlier, I think, Paul’s question maybe with David’s around adoption and things like that, obviously, security is a big piece of that. We invest heavily there. We’re trying to find the right balance as well as returns. So, we think about those couple of things, in addition to what Jeff described.

Okay. Thank you very much.

Yes, I’ll just wrap it up. It’s Cameron with one final comment on the same topic, it’s a little bit different. I do think we’ve got a great run over the last three years, of course, and that’s been borne out by obviously how the share prices performed. I think it’s very fair to say sitting here today, we remain – this is enthusiastic if not more so about the future over the next several years of this business. Obviously, the combination of Heartland is the transformational opportunity for us. But we think our ability to drive high rates of organic revenue growth in the business to expand margins and compound double-digit mid-teens growth in earnings per share obviously creates a very nice trajectory for the business and give us a lot of optimism about, where we’re heading as a company financially.

Great. Thank you. Appreciate it.

Thanks a lot.

Thank you. And our next question comes from Dan Perlin of RBC Capital Markets. Your line is now open.

Thanks. Good morning. I wanted to maybe dovetail a little bit on that last – the comments you guys have just been making. When you look ahead and you look at the results you’ve had thus far, how much of this is a function, in your opinion, of your positioning and share gains in the market, given those chips that you’ve been placing? And you could pick U.S. or Europe or Asia for that matter, relative to real market expansion. I mean, so it goes back to kind of like secular growth versus your share gains, in either mature markets or emerging markets. I would just be interested to know how you think about parsing that data out for your growth?

Yes, Dan, it’s Jeff. So I’ll start with that. So our bogie in most of the markets that we’re in is, where are Visa and MasterCard growing transactionally. That’s one way of getting at rate of market growth. But those markets that we’re in, not in every sub-vertical market that Visa and MasterCard are in. But where it’s relevant for us, what’s the rate of transaction growth, number one, number two. What is GDP growing in those markets plus 200 to 300 basis points of increment reflecting the transition from paper to electronic means. So if you distill that, and there’s obviously a lot of markets that we’re in, we’re in 30 countries physically today around the world. What you would say in general across all of our markets, the bogie is around 5% market rate of growth. Some are higher, some are lower, but in general, it’s around 5% rate of growth. If you look at our cycle guidance, which we talked about again this morning, we target high single-digit organic rate of revenue growth plus margin expansion, et cetera. So the way we think about it, Dan, is if we’re targeting high single-digit, if the rate of market growth is 5, when we talked about this last year, last October, in our Investor Day, we certainly think that we’re capturing share in the aggregate. Now some of that is, because we’re in better markets. Some of that is, because we think we have a differentiated sales force. Some of that is, because we think we have state-of-the-art operating environments, et cetera. But nonetheless, the math is the math. And I would say that in most of the markets around the world, we do think that we’re capturing share. If you look at United States, for example, and our OpenEdge business, which Cameron and David just described today mid-teens growth is probably three times the rate of mid single-digit market rate growth more broadly speaking transactionally in the United States. Now, we’re not the only people growing at that rate, at the end of the day. So I don’t think it’s just us. But certainly, I think, traditional channels that we refer to as more relationship driven are not growing at mid-teens. And I certainly think it’s fair to say that there’s market share gain in a technology-enabled distribution area, whether it’s Heartland commerce or whether it’s OpenEdge relative to the more traditional, for example, financial institution channel, we see rates of growth that tends to be less than the market, call it around low single-digit. So I think it’s been a conscious effort to think about what the market is in each market that we’re in, what the bogies are, how we’re going to invest and grow at rates that are north of the market for a lot of reasons. So I think at the end of the day, it’s down to smart investment that take share.

Okay. And then in the Asia market, in particular, low double-digit organic growth, that’s been fantastic. I think you said Ezidebit is growing 20%-plus. Can you just remind us how we should be thinking about that trajectory throughout the year? I mean, is it we’re going to dovetail it off in the back-half at some point, or are there other dynamics at work that we can kind of stay on this trajectory, which this has been a market, I guess, that we’ve been waiting for this double-digit for a long time and you guys are clearly putting it up now. So I’d just be interested to know that. Thanks.

Dan, it’s Cameron, I’ll jump in there. I think we feel very good about the momentum we have in Asia sitting here today. So I don’t expect a lot different in the back three quarters of the year. I wouldn’t say, our overall target for Asia is kind of high single to low double. Obviously, we’re able to get the low double this quarter. I don’t know that I would expect that every single quarter. But certainly, we think we’re in a place and have started to lap certainly as we get into Q2 and Q3, some of the macro headwinds in the Greater China market that Jeff described earlier. I think we feel very good about the overall prospects to be able to achieve low double-digit growth in Asia overall for the year, including high single to low double organic growth.

That’s great. Thank you, guys.

Thanks, Dan.

Thank you. And our next question comes from Tien-tsin Huang of JPMorgan,. Your line is now open.

Great, thanks. Good quarter here. Just wanted to dig more into the strong Heartland sales in August and the quarter, just maybe focusing more on core merchant sales. Just I know you said sales energy is good and there’s lower attrition. But anything secular or cyclical to call out again in the quarter as beneficial, things like EMV transition, I know, there has been a lot of bottlenecks there. Is that having an influence, for example? Thanks.

Yes, Tien-tsin, it’s David. There really isn’t anything specific to call out. We’ve got terrific productivity. As I said earlier, reps are up a little bit, but it’s really only at the margin and the productivity coming with the additional reps is where we wanted to be. So it’s not just the volume thing or something along those lines in terms of just more reps to create more sales. The quality and sales is good. Retention is very good right now. I think that on the pure payments basis, EMV is not driving these sales. I realize that’s a popular topic of conversation, but that has more to do with other participants in the industry overall rather than us directly as a payment technology provider. So I think, we’re very happy with the pieces. I would tell you that the combination of being able to sell other products in addition to payments does make for better stronger sale and more sales. So selling payroll, selling some of the other products, selling our HCH-based product for online customers obviously enhances the payment sales as well. But I really I don’t have a single thing at which to point, Tien-tsin, that’s different from where things were, I think the engine is working well. The leadership is in place. And the machining tooling that underlies managing this 1,500 person complex sales force is working well.

Okay. That’s helpful to know. And just I know there has been a couple questions on Asia. But just Ezidebit, are you doing something different there in terms of distribution? I was curious if that growth rate is sustainable or even could we see it accelerate here by itself, Ezidebit?

Yes, Tien-tsin, it’s Jeff. We actually have seen the acceleration already in the last number of quarters that Ezidebit. We partnered with those guys a number of years ago, it’s been just over three years now this month. We didn’t model out high 20s growth, that wasn’t our expectation for organic revenue growth, that was right around 20%. And as we said today, they’ve now exceeded it for a number of quarters. So what I would tell you is give a fantastic management team in place in Australia and New Zealand. They have essentially taken an integrated model, which is what Ezidebit is, think of it as OpenEdge based in Australia and New Zealand and certainly relative to one of the last questions are doing nothing, but capturing share in that marketplace environment. So if you were probably to go look at the rate of organic transactional growth for Visa and MasterCard and your peers in Australia and New Zealand, they would not be anywhere near 20%. So clearly, Ezidebit has a very good model with very good team and they’re doing all the right things. We also did a lot of time talking about it, because it’s not organic, but their integration of UA, which is something we announced in April has also gone very well. I think it shows the – which has 25% of the online market in Australia and New Zealand. I just think it shows the flexibility and capacity in our confidence level in our management team in Australia and New Zealand and Asia to accelerate growth, while they’re busy growing their own business well into the 20s.

All right. That’s great. Thanks.

Thanks, Tien-tsin.

Thanks, Tien-tsin.

Thank you. And our final question comes from the line of Jason Kupferberg of Jefferies. Your line is now open.

Hey, thanks, guys, for squeezing me in here at the end. Just a couple of quick ones. Is there any slight change in the tax rate guidance for the year? The only reason I ask is, I know the EPS is going up by $0.05, but revenues have changed. I think the margins are going up by 10 bps. So I wasn’t sure that that would quite get to you the $0.05, just with the slight margin change?

Yes, it – Jason, it’s Cameron. It’s a good question. The margin change obviously helps, but as I’ll note, we’re absorbing more FX in there as well. I think overall tax rate, I think the expectation remains pretty much the same as what we described back in July. We think it’s going to approach 30, it was 28.5, so 28.5, 29, something in that ballpark sort of approaching kind of the high 20’s to 30 range remains our expectation for tax rate. I would say the guide itself doesn’t suggest an increase in or excuse me, a decrease in the effective tax rate that’s not what’s driving the increase in the guide. It’s really the Q1 performance coupled with our outlook for the remainder of the year. The increase in expense synergies that we’re targeting now for fiscal 2017 relative to the Heartland transaction, obviously, offset slightly by some incremental FX headwinds.

Can you quantify the incremental FX headwind? Are we talking like a 0.5 point here on the top line, or is it closer to a full point?

Yes, I think it could be close to a full point, sitting here today.

Okay.

Unfortunately, the pound is off 2% to 3% relative to where it was in the last two weeks, quite frankly. We’re now seeing it down around 127, it was 134, most of September, it was 1, obviously a little higher on average for Q1. So I think we remain cautious probably as it relates to the pound specifically, particularly in light of the size of that business relative to the overall size of the Global Payment. The unfortunate reality is a lot of other currencies tend to be trading in sympathy with the pound it appears as well. So we’ve seen weakness albeit maybe not as severe as we’ve seen in the pound. We’ve seen general weakness across the Board in most of the major currencies in which we have exposure. So I do think it could end up being almost an additional full point for the full-year, particularly in light of my view, and I think our view that when you get to December, I think, we expect the Fed to raise. I think in a rising rate environment here in the U.S., it’s going to continue to put pressure on foreign currencies relative to the U.S. dollar, which causes again the bake in a little more FX headwind into our forecast for the remainder of the year.

Okay. That’s all helpful Thank you.

Thanks, Jason.

Thanks, Jason.

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

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program and you may all disconnect. Have a great day, everyone.