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Total System Services (NYSE:TSS)

Q4 2011 Earnings Call

January 24, 2012 5:00 pm ET

Executives

James B. Lipham - Chief Financial Officer and Senior Executive Vice President

Philip W. Tomlinson - Chairman, Chief Executive Officer and Member of Executive Committee

Shawn Roberts - Director of Investor Relations

Analysts

David M. Scharf - JMP Securities LLC, Research Division

Greg Smith - Sterne Agee & Leach Inc., Research Division

Bryan Keane - Deutsche Bank AG, Research Division

John Campbell - Stephens Inc., Research Division

Steven Kwok - Keefe, Bruyette, & Woods, Inc., Research Division

Ashwin Shirvaikar - Citigroup Inc, Research Division

Jason Kupferberg - Jefferies & Company, Inc., Research Division

Roman Leal - Goldman Sachs Group Inc., Research Division

Robert J. Dodd - Morgan Keegan & Company, Inc., Research Division

Craig J. Maurer - Credit Agricole Securities (NYSE:USA) Inc., Research Division

David Togut - Evercore Partners Inc., Research Division

Timothy W. Willi - Wells Fargo Securities, LLC, Research Division

Darrin D. Peller - Barclays Capital, Research Division

Operator

Good afternoon. My name is Michelle, and I will be your conference operator today. At this time, I would like to welcome everyone to the TSYS First Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, ladies and gentlemen, this conference call is being recorded today, January 24, 2012. I would now like to introduce Mr. Shawn Roberts, Director of Investor Relations. Please go ahead.

Shawn Roberts

Thank you, Michelle and welcome, everyone, to our fourth quarter year-end 2011 earnings call. On the call today, our Chairman and CEO, Phil Tomlinson, is going to provide some highlights on the fourth quarter of 2011, and then turn it over to Jim Lipham, our CFO, who's going to review our financials. And after that, we're going to open it up for Q&A.

As every quarter, I'd like to kind of talk a little bit about the Safe Harbor. The fact is we'll be making some forward-looking statements about the future operating results of TSYS. These forward-looking statements involve risks and uncertainties. Factors that could cause TSYS' actual results to differ materially from the forward-looking statements are set forth in TSYS' reports filed with the SEC.

At this time, I'd like to introduce TSYS CEO, Phil Tomlinson.

Philip W. Tomlinson

Thanks, Shawn, and good evening, everybody, and happy New Year. We're delighted to be able to share our fourth quarter and year-end results with you today. And as I was thinking about the call this afternoon, I really was thinking back to last year about this time when I told a story about after a Sunday dinner, hold on your fork because something better is coming. I held on to my fork, and I hope you did too, because something better is here. And I'm really happy about these results that we've had for the quarter and for the year.

We met or exceeded the high end of our revised guidance, with total revenues up 7.3% for the quarter and 5.3% for the year. Our EPS was $0.31 for the fourth quarter, up 29.4% for the quarter and $1.15 for the full year, a little over a 14% increase.

Our holiday season was strong, and our issuance segment with overall transactions, up 13% both in the U.S. and the international side.

Point-of-sale transactions and our same-client merchant segment increased 6% in the fourth quarter, and that's excluding the BAMS transactions.

At a macro level, it appears to us that consumer spending on credit cards increased as the year progressed, delinquencies continue to fall. And electronic transactions, in general, continue to show growth, and we're obviously very excited about that.

I wanted to take just a few minutes to provide you with some metrics that we're very proud of, and I think they speak to the overall health of the company and long-term value to our shareholders.

When you look back at 2011, our total shareholder return was 29.2%. We increased our quarterly dividend by 42.8%. Our return on shareholder equity was 17.4%; return on invested capital of 21.4%; return on assets of 11.6%; free cash flow of $340 million. We repurchased 6.6 million shares at a cost of $120 million, and we spent $214 million in cash on acquisitions, which I think all of those numbers are really impressive.

Over the next 18 months, we have a net of approximately 26 million accounts in the pipeline to be converted. Much of it is under contract today, and we're optimistic about the rest. And the dates are more of a timing issue. As you know, you get into the fourth quarter and you get to the Thanksgiving time frame, and it's very hard to get anybody to move forward with the conversion through the holiday season.

I think all of this adds up to great results for TSYS and for the shareholders for 2011. And we believe this will continue to pay rewards into 2012 and beyond.

I want to give you a brief update on our 3 reporting segments before Jim reviews the financial details and our guidance for 2012. In North America, our momentum continued with a solid fourth quarter and full year. Accounts on file were up 10.3% over the fourth quarter of 2010. And if you include prepaid accounts, they were up 18.5%. Same-client transactions were up 13% for the quarter and 12% for the year, representing 9 consecutive quarters of positive growth.

Total transactions were up 13% from a year ago. It's the highest number of transactions we've seen since the 2007 peak. On a different note, I'm confident that many of you saw the Green Dot announcement today where they bought the assets of a non-operating payment processing company, a prepaid payment processing company. And as I understand it, their plan is to move their processing in-house over the next several years.

I think it's really important to note that they concurrently extended the TSYS contract through August of 2014. Green Dot's a great story and is a wonderful client. We'll continue to service them as they move forward with this strategy.

In 2011, our international segment had a good year as we expanded our geographic footprint. We entered Switzerland, Italy, Brazil, and overall, successfully implemented 14 different conversions. We continue to focus more resources to support the technology and services in these markets, which is positive for our current and certainly, for prospective clients.

In Brazil, we're happy to report that we're in the final phase of the Carrefour conversion, and that'll be completed in February, next month, which starts just a few days from now. We certainly believe that there are many additional opportunities in Brazil to grow our business. It's the world's fourth largest credit card market. We're excited about that. And we are still -- we are very focused on adding scale and managing expenses, streamlining operations and cross-selling additional products and services to Carrefour today and future clients.

In the merchant segment, overall, revenues, transactions and operating income increased. In 2011, we continued our focus on building the direct merchant acquiring business and had quarter-over-quarter and year-over-year growth in our small business and national merchant sectors, certainly assisted by our acquisitions.

The decline in our indirect business or the processing business for the other merchant acquires is primarily from the BAMS -- from BAMS continuing to shift this business into their JV. We're very focused on building an aggressive sales force, who value developing long-term relationships with their customer base and building solutions that bring integrity and transparency to the industry.

Now Michelle, I'd like to turn it over to Jim Lipham, our Chief Financial Officer, who will review the fourth quarter and the year-end financials and our guidance for 2012.

James B. Lipham

Thank you, Phil. Before we get into Slide 6, which is the OpEx slide, I did want to make comment about the balance sheet, as we've had a change from where we were last year. And if you'll note in there, the term loan that we have of $168 million under our credit facility is now classified as short-term, due to it being due for payment in December 2012.

Just to let you know, we're currently looking at that. We're trying to make a decision of paying it all, extending it or enlarging it. As we go forward through this first quarter, we'll make that decision. So look for that news later on in the quarter.

Getting to Slide 6. If you look at the left side, the quarterly results, you'll see some very good numbers there with our revenues up 7.3%, $32 million at $472 million. And the revenues before reimbursables, it's the first time ever we've been over $400 million, at $407, 683, up 9.1%. That's just outstanding numbers and good growth, and we've talked about it with the volumes that we've seen, good organic growth.

We did have some contributions from our acquisition of TMS Atlanta and also, Brazil being -- kicking in revenue during the fourth quarter. So we've had some good growth there. Value Added Services, up. GP Net in Japan was a good contributor quarter-over-quarter, so just some real good growth in our revenues for the fourth quarter.

Operating income, up 26.4%. Obviously, good positive productivity going on here with expenses not growing as fast as revenues. See our margin for the quarter was at 22% compared to 18.98% last year during the fourth quarter, and that's an improvement of a little over 300 basis points.

Income from continuing ops of 26.7% growth, just outstanding at $59.8 million. And as Phil said earlier, we were $0.31 a share, up 29% year-over-year. So some good double-digit growth in our net income, operating income and just great fourth quarter.

If you look at year-to-date on the right, as Phil mentioned, our revenues, revenues from reimbursables were both a little ahead of guidance. We're up 5.3% on revenues, and then revenues before reimbursables were up 6.8%. If you took the termination fee out of 2010, these revenues before reimbursables would've been up 9.3%, which is pretty good growth. I mean, we're up $91.4 million in revenues, and we did have the remaining purchase of the First National of Omaha during this year, and they've contributed more.

CTA was up about $16.8 million for the year, but it had likewise pretty much same increase in expense, affected operating income about $1.2 million. But TermNet acquisition is in here. Carrefour was in here for a good half of the year, and then GP Net, as I mentioned, earlier in the fourth quarter, they've contributed quite a bit for the year.

Operating income is up 4.2%. Obviously, without the termination fee in 2010, it would be up the 16.5%, which is good double-digit growth also. Margin for the year, 20.9%, compared to the actual margin of 21.5% last year. But if you took the term fee out, last year would have been 19.65%, so we'd had a pretty good increase there of around 130 basis points in our margin year-over-year without the termination fees.

So net income attributable to our common stock is up 13.7%. It's in line with the high end of the range that we put out at $220 million. So all in all, very good year. $1.15 compared -- up 14% compared to last year. So I feel real good about that. We'll talk about that, again, later and the good cash growth that we had.

So turn over to Slide 7. When we take a look at the makeup of our 6.8% increase in revenues before reimbursables, you'll see the various features of it. Internal growth is up 4.4%; new clients up 3.4%; acquisitions added, at 2.9%; and then currency's at 1.2%. A total of about 11.9% increase from these sources of revenues. And then we have our traditional lost business, nonrecurring items and -- which is termination fee and price reductions at 5.1%, as a negative, bringing it down to 6.8%.

I will say that lost business last year in 2010 was about a 10% reduction, so it's gotten better in 2011. Hopefully, we'll continue this trend as we go forward with a lesser percentage of our revenues going to de-conversions and price concessions.

Flip over to the next page, and we'll talk about accounts on file and our makeup for the year. Each category in here has shown positive growth for the year of '11 over '10, which is outstanding. This is the fourth quarter in a row that we've seen growth in all these categories, and look at the subtotal line that's highlighted there. You'll see that these normal accounts outside of prepaid/stored value are up 10.9%, which is more in line with what you see in our revenue growth.

Prepaid is up 53.9% at 85.1 million accounts. And we've mentioned this before, that's a tremendous increase, but these accounts are less active than all these others are only about a little 8.4% active. So they contribute a total of about 2.7% of our revenues before reimbursables. So they don't generate quite the amount of revenue these others do, but they are growing quite rapidly.

With that, flip over to the North America segment. Let me just touch on what went on there in the fourth quarter. As you can see, revenues were up $12 million at $246 million, up 5.2%. And the revenues before reimbursables is up 5.5%. Primarily as you can see, that the key drivers are strong organic growth, increased volumes that we talked about and just a solid growth quarter for North America in their revenues.

I will say, if you go year-to-date, you'll see North America's growth is kind of flat, and it's mainly the new business that was put on with organic growth during the year helped offset all these revenues we had that we lost from de-converted customers, including the termination fees.

So talk about the quarter. The segment operating income was up 18.1%. Our margins before reimbursables at 31.8%, good growth. They increased 341 basis points over prior year. And then you look at the total cardholder transactions to the right, they're up 13.6% at 1.9 billion. Accounts on file, 351 million , up 18.5%, Phil mentioned. But without the prepaid, they'd be up 10.3%. North America just had outstanding quarter and a good year, overcoming the lost revenues they had.

On the next slide, with international, you see revenues there. They're up 15.5% at $106 million. Revenues before reimbursables are up 16%. Obviously, the key drivers here, conversion of new clients and Phil mentioned that, that we've completed those conversions, there's about 14 of them, strong organic growth and the revenues there, so just good solid quarter for the international segment.

Operating income at $12 million. That's up 61%. So we've have a good quarter, with the margins at 11.7%, when you look at revenues before reimbursables. And that compared to 8.4% for the fourth quarter of last year.

The total cardholder transactions are up 11.7%. Accounts on file were up 14%. And then the same-client transactions are up 3.9%, so you can see that the growth in transactions came a lot from the new customers that came on board. For the quarter, currencies only added about $129,000 to revenues, one less to speak about, and affected operating income about $200,000.

On the next slide is our merchant segment. Good growth here. Our lease revenues for the quarter were up 3%. Revenues before reimbursables were up 7.4%. And what the breakout here is that TSYS acquiring, as Phil mentioned, we've lost contingency. BAMS moved off of the front end that TSYS is acquiring. And so their revenues are down about $1.7 million. TSYS of Omaha is up about $1.7 million, and then you got the acquisition of TermNet, which is an acquisition. So that's pretty much the story there with the acquisition of TermNet contributing the most of the revenue growth.

Now the $100.4 million revenues before reimbursables, approximately 58% is transaction driven predominantly by TAS and our other indirect business and 42% is from the direct merchant ownership, which we acquired with TSYS of Omaha and then TermNet. POS transaction volumes, as you can see up here, they did decline 1.6%. But without BAMS in there, as Phil mentioned, they were up 6.6%. So good solid growth there from same clients.

Direct merchant ownership, as I mentioned, is driven by dollar volume and not transactions for TSYS of Omaha, its volume was up 3.3%. That's on top of losing one of their major merchants. And had they not lost that merchant, their volumes would've increased 7%. So very good growth there in the dollar volume for direct merchant ownership.

Operating income was up 10.7% at $33 million. That's a margin of 32.8% on excluding reimbursables, and that's an increase of 97 basis points from where it was for 2010. So simply good about our acquiring business and the direct and the movement that we see in there. We will anniversary or continue see BAMS as we go forward, drop off about $10 million a year. You'll see that in my guidance -- in our guidance for 2012 in a minute. But good merchant activity.

Next page is our cash flow. We had a very strong cash flow for the quarter. It was $137.9 million from operations and a $106 million of free cash flow. As you can see from the chart, we continue to generate good cash with EBITDA growth of $492 million.

Year-to-date, cash flow from operations are $436 million, and free cash flow was up $116 million to $340 million. So when you remember last year in the fourth quarter, we had some big payouts. We had the software acquisition of about $50 million, acquisition costs of about $44 million, so knocked that cash down, so we're back to where we are normally.

So cash at the end of the quarter at $316 million. Phil mentioned that we had purchased the remaining 49% interest of TSYS Merchant Services or Solutions and purchased TermNet for $39 million. We also spent $120.6 million on share repurchases of the 6.6 million shares that Phil talked about, 2.4 million more acquired in the fourth quarter. So we finished the year with total outstanding shares of 188.5 million. And that will be our start for the coming year.

We do have approximately 5.3 million shares still remaining to be acquired in our share buyback plan, and that will expire in April of 2013. So we have another year to work on acquiring those shares.

And as we stated before, that's our way of running the business is looking with these excess cash and acquisitions first and then share buyback second.

So now as you flip to the page on guidance 2012, let's start with that. As you know, reimbursable items are pass-throughs, and we, as management, consequently, don't look at that as much as we do and focus on our revenues before reimbursables. And you'll see that we've got that forecasted growth, 2% to 5% in 2012.

We have included in there our organic growth rates between 3% to 5%. It's on the, probably, the high end of that range. Currency rates, we're using about $1.60 for the pound and $1.40 for euros. I know that's a little high from what's been happening right now with euros. I mentioned to you, we do continue to see BAMS migrate off our systems in merchant segment with another $10 million of additional revenues to be lost in 2012.

We do expect our operating income margins to continue to improve and be in the range of 21% to 24%, but we're anticipating about 150 basis point improvement there in the margins for 2012.

Our earnings per share growth at 10% to 12%, positively impacted, again, by the income growth as well as the share repurchase program. And I mentioned that we have some shares remaining as we go forward. But earnings per share, $1.26 to $1.28, 10% to 12% growth, and that's the main things that we got in our guidance for 2012.

Before I turn it back to Phil, I did want to mention, though, in our guidance for '12 that we, in an effort to concentrate on our current footprints in our international segment and in the opportunities to improve our long-term margins by achieving scale, we've dedicated more internal resources, which were previously shared with North America. But we've dedicated more of them to the international segment and the development of the technology and services that we need to sell to the international customers and potential new customers.

So we did lose some resources. This focus is necessary in order to increase our array of products, as well as cross sell the Value Added Services and improve long-term margins. So on a consolidated basis, there are no new additional expenses. To reiterate that, there's no new additional expenses. What we've done is moved partially allocated people to fully allocated to our international segment. This comes out of North America. And as we could do this, we increased the margins in North America, as we decreased margins in the international.

But the other thing on the international front is conversions were being completed or have been completed in Europe and you heard Phil mention about 14, especially in Brazil, as well as in Europe. Over the past 2 years, we've experienced some shifts in expenses that we capitalized as these conversions were going on.

Until now they're being -- showing up in operating expenses. So the combination of that, the combination of allocating more resources directly to the international is going to push those margins down in the 5% to 6% range. But there will be gradual improvements as we get on through the year.

And then again, this will not have a negative impact on our consolidated margin, which we noted earlier is in the range of 21% to 24%. So North America will improve and international will suffer a little bit as we go forward over the next couple of years.

And again, we believe our strategy of presuming additional clients and offering more services to our existing clients creates a sustainable differentiation for us in these markets.

So with that, Phil, I'll turn it over to you and for questions.

Philip W. Tomlinson

Thank you, Jimmy. And Michelle, we'd like to now open it up for Q&A.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Greg Smith from Sterne Agee.

Greg Smith - Sterne Agee & Leach Inc., Research Division

Just wanted to get your take on Europe and just any read-through from the transactions you're seeing as far as kind of the health of the consumer relative to maybe North America.

Philip W. Tomlinson

We were pleasantly surprised in the fourth quarter at how strong the consumer was in the countries that we are in Europe. It was virtually the same as the U.S., as far as transaction growth. Greg, as you know, we are only in a few countries in mainland Europe or western Europe, if you will. And I think we were looking the other day, I mean, there's been a lot of discussions about the euro. I think, our revenues are about 4.5% in euros, as I recall.

James B. Lipham

That's correct.

Philip W. Tomlinson

But we've been pleasantly surprised at how strong the consumer in Europe, at least in the countries that we're in, had performed in the fourth quarter.

Greg Smith - Sterne Agee & Leach Inc., Research Division

Excellent, and good to hear. And then was there any significant benefit from the Durbin Amendment in the quarter? And if so how should we think about that on a go-forward basis, thinking...

Philip W. Tomlinson

There was some benefit, but it was not substantial. And I think we priced our way through that and feel good about where we're at. But it was nothing material.

Greg Smith - Sterne Agee & Leach Inc., Research Division

Okay. And then lastly, what should we expect for the tax rate? And also, any color on the CUP Data, as far as how we should model that in 2012? Both of those would be helpful.

James B. Lipham

Greg, on the tax rate, we have finished this year about 32%. We're expecting anywhere from 33% to 34% next year. And there'll be some opportunities, I think, as we go forward with discrete items. We possibly could get it back down but what we've modeled is 33% to 34%. And then on CUP Data, what we -- we have 21% growth there in that equity line, and we had anticipated about 19% growth year-over-year. Some of the quarters got out of shape when we try to get them converted to GAAP between the third and fourth quarters of '10. But as you go forward, I think, I'm modeling in about a 16% growth year-over-year. And this is going to be -- the quarters will be more even than what we've seen before.

Operator

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

Darrin D. Peller - Barclays Capital, Research Division

Just first question on guidance. If you look -- take a step back and look at your fourth quarter top line revenue run rate, you're running in the 9 -- or you grew 9%, I guess, for revenue before reimbursables. It would obviously suggest a much higher revenue growth rate than what you've guided towards of 2% to 5%. And I know there's some moving parts. But can give us some color on what may be included in that guidance range? And also, I mean, maybe some color on the Capital One will contract? I mean, I think that -- did the pricing change? Or any impacts from that contract already show up in this quarter?

James B. Lipham

Let me talk to the maps in growth in revenues and what we guided to. As you know, we had acquisitions, the TMS acquisition. We've had Brazil come in for a couple of quarters this year. And obviously, in the fourth quarter, you'll compare them back to the prior year when they weren't there. So it was kind of a strong quarter when you go year-on-year, when you factor in acquisitions. I think, going forward, the 2% to 5% that we have out there is a pretty strong number when you look at not factoring in any acquisitions, the anniversary-ing of those 1-year jobs are over and so...

Darrin D. Peller - Barclays Capital, Research Division

Maybe just help us understand what the organic growth rate was for the fourth quarter then. Would that be possible?

Philip W. Tomlinson

I'm sorry, we couldn't hear you.

Darrin D. Peller - Barclays Capital, Research Division

Just to give us a sense of the organic growth rate for the fourth quarter.

James B. Lipham

Yes, it was a -- hold on a second.

Philip W. Tomlinson

While he's doing that, Darrin, the Cap One pricing was in the fourth quarter.

Darrin D. Peller - Barclays Capital, Research Division

Okay. So that already had an adverse impact on the -- I guess, relatively compared to...

James B. Lipham

I only have year-to-date here with me, Darrin. It was 4.7% for the year to date so...

Darrin D. Peller - Barclays Capital, Research Division

Say that again.

James B. Lipham

It was 4.7% for the year to date.

Darrin D. Peller - Barclays Capital, Research Division

Okay, all right. That's helpful. One question also, when you look at the guidance, I mean, you have revenue, I guess, before reimbursables versus sort of top line revenue. It's increasing something like, say, about 88%. In other words, your -- the revenue before reimbursables as a percentage of total revenue from customers is obviously up. Is that also just sort of deal related stuff? Or just can you help us understand them? Or is there anything we need to understand there around the moving parts?

Philip W. Tomlinson

I think it's deal related. I mean, the pass-throughs that we have that are very straightforward is postage and data lines and basically anything that we're paying for, it could be equipment, that we just pass through. But the vast majority of it, I think, you get to accurately assume is just postage.

Darrin D. Peller - Barclays Capital, Research Division

And then last question on the guidance, if you don't mind. Just when you look at the range, it's kind of wide. I mean, 2% to 5% is -- I'd love to hear your thoughts on your assumptions to get to 2% versus 5%. I mean, how much macro sort of uncertainty are you baking in to the 2% number versus the top end of the range?

Philip W. Tomlinson

I mean, I'd speak to the macro part of it being it we had kind of held our guidance for organic growth pretty much; in line with where we finished up this year. And one of the things that could happen going forward is that you continue to see improvement. We don't know how much of this fourth quarter growth that we had was discount-related one way or whether these people are going to continue to exercise these cards like they did in the fourth quarter, then we'll probably have growth of 4% to 5% organic growth we have in there.

Darrin D. Peller - Barclays Capital, Research Division

Got it. All right, that's helpful. Just last question for me, and I'll go back of the queue. On the free cash flow and sort of the capital structure questions, if you look at the amount of free cash flow you're generating right now, I mean, you have about $340 million that you said you generated for the year. Obviously, that's up from the $250 million you expected back in your investor day. It's up from $300 million you did last quarter. You still really bought back about $100 million of stock, and I know that you consistently say you're looking for deals. But I think we had the same question last year at the end of the year around guidance time, and maybe I'll frame it to you again this time now just as we go into 2012. What do you think, Phil, we should expect or we should really rely on before we start seeing more meaningful pickup in buybacks relative to getting a deal done, just timing wise?

Philip W. Tomlinson

Well, I mean, I don't know that I can give you a time-wise number. We've still got a little over 5 million shares we can buy back in this current repurchase agreement or I say agreement program that we have. We feel like we were fairly active in the fourth quarter. We certainly have always said, and we say this really every quarter when this question gets asked, that we'd rather invest our money in something that's going to add long-term value. And certainly, if we cannot find that, we would certainly go to the repurchase route. That may not seem like a huge amount of buyback to you. It's by far massive over anything we have ever done in the past history. But it's something we're looking out at. We're going to talk our board next week about where we're at in all of that. And I think you should always look to us to try to find something that adds value long term. And then on a secondary basis, if we can't get there, we'll go in and -- off the top of my head, and I shouldn't say this -- no, I'm not going to say it. I'm sorry. I might say that next time, Darrin. I was about to give you a number, but I'm not quite ready.

Operator

Your next question comes from the line of Tim Willi from Wells Fargo.

Timothy W. Willi - Wells Fargo Securities, LLC, Research Division

Just wanted to get a question in on sort of business development and pipeline activity. I apologize if you have mentioned it earlier. But could you maybe characterize -- I think talked about pickups and activity, customers looking at growing their businesses in the U.S., but also just curious what the sales environment and things look like in Europe.

Philip W. Tomlinson

We did talk about it a little earlier, and we didn't talk about the current customers, but we did talk about our pipeline over the next 18 or so months of about 26 million accounts. And we're very comfortable with -- I think, we are seeing customers trying to grow their business. We're seeing customers acquiring programs. We also talking to various people around the country about large regional banks about reentry into the business. And particularly as these banks come out of TARP and they get healthier and healthier, I think that, I'll talk about it a little bit later, but cards is a very strong revenue and earnings product, and they all know that. And I think a lot of them are really -- kind of hate the fact that they've got out of that business and wish that they were back in it. And so we're starting to talk to a lot of people there. And I go back to what you heard me say 100x, is look in your mailbox. I mean, you're starting -- again, it started 6 months ago or so, 6 to 8 months ago, starting to see solicitations in your mailbox. We went 3 years and didn't see any. And a lot of those, the same banks over and over. But we're starting to see some different players in there, and I think it's becoming much more important, and they're becoming much more active. So we feel good about that. I mean, we have people that are asking us to work on a lot of special projects now. We went for 2 or 3 years and that was just they just didn't do that because everybody was watching every single penny that was spent. So I think we're optimistic on where we're at. We love -- I mean, 2011, we're very excited about the year. We're very excited about the fourth quarter and the trends that are starting to take place. The economy is still is a bit of a question mark, but I do think that it's a slow grind but it's grinding in the right way. And so that's a good thing.

Timothy W. Willi - Wells Fargo Securities, LLC, Research Division

How do you think about Europe from the sales perspective? And I'm also just curious for any insights specifically around how you think M&A will work out given that there's so many banks that do things internally or actually own processing businesses or cooperatives amongst themselves. Do you think we'll see a shift in activity one way or the other on either?

Philip W. Tomlinson

I do. I think that third-party processing is a very positive thing. I believe that even people who have thought that they had to do it in-house and have been through some very difficult times that they're starting to look around and think that there may be a better model out there where they control expenses and know what is going to cost them and not get hung in things like the CARD Act and some of these -- the Durbin Amendment where -- the CARD Act, as an example, was incredibly expensive to do for banks who are processing in-house. Most of them were processing on older software. And it made it much more difficult. Our banks, that process with us. Effectively, they didn't pay anything unless they wanted some sort of special reporting or maybe their audit group or something like that, but I mean, went without a hitch. So we think there's a lot of very positive things happening that are good for TSYS. Now Tim, you know that any time you start selling, the larger the bank, it seems like the longer it takes, whether it's in the U.S. or Canada or Europe or South America, that process is not like going out and buying a new car. It takes months because it's a very complex process, and our prospect list is thick as it's ever been. When we win them all -- no, we won't win them all, but we will win more than our fair share.

Operator

Your next question was comes from the line of Brett Huff from Stephens Inc.

John Campbell - Stephens Inc., Research Division

It's John Campbell in for Brett Huff. So 2 quick questions here. Back to guidance, as it relates to 2012. Can you, guys, maybe just provide a little more color on your assumptions for the same-store sales and new account growth, maybe just where you're seeing the biggest opportunities?

James B. Lipham

Well, I mean, the biggest opportunity is in our organic growth in the commercial card consumer area. And our merchant area has got some good growth in it. So it's across the board, really.

Philip W. Tomlinson

And John, I think, the idea that we'll be adding new business is very positive and this guidance is without any acquisitions.

John Campbell - Stephens Inc., Research Division

Okay, great. Lastly, you guys, touched on the Capital One renewal. But any commentary on any other large renewals might -- should be considering for the models?

Philip W. Tomlinson

No, I think we're in good shape. We've got renewals going on all the time. But the Cap One was pretty high profile, and it was important, and we feel very good about that renewal. And I think we have a really good relationship with those folks there. They're a great client, and we love doing business with them. But we don't have anything -- I mean, we -- again, we have a waterfall report that comes out periodically that we know what we're working on but there's no -- there's nothing out there that’s just giant, and we think we're in good shape with all our renewals. I mean, obviously, there may be some banks out there that are in worse shape than we think, but I don't think we're in trouble with anything that could make a difference. What I'll say, we're in trouble -- that the bank might be in trouble. I think we're in good shape with all of our clients.

Operator

Your next question comes from the line of Ashwin Shirvaikar from Citi.

Ashwin Shirvaikar - Citigroup Inc, Research Division

I wanted to find out what -- Green Dot, I think, Green Dot is one of your fastest-growing clients. I know you mentioned that maybe it's 1% to 2% of revenues. But in terms of them converting off your system, is that a steadily reduced revenue stream? Or is that sort of big bank conversion that we don't have to worry about?

Philip W. Tomlinson

The truth is, we don't know. And I hate to speak for Green Dot, but I think they just acquired this company. They've signed a 2-year extension with us. And over the next couple of years, they're going to try to figure that process out. And what they would do, dribble it out or do a Big Bang, we honestly just don't know at this point in time. And I don't know what else to tell you, honestly.

Ashwin Shirvaikar - Citigroup Inc, Research Division

Now I mean, that's -- obviously, as this progresses, we can talk about it later. But in terms of Cap One, going back to that, the renewal, did that price impact foresee sort of the potential for their portfolio acquisitions with ING, HSBC? I mean, when will they close it? Did they extend on the 12 and 18 months conversion on those?

Philip W. Tomlinson

It's pretty public. I mean, our model is volume-driven at certain tranches, and we've never publicized any tranches like that. But I mean, nothing would please us any more than for them to be successful in these 2 acquisitions they're looking at. They don't share that information with us, where they're at with that. But certainly, that would be very helpful.

Ashwin Shirvaikar - Citigroup Inc, Research Division

So you're not saying it's a done deal for you guys?

Philip W. Tomlinson

No, no.

Ashwin Shirvaikar - Citigroup Inc, Research Division

Okay. The last question...

Philip W. Tomlinson

When it's a done deal, we'll let you know.

Ashwin Shirvaikar - Citigroup Inc, Research Division

Yes. So the last question is what is your implied organic revenue growth estimate for '12? I know you're not counting new acquisitions, but obviously, there's flow-through revenue from the ones that you already made.

Philip W. Tomlinson

It's around 4.5%.

Ashwin Shirvaikar - Citigroup Inc, Research Division

4.5%. So from the 2% to 5% guidance that you gave you, what of that is organic versus not?

James B. Lipham

I don't know what the specific percent of that growth is organic. I don't have that.

Operator

Your next question comes from the line of Craig Maurer from CLSA.

Craig J. Maurer - Credit Agricole Securities (USA) Inc., Research Division

I just wanted to ask you a question about the U.S. environment post-Durbin. If we look at some of the big banks' reports and their trends in their purchase volume, we have seen some trend where debit has slowed growth, and credit has accelerated. I was wondering if I can get your thoughts on that whether it's you think it's specific to those major banks. Or has there been an impact from Durbin that has shifted volume due to the elimination of rewards or something else?

Philip W. Tomlinson

Well, as you know, we're not a big debit player or debit processor. But I mean, we do know of a lot of banks that have sort of started to push to credit cards. As I've said before, I don't expect debit cards to shrink. But I think there has been some of that, whether it's enough to make a difference, Craig. I mean, your guess is as good as mine. I think, it's probably going to take a little more time. A debit card is dramatically different than a credit card. And the utility is somewhat the same but it has different requirements as to how do you get one. We certainly are hopeful that a lot of transactions would be pushed to the credit card. I know all of mine did.

Craig J. Maurer - Credit Agricole Securities (USA) Inc., Research Division

Okay. Regarding your core business, obviously, the credit card, like you said, you have very little debit. When I think about the banks that have reported, what's clear is their yields might be trending a little lower because competition has increased dramatically. Does that portend additional future pressure on your contract pricing at some point when these contracts are up for renewal?

Philip W. Tomlinson

Well, I think that we are always under pressure. We have, I think, been very transparent about that over the years. We've always been able to hold or increase our margins over time because we're pretty good at becoming more efficient. But it was a lot of pressure in '08, '09 and '10. We've renewed a lot of contracts. We typically don't renew them very early unless there's something in for us. So I think you can count on -- I think, we have historically said, we'll get back about 2% a year, and I think we would like to probably stick with that estimate at this point.

Operator

And your next question comes from the line of Bryan Keane from Deutsche Bank..

Bryan Keane - Deutsche Bank AG, Research Division

Is that -- 26 million accounts, is that -- those are accounts ready to convert in the pipeline?

Philip W. Tomlinson

Well, we're working on some contracts. We feel good about them. Some of those on the contract, what you get into is this fourth quarter of 2012. And as I said earlier, you just don't get it. You just don't -- nobody wants to convert during that time frame, and so we pushed it out into part of 2013. And as I said earlier, our prospect for this is, I think, very exciting. I was looking at this morning. It's -- there's a lot going on. So we're pretty pumped about all of that. And I wish I could give you some names. As we get everything signed, we'll give you the names. I mean, you saw, I guess, Monday of this week, we announced BancorpSouth over at Mississippi. That was a good win for us, and we're certainly in the process of getting that finalized and getting it on the books. Not a huge win, I mean, but they're a great bank and great people and we're thrilled to call them a customer.

Bryan Keane - Deutsche Bank AG, Research Division

Okay. But the 26 million does not include the prospect list? Just wanted to be clear. Or it had some prospects in there?

Philip W. Tomlinson

No, no. Your head would spin if I added up that prospect list.

Bryan Keane - Deutsche Bank AG, Research Division

Yes. Well, it sounds like there's a few big fish in that prospect list. And if we can get them across the finish line this year, that could be some nice momentum.

Philip W. Tomlinson

Listen, we're dragging, pushing, you name it, trying to get them across the -- anybody across the finish line. People are talking again.

Bryan Keane - Deutsche Bank AG, Research Division

Yes. And then just looking at the guidance, I back into the number for fourth quarter for lost business, nonrecurring items and price compression, about down 3.1%, if you back into it. And then yet the guidance is for down 5% to 6%. So I guess, I'm trying to just be able to figure out what's the difference there. Obviously, Capital One sounds like it was in there for full quarter or it wasn't, and then maybe some of the BAMS business runs off.

Philip W. Tomlinson

It was in there for a full quarter. I mean, obviously BAMS reduces each month.

James B. Lipham

Price reductions were about 7% for the whole year -- excuse me, not 7% but 0.7%. So you've got, like Phil said, we did have Capital One in the fourth quarter.

Philip W. Tomlinson

But lost business for the year is about 2.1% of that 5.1%. Termination fees is about 2.3%. So it was a big termination fee that we had to overcome.

Bryan Keane - Deutsche Bank AG, Research Division

Yes. But what about the breakout of the 5% to 6%? Is there a way to look at that? Because that's just looks higher than your run rate is on the fourth quarter. So the question is, is there is some new things that you guys are planning on that's in that number?

James B. Lipham

Just BAMS is all that I'm thinking of. I mean, that's...

Bryan Keane - Deutsche Bank AG, Research Division

So it's only BAMS? All right. And then just lastly then, can you just give us BAMS, how much has come off -- how much came off in 2011 and how much is expected in 2012 and maybe total impact?

James B. Lipham

It was just like what we said, it was about $10 million, and we anticipate it will do the same for '12.

Bryan Keane - Deutsche Bank AG, Research Division

And then total impact, is still about -- I guess, from start to finish for BAMS, it's, what, $40 million to $50 million, somewhere in there?

James B. Lipham

That's close to what it was, yes.

Bryan Keane - Deutsche Bank AG, Research Division

Okay. Actually, let me sneak in. And then BAMS margins were lower than your overall corporate margins?

James B. Lipham

Correct.

Philip W. Tomlinson

Yes

Operator

Your next question comes from the line of David Togut from Evercore Partners.

David Togut - Evercore Partners Inc., Research Division

A quick question for you on your EBIT margin outlook for 2012, can you bracket your expectations for us for North America, international and merchant?

James B. Lipham

We don't normally talk to that. I think we have our EBITDA number pretty much out there at around $492 million on a consolidated basis but...

Philip W. Tomlinson

He said EBIT.

James B. Lipham

Well, EBIT is pretty much the same. I mean, it's not a whole lot different, I think figure the depreciation.

David Togut - Evercore Partners Inc., Research Division

Can you give us some insight into what should we expect from an operating leverage standpoint international? It looks like that business is just starting to show some nice operating leverage and earnings are outgrowing what we're seeing in North America.

James B. Lipham

Yes, I mean, I think they were getting there. And as we have completed these conversions, we just felt the need that we really needed to expand some of our technological opportunities over there to build value added products and try to enhance the revenue stream that we currently have, as well as having products available in those areas to put new customers. And so consequently, we're going to penalize them a little bit on the initial start of 2012 as we moved some headcount folks in there that were partially absorbed in North America last year. So just from a standalone basis, you'll see a drop in that margin. But from a consolidated perspective, remember, we're not increasing expenses, we're just reallocating them.

David Togut - Evercore Partners Inc., Research Division

Was that just for the first quarter, international?

James B. Lipham

No, we made a move for those people to be there as we go forward. It's longer than the first quarter.

Philip W. Tomlinson

I would say after this year, it's just on an upward spiral, spiral if you will. And you're looking at our international guidance -- I'm waiting for him to start shaking his head. Yes, he's smiling now. So I guess, yes.

David Togut - Evercore Partners Inc., Research Division

How material to revenue is finishing up the Carrefour conversion in February?

Philip W. Tomlinson

Now that's about, what, 1,200,000 accounts or something.

James B. Lipham

Yes, it's not that material.

Philip W. Tomlinson

It's not huge.

David Togut - Evercore Partners Inc., Research Division

Just final question...

Philip W. Tomlinson

But just the fact that we will complete it and move those people off to something else and be done with it and it's -- we think that kind of it opens up the opportunity for us to start trying to sell to other folks. I mean, this thing has sort of been in -- one of those things is just sort of hanging out there on us, and we're thrilled to be finishing that up.

David Togut - Evercore Partners Inc., Research Division

Is your strategy in Brazil to expand in private label specifically? Or do you see opportunities on consumer credit card?

Philip W. Tomlinson

I think it's both.

David Togut - Evercore Partners Inc., Research Division

Anything near term?

Philip W. Tomlinson

Not that I'd be willing to talk about.

David Togut - Evercore Partners Inc., Research Division

Just final question, Jim. You referenced an expected increase in the tax rate for 2012. But international has been outgrowing North America from an earnings perspective, maybe that slows a little in '12. But I guess, why would the tax rate increase so significantly in 2012?

James B. Lipham

I mean, the international is kind of small, as far as that goes. But I think our growth in North America is contributing a lot of that. And the reason why it's going up in the 33.5% or so range, I mean, we're hoping that we can come up with some things during the year with some discrete items that will push that back down, but it's mainly North America.

Operator

And our next question comes from the line of Julio Quinteros from Goldman Sachs.

Roman Leal - Goldman Sachs Group Inc., Research Division

It's actually Roman Leal in for Julio. It's really good to hear the positive commentary on the credit recovery, and I think it's pretty clear to understand why the appetite for banks to issue credit is coming back. But do you have any insight on what the demand for credit looks like? It seems like that's the missing piece of the puzzle here, just given consumer deleveraging and then some pretty high APRs.

Philip W. Tomlinson

Yes, I mean, I don't know that I have any great insight on it. You're reading the same things I'm reading. I mean, we've finally started to see some banks report besides the really huge ones. And there's some demand picking up. But I think that the beauty of the card business, it's a very high margin business, and a lot of the bad debt has been flushed out. And we're starting to see people come back to the cards and use it. As I said earlier, there was a time there when uses dropped off so bad that we went negative on transactions, and that's never happened in our 40-year history.

Roman Leal - Goldman Sachs Group Inc., Research Division

Sure, okay. On the merchant acquiring side, just give me your focus on direct side there. And you made some commentary on beefing up the sales force on direct side. How should we think about your buy versus build strategy going forward?

Philip W. Tomlinson

Well, I think you should probably think about we will buy. We're building, but we're certainly in the market to buy. And there are some properties available, and we run into a few that didn't get sold or didn't get bought by anybody because their price expectations were just too high. And I don't know if that's going to improve or not. Only time will tell. But we're certainly are in the build and buy side of that business.

Roman Leal - Goldman Sachs Group Inc., Research Division

Got it. And then just last 2 quick questions on the outlook, one on the Green Dot announcement. Just to make sure we're clear here. You said it was basically 1% or 2% of the existing revenue base of 2012.

James B. Lipham

Yes, it's about 1% of our revenue stream and revenues before. As Phil mentioned, we did extend the contract for 2 years. So it's not going to be material. If they go ahead and move things off, I'm sure it will take a while to do that.

Philip W. Tomlinson

I think, though, to be clear, they have every intention of doing that. Now they're going to have to go through this process and look at that software package and see what it takes. And of course, they've been a great client. We want them to be happy.

Roman Leal - Goldman Sachs Group Inc., Research Division

Right, right. And then is it pretty safe to assume that with a little over 5 million shares left in the buyback, you'll use up that before or through April?

James B. Lipham

I'll say if we don't have an acquisition, we'll use some of it for sure.

Operator

And your next question comes from the line of Jason Kupferberg with Jefferies.

Jason Kupferberg - Jefferies & Company, Inc., Research Division

So just wanted to circle back regarding a couple of earlier questions. I know there was some questions about organic, percent organic, et cetera. If -- I'm just looking here at Slides 7 and 14, which contrasts your 2011 with your 2012 guidance. If we're looking at the numbers right here, it would seem to me if you take out acquisitions and currency, you guys are basically saying that growth will be just as strong in '12 as it was an '11. Am I reading that right? Or anything else we're missing there?

James B. Lipham

I guess that's pretty close to it. I mean, we don't know that we're going to get that many of new clients. But then again, you got organic growth, that's going to be pretty strong at 4.5%,. You can make that assumption.

Jason Kupferberg - Jefferies & Company, Inc., Research Division

Right, right. Okay, that's helpful. I don't know if I missed this earlier, but did you guys give free cash flow outlook for 2012?

James B. Lipham

We did not. But we're comfortable it's going to be in the $20 million to $25 million a month range.

Jason Kupferberg - Jefferies & Company, Inc., Research Division

Okay. So basically, if we think about it...

James B. Lipham

About $275 million, $300 million.

Jason Kupferberg - Jefferies & Company, Inc., Research Division

Yes, okay, okay. So you're down a little bit year-over-year. Is that just timing on the working capital side? Or is that CapEx?

James B. Lipham

I imagine it's more CapEx. We were pretty low this year.

Jason Kupferberg - Jefferies & Company, Inc., Research Division

Okay, okay, got it. And just an industry question for you guys. There's been some chatter in the marketplace, one of the potential outcomes regarding the ongoing merchant litigation versus the banks and the networks could be elimination of the networks and no surcharging rules. If that were to occur and merchants were allowed to surcharge consumers, what do you think the impact would be on the marketplace?

Philip W. Tomlinson

Well, I don't think it's good for the marketplace and pretty interesting. I think there's already a lot of surcharges out there. I bought gas, Sunday, out on the Interstate 85, and it was like $3.31 for cash and $3.37 or something like it per gallon for credit. But I don't think any of these new regulations are good for the business. I think there's a lot of folks that may think that a lot of that gets passed back to the consumer. We haven't seen it, and we haven't read very many cases where anything gets passed back to consumer. But I read something yesterday or this morning that should that happen, I mean, I think probably the consumer would just get less rich products. And I don't know that they truly understand that, but time will tell.

Operator

And your next question comes from the line of David Scharf from JMP Securities.

David M. Scharf - JMP Securities LLC, Research Division

I hope these questions aren't redundant. But back to the international margins front, I just wanted to make sure I wrote this down correctly because I think in your prepared remarks you commented that sort of the diversion of assets, internal resources, to international will take operating margins down to 5% to 6% for the year? Was that correct?

James B. Lipham

That's correct. That's part of it. The other part is that as we're doing these conversions, like Carrefour and the like, we have to get capitalized expenses. And once these conversions are through, those capitalized expenses turn into operating expenses. And what you've got to do at that point is you got to get some scale going pretty quickly or you're going to have a lower margin like we've got going well on that now. As these things turn from being capitalized to operating expense, 2 things.

David M. Scharf - JMP Securities LLC, Research Division

Okay. Just segment reporting, when I think about that full year profitability level, will international be profitable in the first quarter? I mean, is this something that's going to make breakeven and ramps to 10%, 12% by the end of the year? How should we think about the absorption of those assets?

James B. Lipham

They'll be profitable. We'll start those expenses right there. I mean, you'll see them show up as far as the reallocation in the first quarter. As far as the conversions, those are completed expenses that have started and they should be pretty much even through the year, I mean, on this margin. I think it could improve a little bit by year-end, in the fourth quarter.

David M. Scharf - JMP Securities LLC, Research Division

Okay. And on the pipeline of to be converted -- signed but to be converted and implemented, the 26 million, I think I have written down in Q3 that figure stood at 12.5 million. And I don't know if that 12.5 million went down from the number of Q4 implementations. I'm just trying to get a sense for sort of Q4 sales activity, kind of what was booked or signed this quarter because it sounds like they have been as much 20 million new accounts.

James B. Lipham

We're not in a position to go through the details of it, plus I don't have the third quarter nuts and bolts with me.

David M. Scharf - JMP Securities LLC, Research Division

Got you. That's fine. And then that's about it, I guess. Well, one last thing. I assume that just based on the nature of prepaid accounts, the...

Philip W. Tomlinson

I'm sorry?

David M. Scharf - JMP Securities LLC, Research Division

I said I just want to confirm. I assume based on the nature of the prepaid accounts, the lack of activity and so forth, Green Dot well maybe 1% of revenue. I'm assuming it's even less amount of operating profit.

Philip W. Tomlinson

I don't -- I can't answer that.

Operator

And your next question comes from the line of Sanjay Sakhrani with KBW.

Steven Kwok - Keefe, Bruyette, & Woods, Inc., Research Division

This is actually Steven Kwok filling in for Sanjay. The question I have was with regards to seasonality. Aside from the movements in the operating margins on the international and the North American side, how should we think about the EPS on a quarterly basis? Should we expect it to kind of steadily rise? Or are there ups and downs due to seasonality?

Philip W. Tomlinson

We don't do it -- we don't provide that guidance on a quarterly basis. I mean, there's obviously some seasonality with holidays and summer vacations and back-to-school and all of the things that you would normally think. But we've never tried to provide it by quarter.

James B. Lipham

And I think, if you look back at our history, you'll see what's been going on for the last couple of years, and that rolls from quarter to quarter. It's pretty much self-explanatory there.

Steven Kwok - Keefe, Bruyette, & Woods, Inc., Research Division

Sure, sure. And then I know that you said that within the guidance there isn't any acquisitions baked in. I was wondering. How about on the share buyback fund, are there baked in with regards to that?

Philip W. Tomlinson

Not at this point, no.

Operator

And your next question comes from the line of Robert Dodd from Morgan Keegan.

Robert J. Dodd - Morgan Keegan & Company, Inc., Research Division

A question on the international side. I mean, obviously, you talked about the pipeline except that we hear Carrefour, it's coming online, shortly. Just how much do you think there is some pent-up demand in terms of your prospect list or however you want to characterize it? How many of you guys are kind of lining up watching Carrefour to see how that goes in Brazil? And what potential prospects that you think you could see -- or do you think you could see something of a -- I don't want to say tsunami or anything like that even though I just did, but could you see a significant pickup in activity in that region if Carrefour goes well?

Philip W. Tomlinson

I guess you could say, sure you could see that. I don't know if that's accurate. I think that the idea that we we'll finally have this conversion behind us and we've explained what the issue was there on several occasions. We just couldn't get the data. I do think it will put us in a much more enviable position to be able to sell into that marketplace. Now I wish there would be this landslide, but typically, this business doesn't operate that way. We have to pick them off one at a time. And whether it be in Brazil or U.S. or Canada or Europe, I mean, we just kind of look at it one on one. And we sticking to the basics at this point.

Robert J. Dodd - Morgan Keegan & Company, Inc., Research Division

Okay, great. Just lastly, on Cap, obviously it should be less volatile from what you've said in terms of the contribution this year. Can you characterize how much of that was from the reconciliation to GAAP versus is there some volatility in that business? Or is there a lot of short-term project work and it's just, by nature, a volatile business? Or is it just the accounting changes you had to go through with 2011?

James B. Lipham

I mean, it's really the accounting changes. I mean, we've been saying for the last couple of quarters that look for these guys to grow 19% year-over-year. We came in at 21%. So they're pretty much in line. They've got a great business that's growing, and we're looking at a 16% increase next year.

Philip W. Tomlinson

This year.

James B. Lipham

In 2012.

Operator

And there are no more questions at this time.

Philip W. Tomlinson

Thanks, Michelle. And I thank all of you for your questions. I'll take just a few minutes and close this out. We tried to answer everyone's questions.

And I hope you can sense our growing optimism. Our belief is that the economy will continue to inch forward and recover and that consumers are feeling better. And as you know, we are, by far, the largest corporate card processor also and the businesses who are out using their cards. And I think if we see that by the increased spending there in the holiday season, and I think, people or consumers are actually demonstrating more control over their financial destiny. We believe the card business is one of the more profitable products in any financial institutions' quiver of things that they can offer. And that they're, in so many ways, a necessary extension of the relationship that FIs have with their customers’ base. Pay with plastic, and I've said before, use yourself as an example is one of those things that this is just what we do. And whatever the type might be, whether it's commercial or consumer or debit or whatever, it's a great payment tool of choice based on speed, security, convenience and just overall, general utility of the card that we've all become accustomed to. And in '12, we are placing an increased focus on product innovation. We just created a global product strategy team. We brought some great talent in, and they're going to enhance the offerings we currently have and offer. And we believe we can drive new products into new markets and new verticals really, around the globe. We'll continue to, obviously, to keep a sharp eye on expenses. It's just something that we have all got to continue to do. It's important. And I think when you step back and think about how difficult the past few years have been, especially since the great majority of our clients are banks, which have been negatively impacted by things like the CARD Act and overdraft pricing and Dodd-Frank and the Durbin Amendment and the real estate and mortgage crisis. And billions have just been taken out of their revenues streams, and of course, when the banks suffered, we suffered. We've lost several top 5 clients during that time. But on numerous occasions, you've heard me talk about the core strength of TSYS. And we believe we've got a fortress balance sheet, and that's the term that gets used a lot, but we believe we've got it. We've got a very strong free cash flow. We've got a recurring revenue model with strong organic growth. We've got improving operating margins. We've got long-term contracts with blue-chip clients. We've got the gold standard in technology, and we've got the will to compete and to win. In TSYS, we operate on 5 basic core values: integrity, relationships, excellence, innovation and growth. And we have operated with those 5 values since day one. They've served us well in the U.S., and it's pretty interesting, they have certainly served us well in every country that we've entered over the past 10 or 12 years. They are universal values that people appreciate no matter where you're at. And of course, last but not the least, our secret weapon, our secret sauce is our team of 8,300 strong people. Throughout this recession, they've been totally dedicated to our clients through thick and thin. Their work ethic has been as strong as ever, and they've consistently delivered as asked. They demonstrate a real passion every day for excellence with our customers.

Now we realize we're not out of this great recession. But I can tell you, it feels great to deliver good numbers for 2011 and double-digit EPS guidance for 2012. I told somebody earlier today, I feel like we kind of got our mojo back, and I look at it this way, we touch someone's life or business about 48 million times a day, and we do it right. And with that, I want to thank you for your interest in TSYS and your time this evening. If you have any additional questions, please feel free to call Shawn Roberts in Investor Relations. And with that, we'll sign off and say good night.

Operator

And this does conclude today's conference call. You may now disconnect.

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