Total System Services (TSS) M. Troy Woods on Q4 2015 Results - Earnings Call Transcript

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Total System Services, Inc. (NYSE:TSS)

Q4 2015 Earnings Call

January 26, 2016 5:00 pm ET

Executives

Shawn Roberts - Senior Director-Investor Relations

M. Troy Woods - Chairman, President & Chief Executive Officer

Paul Michael Todd - Chief Financial Officer & Senior Executive VP

John Shlonsky - President & Chief Executive Officer, TransFirst LLC

Analysts

James Robert Berkley - Barclays Capital, Inc.

Timothy Wayne Willi - Wells Fargo Securities LLC

Ashwin Shirvaikar - Citigroup Global Markets, Inc. (Broker)

Brett Huff - Stephens, Inc.

Bryan C. Keane - Deutsche Bank Securities, Inc.

Vasu Govil - Morgan Stanley & Co. LLC

James Friedman - Susquehanna Financial Group LLLP

David Mark Togut - Evercore Group LLC

Adam F. Dahms - Robert W. Baird & Co., Inc. (Broker)

George Mihalos - Cowen & Co. LLC

Jason A. Kupferberg - Jefferies LLC

David M. Scharf - JMP Securities LLC

Steven Kwok - Keefe, Bruyette & Woods, Inc.

Tom McCrohan - CLSA Americas LLC

Glenn Greene - Oppenheimer & Co., Inc. (Broker)

James Edward Schneider - Goldman Sachs & Co.

Operator

Good afternoon and welcome to the TSYS 2015 Fourth Quarter Earnings Release and Conference Call.

All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.

I would now like to turn the conference over to Shawn Roberts. Please go ahead.

Shawn Roberts - Senior Director-Investor Relations

Thank you, Amy, and welcome, everyone.

As you can probably imagine, tonight's call will be different than our normal quarterly earnings call. TSYS Chairman, President and CEO, Troy Woods; TSYS CFO, Paul Todd; and TransFirst CEO, John Shlonsky, will review our fourth quarter and year-end highlights and financials and discuss our acquisition of TransFirst. After that, we'll open the call up for Q&A.

I'd like to remind those of you participating in the Q&A that after your second question, the operator will place you back into the queue.

I'll now call your attention to the fact that we'll be making some forward-looking statements about our future operating results of TSYS. These forward-looking statements involve risks and uncertainties. Factors that could cause TSYS's actual results to differ materially from the forward-looking statements are set forth in TSYS's reports filed with the Securities and Exchange Commission.

At this point, I'll turn the call over to Troy Woods.

M. Troy Woods - Chairman, President & Chief Executive Officer

Thank you, Shawn. Good afternoon and Happy New Year.

Without a doubt, this is the type of earnings call a CEO dreams about, reporting a great quarter, performing with operational excellence during the holiday shopping period, reporting a record earnings year, and from a shareholder perspective, producing a 47.8% total shareholder return for 2015, making TSYS the ninth best performing stock in the S&P 500 for the year. And of course, the icing on the cake is the announcement earlier today of the strategic and transformative acquisition of TransFirst, a leading U.S. acquirer of payment solutions.

This will be the largest acquisition in our history at $2.35 billion. This is truly a watershed event for our company, team members and shareholders, and we are all very excited about the opportunities that lie ahead. We're also very pleased to have John Shlonsky, CEO of TransFirst, here with us this afternoon, and he, Paul and I will provide additional details on the strategic rationale for this new partnership and take questions a little later in our presentation.

Before we get to that, I want to take a few minutes to call out some significant highlights for the quarter and for the year. The fourth quarter was our best quarter in our 33-year history. We produced record-setting transactions, authorizations and volumes. Holiday authorizations on same-client basis were up 12.7% in North America and 10% in our International segment. We repurchased 3 million shares of our stock in the fourth quarter, bringing our total repurchases for the year to 5.2 million shares for $242.1 million. These repurchases, coupled with dividends, represented a return in excess of 92% of our available free cash flow to shareholders in 2015, a 31% increase over last year.

On the segment front, there are a few call-outs I would like to mention. First is North America. The North America segment produced record revenues, operating income, and transactions for the year. Our traditional accounts on file increased to 37% on a year-over-year quarter basis, and we ended the year with 654.1 million total accounts on file. Our EMV chip card production soared in the fourth quarter, increasing over 400% over the fourth quarter 2014. All in all, it was another exceptional quarter for our North America segment.

Turning our attention to the International segment, perhaps the biggest achievement for the International segment was the attainment of its four-year goal to achieve a minimum 18% margin by year-end 2015. We ended the year at 18.1%. The outstanding 24.5% fourth quarter margin was a catalyst to achieving our goal. We are very proud of the team for their relentless focus and determination to reach this very important goal by year-end. On the business development front in the International segment, we signed a letter of intent to provide processing solutions in two regional markets in Latin America. This processing will be performed in Brazil, generating scale by leveraging our platform investment that currently supports the market-leading retail cards business of Carrefour.

As we move to Merchant, a few quick call-outs. For the quarter, direct revenue increased 15.4% and indirect revenue increased 10.4%. The excellent fourth quarter helped propel overall revenue growth for the segment to 8.8% for the year. Continued momentum in our ISV channel, new product offerings like OptBlue, improved sales productivity and EMV terminal activity all contributed to our strong growth for the quarter.

And lastly, a few important comments about NetSpend; NetSpend produced its 16th consecutive quarter of double-digit revenue growth at 20.9%. We were successful in introducing our payroll, incentive, and disbursement cards program within Capital One, the 10th largest bank in the United States. Also during the quarter, we expanded our products and our relationship with both Rite Aid and Walmart. All in all it was good execution and performance by all segments in the fourth quarter, providing a good foundation and momentum as we move into 2016.

After today's announcement, our reach and distribution uniquely positions us to provide innovative products and solutions that our clients and customers need to adapt to the evolving payment landscape. Now is our moment to unlock these opportunities and payments and continue to deliver strong results for TSYS, our customers, and our shareholders.

I'll now ask Paul Todd to provide additional detailed financial information on our quarter, the year end and review our guidance for 2016.

Paul?

Paul Michael Todd - Chief Financial Officer & Senior Executive VP

Thank you, Troy. And before we review the transaction we are announcing today, I too want to reiterate how pleased we are with the performance of the company this year specifically related to the achievement of our strategic and financial goals on an individual segment and corporate basis. Each of our segments performed better than we expected when we started the year and provide us with a good launching pad as we enter 2016. I want to point out at the start that any guidance or expectations I give regarding segment or consolidated performance for 2016 does not include the transaction we have announced today.

Now digging into the results, starting on slide seven, at the consolidated level, our revenue before reimbursables increased 13.3% for the quarter, resulting in a full-year increase for 2015 of 14%. Consolidated adjusted EBITDA for the quarter was $195 million and $833.9 million for the year, representing a year-over-year increase of $121.7 million or 17.1%. Finally, on adjusted EPS from continuing operations, the $0.57 for the quarter allowed for a $2.46 adjusted EPS on a yearly basis, which represents a 25.5% increase from prior year and in line with our guidance range we provided last quarter of $2.43 to $2.47.

This EPS performance was driven by the fantastic results from our segments, the tax benefits that I mentioned last quarter as well as other drivers. On a comparative basis for the quarter, the $0.01 decline from last year was primarily due to a one-time item in 4Q of 2014 in our International segment, higher incentive compensation in 2015 versus 2014 and strategic investments in net spend among other items.

Before I leave the consolidated financial highlights, I want to point out that our quarterly revenue growth of 13.3% and the yearly revenue growth of 14% is all organic and was driven by cross-segment organic performance across our businesses throughout the year. And our ability to take that revenue growth to the bottom line was seen in our margin expansion for the year. This combination of pure organic revenue growth with margin expansion is the key takeaway from our 2015 consolidated results.

Now to explain our results in more detail let's turn to slide nine, and I will cover our North America segment first. The key headline on the North America segment is the same as it has been all year, and that is mid-to-high teen organic revenue growth. Revenue before reimbursables for the segment was up 17.5% for the quarter to $300.3 million versus the fourth quarter of last year. As you can see on the chart, the business has had an impressive string of positive revenue growth and the 20.2% organic revenue growth for the year is the highest yearly revenue growth for this business since 1999.

We had started the year expecting this business to grow in the mid-teen range of organic growth, so the 20.2% growth level exceeded our expectations for the year, which was largely driven by the successful conversion of a large client and better organic growth with our customers. Also contributing was the growth in our core offerings as well as other services to include fraud, loyalty, card production and managed services. We began the year expecting this revenue growth to be achieved at roughly the same margin levels that we saw in 2014, but to perform in a tighter quarterly band, and that's exactly what happened in 2015. Segment margin expanded from 36.8% in 2014 to 37.4% in 2015.

On the volume front, total accounts on file for the quarter increased 18.9% with our traditional accounts on file increasing 37.3%, taking us to an all-time high of 415 million traditional accounts on file. I mentioned on our last call that the total accounts on file would start showing some declines due to the previously announced deconversions of RushCard and Green Dot. This is why we continue to discuss the traditional accounts on file metric, which excludes prepaid, government services, and single-use accounts that can vary substantially and are less correlated to revenue. We couldn't be more pleased with the performance of this North America segment both on a quarterly and full-year basis. The business is positioned well for 2016 as we expect mid-single-digit revenue growth for this segment in 2016 with slightly expanding margins.

Now I want to move to the International segment highlights on slide 10, where the key headline, as Troy discussed, is the achievement of a full-year margin of 18.1%. We announced this as a target four years ago, and the management team in this segment has had a laser focus to not only improve margins, but to enhance the business model as well. And we are proud of this achievement.

Segment revenue for the quarter was $87.1 million, down 6.2% on a reported basis and down 0.6% on a constant currency basis. I highlighted in our third quarter call that the last six quarters of solid constant currency revenue growth would likely not continue in the fourth quarter due to a one-time item in the fourth quarter of 2014 that provides a challenging grow over comparison. Excluding the impact of this one-time item, constant currency revenue was up 6.3%, which is a better reflection of the performance of the segment.

The revenue growth for the quarter was again fueled by the four new clients we converted since 2014. These new clients, coupled with our existing client base are outperforming the market. And as we mentioned on previous calls, they are lifting the segment from being a roughly flat constant currency growth picture to one of low to mid-single digits.

On the margin front, I called out on our last call that we expected the margin to decline in the fourth quarter from fourth quarter 2014 levels due to the one-time item in 4Q of 2014 that I mentioned earlier. And from a volume perspective, accounts on file grew $11.9 million compared to the same quarter of last year, over half of which was due to new clients. This means we continue to break records for the number of accounts processed in this segment now standing at 78.5 million accounts on file. I would like to emphasize again that most of this growth is in commercial card and single-use accounts. As in previous quarters, we also experienced significant growth in the debit portfolios we process. The segment experienced high single-digit transaction growth with same-client transactions growing by 6.7%.

In summary on International, we're pleased with the continued execution of margin improvement coupled with a steady constant currency revenue growth picture; and for 2016 for this segment, we expect constant currency revenue growth in the flat to low single-digit range with a slightly improving margin picture.

Now onto the Merchant segment, on slide 11, where the key headline for this segment is organic growth, driven by both lines of business, shifting the indirect line of business from being a headwind to finally being a tailwind for this segment during the quarter. The split in our revenue mix is now 61% direct and 39% indirect. Revenue in the direct line of business increased 15.4% for the quarter from last year with SBS sales volume also experiencing double-digit growth of 11.3% for the quarter.

On the indirect side, we continue to retain our core customers, renewing two of our top 25 this quarter while also bringing on new customers signing two new full service agreements during the quarter. A key take away is that we achieved positive growth in our indirect business for the quarter and year, and that is a major accomplishment for this side of the business given the pressures it has had over the last several years. Segment margins declined 210 basis points for the fourth quarter due to some one-time expenses we chose to make around efficiency improvement in this segment.

Overall, it was a strong quarter and year for the Merchant segment and we are well-positioned on this front to capture more market share in the future and expect the 2016 revenue growth for this segment to be in the mid-single digit range for the year with slightly improving margins from 2015 levels.

Now I want to talk about the fantastic performance of the NetSpend segment starting on slide 12. The highlight for this segment is the 20.9% organic revenue growth for the quarter, bringing the overall revenue growth of NetSpend for the year over the 20% mark at 20.2%. The strength in NetSpend's organic growth is derived from a combination of its winning management team coupled with market differentiated channel offerings and excellent strategic execution to produce these outstanding results in this competitive and fast moving sector of the payments industry.

While this business outperformed our revenue growth expectations, we did comment this time last year that we would invest in our business for growth; it could cause some margin pressure and that's exactly what happened in our fourth quarter with our quarterly adjusted operating margin of 19.9%, delivering a yearly margin of 23.7%, which is down from the 26.6% in 2014.

I want to point out that these are investment cycle decisions that we're glad to make to support the business growth and we will continue to make these decisions on a go-forward basis as long as we see the line-of-sight path to growth. The volume growth behind these results is equally as impressive. We saw 17.7% growth in our direct deposit active cards to 1.9 million for the quarter. We finished the quarter with $5.7 billion in GDV, up 21.3%.

While our card and volume levels continue to increase, we're also constantly focused on expanding our distribution reach by adding approximately 7,000 distributing employers and locations in the quarter, bringing the current total to more than 96,000. One of the most noteworthy contributors to the fourth quarter increase in distributing locations and employers was our launch in Rite Aid stores, a multi-year distribution relationship that we signed last quarter.

Overall, 2015 was a banner year for NetSpend. Our expectation right now for this business is for the revenue growth for 2016 to be in the low double-digit growth range on a full year basis with a slightly expanding margin, although we could choose to make investment decisions for growth later in the year in 2016, as we did this year, that could impact margin.

Turning back to the consolidated results on slide 13, our adjusted operating margin for the quarter was 23.4%, and we finished the year with an adjusted operating margin of 26.7%, as seen on page 14, which was primarily fueled by the improving year-over-year margins in three of our four segments. This consolidated margin falls into the range that we anticipated at the beginning of the year, and we expect the consolidated operating margin in 2016 to slightly improve from this current level.

I want to state that slides 13 and 14 provide a bridge between the adjusted segment operating income for each of our segments and our consolidated adjusted operating income. We provide this because our segments report their results on an adjusted segment operating income basis, which excludes amortization of acquisition intangibles, NetSpend M&A expenses, corporate admin and stock-based compensation.

Now let's talk about our cash position for a moment. We ended the year at $389 million in cash, a $59 million decrease from the third quarter of last year. Our largest cash outflow of $159 million was related to our stock repurchase, with the next being about $67 million of CapEx, of which about 12% was related to contract acquisition costs, with 27% related to property and equipment and the remaining 61% being related to internally developed and licensed software.

On cash flow, on slide 16, our free cash flow for the quarter was $72.5 million, resulting in a full year free cash flow of $397 million and slightly below the $420 million to $440 million we had projected. But as I said on our last call, we had some decisions that we made regarding CapEx in the fourth quarter that were good for the business long term, so we made them.

For 2016, we expect our capital expenditures to be in a similar range as 2015 levels, and we estimate that free cash flow will be in the $470 million to $500 million range for the full year of 2016, an approximate increase of 18% to 26% from 2015 levels. This growing level of free cash flow is another strong indicator of the health of the business and the ability of our businesses to generate strong free cash flow.

As it relates to shares, as Troy mentioned, we repurchased 3 million shares for $158.6 million during the quarter, which resulted in a total amount of shares repurchased in 2015 of 5.2 million. As a result, we ended the year with 182.8 million of common shares outstanding, with the average basic weighted shares outstanding at 184.1 million.

On taxes, we ended the year at an effective tax rate of 29.9%, which was about 300 basis points better than we expected at the start of the year, and we believe our estimated tax rate for 2016 to return to the more historical range of 32% to 34%. I want to point out that this 300 basis point increase in tax rate change in 2016 expected levels from 2015 levels is the main driver as to why our expected adjusted EPS growth rate is not in the same range as the expected growth rate in adjusted EBITDA or operating income.

And speaking of 2016, as it relates to guidance on page 17, we highlight our full-year consolidated guidance: total revenue growth of 4% to 6%, revenues before reimbursable growth of 5% to 7% and adjusted EPS from continuing operations of 4% to 7% growth. We also expect consolidated adjusted margin to increase by approximately 100 basis points and adjusted EBITDA margin to increase by approximately 100 basis points.

Obviously, this guidance hinges upon the assumptions I've already mentioned and the ones mentioned on page 44 in the presentation. And I want to highlight that this guidance reflects the excellent operating leverage we continue to get, as if you remove the 300 basis point increase in our tax line, you see the growth on the bottom line exceeding our revenue growth by several percentage points. Also, this expected margin expansion is driven by expanding margins in all our businesses, continuing the trend of cross-segment delivery of performance we saw in 2015.

And finally, I want to mention some full year call-outs that I think are key takeaways from today. The first call-out is on organic growth. The fourth quarter was similar to the third quarter in that with no acquisitions completed during the quarter, it allows for organic growth clarity in our results. When you look at the 17.5% quarterly revenue growth in North America, the constant currency revenue growth net of one-time item comparisons in International, the 15% direct acquiring revenue growth in Merchant, and the 20.9% revenue growth in NetSpend, all coming from non-acquisition activity, you see a strong picture of organic revenue growth that played out throughout the year. While the overall organic growth number is strong, we're equally pleased with the cross-segment delivery of organic growth that each of our businesses has delivered.

The second major call-out is on margins. Each of our four segments delivered margins that were either in excess or generally met our previously communicated expectations for the year. The margin profile of our segments are strong relative to their respective competitors, and the ability to drive margin expansion or stability while also investing in the business was a big accomplishment for 2015.

And the third and final call-out is related to how the performance of 2015 positions us for 2016 and beyond. Our North America organic growth story with a platform now of 415 million traditional accounts on file, our International margin progress, coupled now with a strengthening growth effort, our improving segment revenue picture in Merchant, and strong double-digit revenue growth at NetSpend all delivered with competitively strong margins, all at the same time, paints a picture of TSYS that is unlike any in our history.

It is a unique time for a company to have all businesses performing in the manner that our segments are performing; and specifically, we want to thank each and every team member from across the globe who worked so hard to deliver the performance we've announced today. Without their daily efforts and commitment, none of this would be possible.

Now I want to turn it back over to Troy to discuss this exciting transaction that we announced today.

M. Troy Woods - Chairman, President & Chief Executive Officer

Thank you, Paul. I'll provide some additional transaction details, beginning on slide 20.

As all of you know, our intent over the past year or so has been to grow the scale and position of our Merchant business through accretive M&A. With the acquisition of TransFirst, we will have a winning combination of technology, scale, and partner-centric distribution capabilities that propels us to a leadership position in the acquiring market. Importantly, TransFirst's focus on partner-centric, vertically specialized distribution will accelerate our growth within the highly attractive integrated payments space. Post closing, this specific distribution model will comprise approximately 20% of the revenue of the combined businesses. Based on an analysis by First Annapolis Consulting, on a pro forma basis, this would make TSYS the third largest integrated payment provider in the U.S.

As I have said before, I believe the winners in merchant acquiring will be the scaled players with integrated capabilities and a diverse distribution network. This transaction with TransFirst strengthens our sales and distribution network with the addition of over 1,300 partners and more than 350 sales professionals, enhancing our access to high growth, strategically attractive vertical markets such as healthcare, B2B and not for profit.

In addition to the many strategic benefits, the transaction is financially attractive from both an earnings and valuation perspective. We currently expect the transaction to be accretive in the low double digits to adjusted EPS for the first full year post-closing. The transaction will be an all-cash transaction with an implied multiple of 13.8 times estimated 2016 adjusted EBITDA.

On a pro forma basis, our balance sheet will continue to remain strong, as our investment grade rating is important to us. We are confident that the combined valuation and synergies will drive material shareholder value. A contributing factor to these financial benefits is the size and attractive growth profile of the industry itself.

As you can see on slide 21, the U.S. acquiring market is a very large market. It is the largest addressable market in which TSYS participates. A materially significant portion of the $13 billion addressable market is the small and medium sized business segment, which represents approximately 75% of the total acquiring revenue pool. This segment of the market is currently and will continue to be our primary focus. The overall acquiring market is growing, almost twice the projected growth rate of U.S. GDP. Driving that attractive growth are e-commerce and integrated payments, which are growing at 10% and 12% respectively.

This acquisition, coupled with our existing business dramatically improves our competitive position within these two important areas as you can see on slide 22 how they will contribute to our merchant transformation. At the end of the day, TSYS needed to enhance its Merchant business in order to remain competitive in the rapidly changing acquiring landscape.

Today, with the acquisition of TransFirst, we are transforming our Merchant business to one which has a strong competitive position in high growth areas of the market, a business mix where over 80% of the segment's revenue will come from direct acquiring and scale across all key metrics: merchants, transactions and sales volume. Together, these attributes contribute to an improved growth profile and leadership position for the Merchant segment.

We believe it is a strategic imperative to hold a leadership position in the markets in which we play. Slide 23 shows that this combination positions us as the sixth largest U.S. merchant acquirer based on net revenue with three strategically important benefits. One, an expanded sales and distribution network; two, a stronger integrated payments channel; and three, enhanced multi-channel payment solutions.

With this established leadership position in all of our businesses, we have created a strong, unique and balanced portfolio positioned across the payment spectrum as indicated on slide 24. We have incredible strength in our issuer processing business, touching more than 700 billion card holders and 400 payment providers around the globe. Our market share reaches almost 40% of all credit cards in the United States, and we are the number one provider of these services in the United States and China and number two in Europe. Through our combinations with TransFirst, we will service more than 645,000 merchant outlets, process approximately 117 billion in annual volume and leverage over 2,300 distribution partners.

In our NetSpend business, we rank number one based on gross dollar volume and number two based on revenue. TSYS now reaches several hundred banks, hundreds of thousands of businesses and millions of consumers. The scale, reach, and distribution network we are creating positions us to serve as a single destination for unparalleled payment technologies and enhanced services to the constituents we serve in a space undergoing massive change.

We are excited to have John and the TransFirst team on board and are confident that through our combined talents, expertise and strengths, we will continue to win in the market.

Now I would like to turn it over to John Shlonsky to make a few comments.

John Shlonsky - President & Chief Executive Officer, TransFirst LLC

Thank you, Troy.

I'm so excited for all of us here at TransFirst and TSYS. We have actually been partners for quite some time. TransFirst has and still utilizes TSYS for front-end, back-end and gateway services. The combination of the two organizations makes perfect sense and gives us a strong leadership position in acquiring. I can tell you firsthand, my interaction with TSYS and particularly with the executive team, makes me feel confident that our values in how treat each other and our clients are firmly aligned.

On slide 26, let me tell you a little bit about TransFirst and how our value proposition will be further enhanced as part of TSYS. First, we operate a partner-centric model. This model enables us to gain access to a large number of SMB merchants in a scalable and cost-effective manner. Joining TSYS will enable us to bring even stronger solution to these partners. Second, we operate a single integrated platform. This platform actually evolved from our utilization of TSYS payment solutions. Our mission with TSYS is to leverage our joint capabilities and products to our customers in a seamless way so they can rely on just one provider for all of their processing requirements.

Third, it will be increasingly important to develop customized and user-friendly solutions that enable our merchant customers to sell our products in the store, on the Internet or remotely through a mobile device on our platform. And lastly, all of the information used has been built around a single database. This really provides customers with a high level of technical and customer service and support. For example, we provide error-free boarding in minutes, automatic credit approval, one-call resolution 85% of the time. We will strive to leverage best practices across both Merchant segments as we integrate these two already great companies.

Slide 27 really illustrates how fortunate we are with this new partnership to have some businesses that overlap and some that complement our total addressable market. This is the clearest example of our go-to-market strategy. TransFirst goes to market with two distinct models: an integrated and a referral partnership model. Our integrated model is where partners really require more vertical expertise and technical specialization. Our referral partners will focus more on our service model and our product capabilities. Both of these models leverage our platform and our product set.

Similar to TSYS, we work with financial institutions, trade associations, national business service providers to provide payments and solutions to their base and new merchant customers. These solutions provide enhanced brand loyalty and revenue opportunities for all of our combined referral partners. TransFirst and TSYS will combine automation and technology to support an integrated platform that will seamlessly deliver relevant products and solutions to our partners and merchants, not just process transactions. Our goal is for any merchant from any partner to have complete access to relevant and easy-to-use payment solutions.

So on slide 28: why are we so excited? This is a strong cultural fit. Both companies share deep ethical values of doing the right thing and treating people right with shared values around integrity, trust, innovation and partnerships, relationships, ease of integration. The flexibility of TransFirst single platform that we've developed working with TSYS technology will allow for this easier transition. Our enhanced offerings, by leveraging each other's strengths, this allows us to bring best-in-class products and solutions to all of our partners and merchants, and most importantly, really foster a holistic growth. Now, this transaction will provide TSYS significant scale and strength across issuing processing, merchant services and prepaid program management.

We are very, very happy about this partnership. We have some work to do, but couldn't be more excited to merge these two great organizations.

I would now like to turn it back over to Paul.

Paul Michael Todd - Chief Financial Officer & Senior Executive VP

Thank you, John, and I want to reiterate my excitement about this transformational acquisition.

Looking at slide 30, as Troy said, we've entered into a definitive agreement to acquire TransFirst for $2.35 billion in an all-cash transaction. We anticipate the transaction will produce low double-digit adjusted EPS accretion in the first 12 months, excluding one-time deal-related expenses.

The transaction will be funded with fully committed debt financing. At closing, on a pro forma basis, we will have approximately $3.8 billion of debt, and pro forma leverage for our company is expected to be approximately 3.9 times debt-to-trailing 12-months pro forma EBITDA. The strong cash flow generation of the business allows us to get back to our long-term target leverage ratio of the low to mid twos within 24 months of closing. We will limit our share buyback and acquisition activity during this period until we achieve our more targeted leverage ratios, and we are committed to our investment-grade rating.

We're excited about the leadership of John and his team as they will be able to expand upon the great results I talked about from our Merchant segment earlier. We're also excited about the expense synergy opportunity from the efficiencies we can realize in our combined businesses. As such, we currently estimate we would generate at least $15 million of cost synergies in calendar year 2017, with that almost doubling to the range of $25 million to $30 million in calendar year 2018. And as I said, we expect the deal to produce low double-digit adjusted EPS accretion in the first 12 months after close, net of one-time related expenses with $5 million of synergies, and move to the mid to high double-digit range over the longer term as larger synergies are captured over time.

This also does not reflect the anticipated revenue synergies that we believe are attainable from this new payments platform company. This new combined Merchant segment will be able to work with our strong issuer processing business, specifically with the bank referral partner business of TransFirst and with NetSpend, specifically with their pay card business. While these revenue synergies may take some time to materialize given the strong organic growth nature of each of these businesses on their own, there clearly is an opportunity set of revenue growth here that we expect to achieve. And this is a unique combination of capabilities and payments for one company to leverage.

Given the strong historical track record of non-acquisition fueled organic growth from TransFirst, coupled with our Merchant segment's embedded organic growth capabilities and the overall organic growth of TSYS, we believe the combined organic growth profile of the company will be improved and will be unique in the payments industry as to its balance and diversification of payments related growth.

While we have provided revenue before reimbursable guidance today in the 5% to 7% range, all organically, we expect the combination of TransFirst's historically organic double-digit revenue growth to improve TSYS's revenue growth profile by approximately 100 basis points annually on a pro forma basis. After closing, we will obviously come back and revise our 2016 guidance to reflect the positive impact we expect this combination to have on our 2016 financial results.

Now on slide 31, I hope you can see why this acquisition is so compelling, as it establishes TSYS as a clear leader in this highly attractive market, accelerating our growth in integrated payments and strengthening our partnership distribution capabilities. These, coupled with the expected financial benefits I just reviewed, and under John's leadership, signal that we have completed another step in fulfilling our strategic vision of being the leading global payment solutions provider.

And with that, we will open it up for questions.

Question-and-Answer Session

Operator

Thank you. Our first question is from Darrin Peller of Barclays.

James Robert Berkley - Barclays Capital, Inc.

Hi. Thanks, guys, for taking my questions. This is James Berkley for Darrin. I just had a – congratulations on the deal. It looks like a great deal.

I had a quick question on two things. I guess, first just on the indirect side if you could talk a little bit in more detail on what was driving that outsized growth? And then second, if you could just talk on the quarter and help us understand going forward how we should think about – I know you gave some guidance on margins in particular going forward in the North American Merchant Services segment, et cetera, but just – we saw some contraction there. I think about 200 basis points in the Merchant Services and then 400 or so on a year-over-year basis in the fourth quarter in North America. And I think we saw extremely strong top line growth, but I think just that contraction there just maybe drove EPS a little bit lower than we had personally anticipated.

Paul Michael Todd - Chief Financial Officer & Senior Executive VP

Yes, James, so this is Paul. On both of those questions, on the indirect side, on the Merchant business, really two things there: one, we saw good organic growth in our indirect customers that was the primary driver for that growth. We also had some good product growth in that business that came through, as well as a few other items. So it was kind of a combination of factors, but the strongest factor was the organic growth of the processing customers that are in that indirect side of the business. And as it relates to margins, I think you know as it relates to 2016 margins, I commented in my prepared remarks on all of the different segment margins that we are expecting yearly margins to increase slightly in each one of our segments. And so I certainly would address the North America segment margin story.

I think as I also commented, as it relates to fourth quarter margin, we did see, given the banner years that we had in kind of really all of the segments in the fourth quarter, we did have some incentive compensation and some pay relative to the team members delivering this great performance that impacted the fourth quarter margins. But I think the bigger story that you want to take away from a margin standpoint is strong margins, certainly in North America and we see that margin picture expanding in 2016.

James Robert Berkley - Barclays Capital, Inc.

Thanks. And then just real quick, if you don't mind commenting on the international pipeline as well, how that's looking? And then it just – it seems like maybe on the North American side organically if you're just looking at the kind of build you guys have on accounts on file that there could potentially be some upside to that mid-single-digit number? I just wanted to get your thoughts on those, especially on the international pipeline. Thanks.

M. Troy Woods - Chairman, President & Chief Executive Officer

Hey, James, Troy. And I'll take that on the front end, and Paul may want to add on the back end. But as Paul indicated in his prepared remarks that we continue to set records in the International segment for accounts on file and continues to grow. As it relates to the pipeline, we're sitting on several conversion related activities and several very important launches that should generate over 2 million accounts over the next 18-plus months.

Paul, I don't know if you want to add to that.

Paul Michael Todd - Chief Financial Officer & Senior Executive VP

Yes. I think the only thing I would add on the final part of that question as it relates to the North America organic growth picture, we did say mid-single digits, but I think it's important to remember that we do have the full effect of the two previously announced deconversions of Green Dot and Rush that are providing some headwind on that growth rate for the North America segment. So as I've commented before, over a longer period, we still think that's a mid to high single-digit revenue growth picture for North America, but it trends towards the middle side with these two headwinds of the deconversions on the prepaid processing side.

James Robert Berkley - Barclays Capital, Inc.

That makes a lot of sense. I'll turn it over.

Operator

The next question is from Timothy Willi at Wells Fargo.

Timothy Wayne Willi - Wells Fargo Securities LLC

Thanks. Good afternoon. Two questions, one on the North American business, and then I guess overall guidance around TransFirst. With that one first, Paul, when you say the double digits, I just want to clarify; is that nominal EPS contribution or is that accretion to the growth rate of the company when you talk low double-digits?

Paul Michael Todd - Chief Financial Officer & Senior Executive VP

Yeah, so that would be nominal EPS accretion, low double-digit.

Timothy Wayne Willi - Wells Fargo Securities LLC

Okay. And you said a $5 million number, I think, tied to the accretion in the first 12 months. Is that sort of the initial band of synergies? And then moving forwards that $25 million to $30 million eventually around 2018?

Paul Michael Todd - Chief Financial Officer & Senior Executive VP

That's exactly right, Tim.

Timothy Wayne Willi - Wells Fargo Securities LLC

Okay. Perfect. And then just my question on North America, I guess just – I think typically you comment sort of on same-customer metrics, whether it's volume or transactions, just to get a better feel for the underlying business. Could you just give us some commentary there? I didn't see it in the slide deck.

M. Troy Woods - Chairman, President & Chief Executive Officer

Same-client transactions for North America in the fourth quarter were about just under 10%.

Tim, did you get that?

Timothy Wayne Willi - Wells Fargo Securities LLC

I did. Yes. Sorry. I got that.

M. Troy Woods - Chairman, President & Chief Executive Officer

Thank you. I'm sorry.

Timothy Wayne Willi - Wells Fargo Securities LLC

No problem. I'll jump back in the queue for follow-ups. Thanks.

M. Troy Woods - Chairman, President & Chief Executive Officer

Thank you.

Operator

The next question is from Ashwin Shirvaikar from Citi.

Ashwin Shirvaikar - Citigroup Global Markets, Inc. (Broker)

Thank you. Hi, Troy. Hi, Paul. Congratulations on the quarter and deal.

M. Troy Woods - Chairman, President & Chief Executive Officer

Hey. Thank you, Ashwin.

Ashwin Shirvaikar - Citigroup Global Markets, Inc. (Broker)

And, John, congratulations to you as well. I just want to go back to the margin question. So was incentive compensation, was that adjustment all taken in 4Q? And how much was it? And then related question is, what do you mean by "slight" margin improvement? Obviously we all understand the need to make ongoing investments. Can (48:18) maybe commit to a minimum level of margin improvement?

Paul Michael Todd - Chief Financial Officer & Senior Executive VP

Yes, Ashwin. So as it relates to the specific incentive, I'd comment that that's kind of more – it's not something I'd want to isolate out. It's more broad – kind of a broad-based brush I would paint with that. And then as it relates to the margin expansion, I think that when I'm saying slight margin expansion, I mean less than 100 basis points. And so if you wanted to put it in a band, it's not greater than 100 basis points, but it's in, call it, a band of 25 basis points to the 100-basis point range would be the right kind of bandwidth there.

Ashwin Shirvaikar - Citigroup Global Markets, Inc. (Broker)

Got it. And the nature of the ongoing investments, if you can comment on what you're investing in and how long those investments might continue?

Paul Michael Todd - Chief Financial Officer & Senior Executive VP

So, as it specifically relates to the investment that I was referring to earlier, I think you're referencing the comments I made around NetSpend, and specifically on those investments, which we made in the fourth quarter of this year, and as I made some commentary around our expected margin expanding for next year in NetSpend, those are primarily around marketing. And so, obviously, we want to invest in marketing where we can see good line-of-sight growth. And so we've had those opportunities to gain market share, and so we're glad to spend that marketing money to be able to grow the business. So those are what I'd call discretionary spends around marketing that produce the kind of growth that we want to achieve.

Ashwin Shirvaikar - Citigroup Global Markets, Inc. (Broker)

Got it. And if I can sneak one more in, can you comment on the CFPB? I mean, I haven't seen anything come through. How does that – how are you planning for the evolution of the overdraft product? If you can provide some color around that, that'd be great. Thank you.

M. Troy Woods - Chairman, President & Chief Executive Officer

Well, as you may know, Ashwin, the CFPB has indicated that there was going to be a slight delay and pushed out toward the end of the first quarter. And really beyond that, that's all we know. We continue to work and move forward as if the proposed rules are going to be very, very similar to the final rules. So, we'll certainly let you know a lot more about that as we get these final rules published.

Ashwin Shirvaikar - Citigroup Global Markets, Inc. (Broker)

Okay. Great. Thank you.

Operator

Our next question is from James Rutherford at Stephens.

Brett Huff - Stephens, Inc.

Hey, guys. This is Brett Huff. How are you?

M. Troy Woods - Chairman, President & Chief Executive Officer

Hey, Brett.

Brett Huff - Stephens, Inc.

Congrats on the deal, everybody. A couple of quick questions on TransFirst while we've got some of the folks there, John, if you have a second. I was just looking at some of the financial numbers that are out there on TransFirst, and it looks like there was maybe $117 million of EBITDA in 2014, and it looks like the implied EBITDA range based on the valuation is about $170 million. That implies something like a 20% EBITDA growth. Is that the right math we should be doing from a profit growth point of view of your business?

John Shlonsky - President & Chief Executive Officer, TransFirst LLC

It's exactly the right math.

Brett Huff - Stephens, Inc.

Okay. And then the leadership after this, John, how will you be integrated into the leadership? Will you be sticking around to manage the business? How will that look at the end of the day?

M. Troy Woods - Chairman, President & Chief Executive Officer

Hey, Brett. I'll make a first shot at that, and John can certainly add to it. As I indicated – we indicated in the press release, that upon closing of the transaction, John will become Senior Executive Vice President of TSYS and President of our combined Merchant segment, reporting directly to me.

Brett Huff - Stephens, Inc.

That's great. That's what I needed. Thanks again.

M. Troy Woods - Chairman, President & Chief Executive Officer

Thank you.

Operator

The next question is from Bryan Keane at Deutsche Bank.

Bryan C. Keane - Deutsche Bank Securities, Inc.

Hi, guys. I just want to go back on the operating margins in the fourth quarter for North America. I know they were down 430 basis points. It sounds like there was some bonus structure there. But the margins were up every quarter until the fourth quarter, and they're down quite a bit. So I'm trying to figure out if there was one-time impacts besides maybe some cost bonus structure? Or – and the follow-on question to that is what will – will it continue into next year and be kind of a negative comp, especially maybe for the first half?

Paul Michael Todd - Chief Financial Officer & Senior Executive VP

So sure, Bryan. This is Paul. I think as it relates to the margin for the fourth quarter, obviously, the compensation picture is one of those. Obviously, this deconversion that I talked about in the third quarter obviously kind of is playing in there as well. And so among some other things, that's at play there.

As I commented on the expected margin picture for 2016 for North America, we expect margin to improve. And so there's not – this isn't like some turn in kind of the margin profile of the business, and we do expect to have kind of an improving margin picture on a whole basis for 2016 in the first half of the year, with a little bit more depression on the second half of the year. But when you look at it on a yearly basis, it is an improving picture than what it is for 2015.

Bryan C. Keane - Deutsche Bank Securities, Inc.

Okay. Okay, got it. And then just on the proposed rules, I know the final rules aren't there, but if the proposed rules go in place, what kind of impact can we expect to the NetSpend business? Maybe you can help us quantify some of the impact so people can get a handle around it? Thanks.

Paul Michael Todd - Chief Financial Officer & Senior Executive VP

So Bryan, yes. I think I'd just point you back to what we've said on that in the past, as a data point of when NetSpend was a separate public company they reported that overdraft represented 7% of their revenue for GPR cards, and then you'd obviously have to add in several percentage points on top of that 7% to be able to account for pay card overdraft to get to a picture of what overdraft revenue looks like in the NetSpend revenue stream. So that would be, from a revenue standpoint; obviously there's also some other costs related to compliance that we'd need to factor in. But those would be the two comments I'd point to around that.

Operator

The next question is from Vasu Govil at Morgan Stanley.

Vasu Govil - Morgan Stanley & Co. LLC

Hi. Thanks for taking my question. I guess a couple of quick clarifications on NetSpend. You alluded to potentially making some more marketing related expenses in the second half in 2016. Is that already captured into the margin guidance for expansion or could we see margins not expand if you were to make those investments?

Paul Michael Todd - Chief Financial Officer & Senior Executive VP

So this is Paul. Clearly, had we decided not to make those investments in the fourth quarter, the margin profile for the fourth quarter would have been very commensurate with the margin for the third quarter. So yes, they did, that was – those marketing investments were the central driver between the margin drop between the third quarter and the fourth quarter. And as I said about our margin expanding on a year-over-year basis between 2015 and 2016 for NetSpend, obviously, there is a higher expense base that's already now built into the 2015 numbers related to that higher level of marketing spend.

So, we'll continue to look at that as we progress in 2016. We expect, as I said, the margin to expand in 2016, but I also said if an opportunity presents itself like it did this year, in the latter part of 2016, for us to invest for future growth in this business, we may make that decision. I think I'd point out that that's one of the benefits of having strong businesses all together inside of TSYS is we're able to make decisions around pro-growth things that on one specific segment might depress a segment margin, but on the overall basis, we're still very margin strong. And so that's exactly the situation that we had with NetSpend. I've commented on this in the earlier part of the year that we might make those investment decisions, and certainly, we did here in the latter part of the third quarter and in the fourth quarter.

Vasu Govil - Morgan Stanley & Co. LLC

A quick follow-up on the North America business. The mid-single-digit revenue growth expectation there, is that mostly on account of the organic growth you were seeing in the underlying portfolio or does that contemplate any potential for a notable new wins in conversion? Just trying to get a sense for how conservative the guidance there is.

Paul Michael Todd - Chief Financial Officer & Senior Executive VP

It's actually a blend of both. So it's a blend of the organic growth of the installed base as well as the impact of the 2D conversions that we've talked about from the prepaid processing side with Rush and Green Dot.

Operator

The next question is from Gary Wei at SIG.

James Friedman - Susquehanna Financial Group LLLP

Hi. It's actually Jamie Friedman. Let me echo congratulations on the deal. I just want to follow up to your last comment, Paul. You did call out that it contemplates deconversions, meaning like your mid-single-digit growth. But does it contemplate any conversions?

Paul Michael Todd - Chief Financial Officer & Senior Executive VP

Nothing of any significance.

James Friedman - Susquehanna Financial Group LLLP

Okay. That was just a side. My other questions were about the slide 22, if I could. This is the one where you talk about the combined entities. The – so when you're going from 60/40 direct/indirect to 81/19 direct/indirect, I'm not sure of the math on this, but does that imply that TransFirst was almost entirely direct?

Paul Michael Todd - Chief Financial Officer & Senior Executive VP

That is correct.

James Friedman - Susquehanna Financial Group LLLP

Okay. And then the last thing is the public filing suggests TransFirst was doing about 13% growth in the nine months. When you say mid single digit goes to high single digit, I just want to make sure I'm getting this right; that's on the combined entity or that's on Merchant specifically?

Paul Michael Todd - Chief Financial Officer & Senior Executive VP

Okay. So on the – my comments around the mid-single digit to high single digit was specifically earlier around our North America segment where we had made comments around what's kind of the longer term growth rate of the North America segment. That was – I wasn't referencing the overall consolidated picture. What we have said is on a standalone basis, we expected mid-single-digit growth for our Merchant segment on a standalone basis. And you are right in what the kind of double-digit organic growth picture of TransFirst has been historically. They have a very strong track record of double-digit organic growth. And when you put all that together on a kind of a pro forma basis, we do believe that on a total company basis that additive growth will lift our revenue growth rate by roughly about 100 basis points annually.

Operator

The next question is from David Togut at Evercore ISI.

David Mark Togut - Evercore Group LLC

Thank you, and congratulations. Just two quick questions; the first is how does TransFirst state its EBITDA margin? Are you effectively showing residual payments to your network as a contra-revenue item or as an expense?

Paul Michael Todd - Chief Financial Officer & Senior Executive VP

Sure, David. We will obviously move TransFirst over to our revenue convention, and so we'll be working on that over the time between the signing and close. I'll point out, though that under kind of our conventions, you'll expect to see the TransFirst margins to be right in line with our adjusted EBITDA margin overall. So our Merchant segment margin overall margins will be very similar on kind of a go-forward basis.

David Mark Togut - Evercore Group LLC

So what would TransFirst's EBITDA margin be if shown on a TSYS based reporting convention?

Paul Michael Todd - Chief Financial Officer & Senior Executive VP

So, it's just roughly the same as our EBITDA margin overall.

Operator

The next question is from Dave Koning at Baird.

Dave Koning at Baird, please go ahead with your question.

Adam F. Dahms - Robert W. Baird & Co., Inc. (Broker)

Hey, guys. This is Adam Dahms on for Dave Koning. I just had one quick clarification on – you said it was a nominal low double-digit accretion. Do you mean $0.10-plus accretion in 12 months or 10%?

Paul Michael Todd - Chief Financial Officer & Senior Executive VP

Yes, 10%.

Adam F. Dahms - Robert W. Baird & Co., Inc. (Broker)

Oh. Okay. All right. Perfect. That's all I had. Thank you.

Operator

The next question is from George Mihalos at Cowen.

George Mihalos - Cowen & Co. LLC

Great. Thanks for taking my question, guys. And, Troy and John, congratulations; John, very much looking forward to working with you.

John Shlonsky - President & Chief Executive Officer, TransFirst LLC

Thanks, George.

George Mihalos - Cowen & Co. LLC

I wanted to start off if we can focus a little bit on TransFirst, just two quick questions. One, the percentage of revenue tied to ipos (62:49) and the growth you're seeing there; and then maybe, Paul or John, if you can clarify for us what sort of the ending 2015 adjusted EBITDA is for standalone TransFirst as we go to kind of the 170 number in 2016? Thank you.

John Shlonsky - President & Chief Executive Officer, TransFirst LLC

Okay. George, I'll take the first question. Our ipos (63:11) rollout is going to be consistent with kind of the EMV rollout. So right now, our mobile solution has had strong account production growth. It's a small percentage of our total revenue, given the size of TransFirst and the volume. So I would say it's a smaller percentage of total revenue with more expansion, both on the tablet-based solution and the mobile as we transition a lot of the merchants from non-EMV-capable devices to a more robust solution.

M. Troy Woods - Chairman, President & Chief Executive Officer

And let me ask, George, were you making reference more to the integrated side when you said ipos (63:50), talking about the integrated, the ISV-

George Mihalos - Cowen & Co. LLC

Yes, exactly. Exactly.

M. Troy Woods - Chairman, President & Chief Executive Officer

Well, as I said earlier, that was closer to the 29%, 30% of the revenue of TransFirst.

George Mihalos - Cowen & Co. LLC

Okay. Yes.

Paul Michael Todd - Chief Financial Officer & Senior Executive VP

And George, as it relates to the EBITDA piece, I think in the kind of – if you look there, I think it's in the low 150s, would be kind of the numbers there for the ending 2015.

George Mihalos - Cowen & Co. LLC

Okay, great. If I could just squeeze one more in. Paul, just as we think about the North America margins throughout 2016, should they be sort of relatively uniform or are we sort of going back to some of the cadence we saw in prior years, where we start off at a lower base in the first quarter and build up as we go throughout the year?

Paul Michael Todd - Chief Financial Officer & Senior Executive VP

Yes. So it is in that tighter band. So it's not – it's more of this – what we saw in 2015 than in prior years, where you saw that step-up throughout the year. But as I said, we do expect a higher margin profile in the first half of the year relative to the second half of the year, which is the lasting effect of the deconversion of the prepaid processing that's impacting the second half of the year. But it is in this tighter band range, just like we had in 2015.

Operator

The next question is from Jason Kupferberg at Jefferies.

Jason A. Kupferberg - Jefferies LLC

Hey, guys. Thanks. Just a question on the financing; I know you said that it is committed. Can you just give us a sense of what you expect the blended interest rate there to be? And what the structure of the debt will look like?

Paul Michael Todd - Chief Financial Officer & Senior Executive VP

So, as it relates to the blended interest rate, I think about a 50 to 100-basis point increase from our blended rate today. As it relates to the structure, we'll come back as it relates to our overall guidance and give specifics around the structure.

Jason A. Kupferberg - Jefferies LLC

Okay. And then just a follow-up on the cost synergies, I know you said $25 million to $30 million in 2018. I guess I might have thought that the number could be a little big – maybe if you can put it in some context of the overall cost base and whether or not there's some opportunity for upside there. And maybe just talk a little about some of the specific sources of the cost synergy. How much of it might be kind of platform integration versus real estate, head count, whatever the case may be?

Paul Michael Todd - Chief Financial Officer & Senior Executive VP

Sure. So on that $25 million number, if you kind of look at that on a combined cost base, it's just a little over 3% of the combined cost base of the two merchant businesses. And I think it's important to point out that this is a growth-based acquisition. It is not an acquisition where it's around kind of making the financials work due to expense cuts. The TransFirst historical organic growth model is a double-digit organic growth model and what we now have in our Merchant business also is primed for very strong organic growth and so in putting these businesses together, we want to make sure that we're maximizing the organic growth capabilities while also obviously taking the expense synergies that are available to take.

As it relates to platform, there is platform synergies today because the TransFirst business is already using predominately our front-end platform, so it isn't like typical acquisitions sometimes where you have two different platforms and you're kind of shutting down one platform to get a lion's share of the synergy. But instead, one where we're trying to make sure we maximize the efficiencies while not trying to hurt the revenue growth trajectory. And so this is – the synergies on the surface might look relatively smaller compared to maybe some other things that you compared against, but when you put it in that framework, it's one that feels very right obviously, there's some upside as we dig into this and if there's some upside, we'll obviously take that upside. But this is very comfortable with what we've done the work with to support the growth profiles of the business.

Operator

Our next question is from David Scharf with JMP.

David M. Scharf - JMP Securities LLC

Hi. Good afternoon, and thanks for taking my questions. A couple on the acquisition; first, as we think about the free cash flow guidance you provided for this year, obviously, you'll be scaling back, suspending share repurchases while you delever, but can you give us a little bit of a roadmap, perhaps, of how we ought to think about the pace of deleveraging over the first 18 months?

Paul Michael Todd - Chief Financial Officer & Senior Executive VP

Yes, so I think if you look at the free cash flow generation of us as well as the strong free cash flow generations of the TransFirst business which has very similar free cash flow generation characteristics to our business, you see about 75 basis points of deleveraging turn each year, and so over the first two years, that puts us back into that mid-two range of overall leverage. So just shy of kind of call it one turn of leverage in the first year.

David M. Scharf - JMP Securities LLC

Okay. And just so I interpreted that correctly, around $2.5 billion of debt by end of 2017. Was that what you were implying?

Paul Michael Todd - Chief Financial Officer & Senior Executive VP

2.5 times debt-to-EBITDA. So it kind of takes the 3.9 times down to the more kind of, call it, mid-two range.

Operator

The next question is from Steven Kwok at KBW.

Steven Kwok - Keefe, Bruyette & Woods, Inc.

Hi. Thanks. I just wanted to touch back on TransFirst a little bit more. I guess in terms of the revenues, could you just give us any of the pro forma revenue numbers for 2015 and what you're thinking that's going to be for 2016?

Paul Michael Todd - Chief Financial Officer & Senior Executive VP

No, Steve. I think what would be probably most helpful is to kind of – obviously, TransFirst has filed an S1 out there as part of their IPO process, and so kind of go to that to look for a guide as it relates to that. And I think we've also said as it relates to what we are expecting from an adjusted EBITDA margin, and given some of the EBITDA numbers, you can probably get into the right zip code as it relates to the revenue – the net revenue on a relatively go-forward basis.

Steven Kwok - Keefe, Bruyette & Woods, Inc.

Got it. And then just in terms of thinking about the accretion, just going back to that, if TransFirst closes in the second quarter, and compared to your current guidance, should your EPS growth then be in the 11% to 15% range? Is that the right way to think about it?

Paul Michael Todd - Chief Financial Officer & Senior Executive VP

Yes, Steve, I think what we'll do obviously is when we come back out with guidance and have the exact timing around close, we'll come back and give the specific guidance and what the impact is relative to the guidance we provided today on a standalone basis.

Operator

The next question is from Tom McCrohan at CLSA.

Tom McCrohan - CLSA Americas LLC

Hi. Thanks and congratulations on the acquisition. I have a question on the NetSpend guidance for low double-digit revenue growth. Does that include any benefit from the growth investments that were made during the quarter?

M. Troy Woods - Chairman, President & Chief Executive Officer

Absolutely. But it also adds the headwind that Paul has talked about with the proposed rules that could be kicking in late fourth quarter.

Tom McCrohan - CLSA Americas LLC

Okay. And the growth investments, Troy, that were made, or were they investments that NetSpend has made previously as we've had some sort of expectation for some sort of return on that investment?

Paul Michael Todd - Chief Financial Officer & Senior Executive VP

Sure, Tom. I mean, we do. I mean, we clearly have our models around our investment spend, and we are constantly kind of testing that on a real-time basis as we're making that investment to make sure that we're seeing kind of a commensurate return. I think a perfect example of that is the way where we started at the beginning of the year with our revenue expectations and how we have outperformed that.

And as we continue to invest in the business throughout the year, we got more confidence around investing more to be able to grab some share there. So I will say that the earlier comment that Troy made – we do not in that revenue growth for this year have any impact related to the CFPB. And so this is all just on kind of a pure organic growth basis. And like we started last year, we started with a revenue growth picture of NetSpend that got better throughout the year, and obviously that is something that we would like to be able to see in 2016 as well.

Operator

Our next question is from Glenn Greene at Oppenheimer.

Glenn Greene - Oppenheimer & Co., Inc. (Broker)

Thanks. Good afternoon, and congratulations to all. A few clarifications; on the North America mid-single-digit growth, can you quantify directionally how much drag from the two deconversions you highlighted?

Paul Michael Todd - Chief Financial Officer & Senior Executive VP

So Glenn, this is Paul. When we came out and talked about those two deconversions, we roughly sized those at being just shy of kind of 2% of overall company revenue. And so that gives you kind of a guide as to the overall kind of sizing, but clearly, there's timing, there's different things at play there, so – but that gives you an overall sizing as to what those two businesses are from a size standpoint.

Glenn Greene - Oppenheimer & Co., Inc. (Broker)

And then just to clarify on both your comments and Troy's, I'm confused; is the potential CFPB drag included in the NetSpend guide or is not for 2016 and just-?

M. Troy Woods - Chairman, President & Chief Executive Officer

It is not, Glenn. I was incorrect, thinking that some of those items for those would be kicking in in late fourth quarter, but I was corrected real quick; no. We'll wait and get the final rule out end of first quarter. No, it is not included in our 2016 numbers.

Operator

The next question is from Jim Schneider at Goldman Sachs.

James Edward Schneider - Goldman Sachs & Co.

Good afternoon, thanks for taking my questions, and congratulations Troy and John on the transaction.

I was wondering if you could maybe step back for a second and look at the two traditional merchant services business at TSYS and then the transfers business and from both a distribution channel perspective and now also from a geographic perspective, look at some of the overlaps or non-overlaps and maybe highlight some of the areas where, for example, geographically, you have much broader coverage today within the U.S., you might actually seek to extend new investments to kind of fill in any of those gaps.

M. Troy Woods - Chairman, President & Chief Executive Officer

Well, let me take the first part of that, Jim. And I'm sure John can add to it.

Geographically, when we look at the geographical disbursement of their business, it's not too dissimilar from what you find when you look at the geographical disbursement of our business, on our direct business. You know the states that you find contributing the most are typically the same top five or six states, number one.

Number two, I think John touched on this in his prepared remarks, that there are some overlaps; there are some complementary areas of his business. But I think one of the things that we find strengthening to us is that he is very strong in the FI side. And as you know, we're very strong on the FI side of the issuing. So we see that as a complement. We both are in the ISV business. Ours began approximately a year ago on a de novo basis. As we've indicated earlier, John's business is pushing 30% of his revenues in that space.

So I think over the next 60 to 90 days, we obviously will have to take some real quality time to understand all of our go-to-market dynamics as we look at our sales force, his sales force, his partners and our partners. And I think we can shed a lot more light on that at our first quarter call.

John, do you want to add to that?

John Shlonsky - President & Chief Executive Officer, TransFirst LLC

Sure. Thanks, Troy.

Jim, I think when you think about the combined growth strategy, it's really a two-pronged approach, and I think it'll include long-term both U.S. and international. But it's really, the first prong is we need to sell more. We need to expand our partner-centric model, allowing more sustainable and predictable growth. I think the second portion of that strong in (1:17:25) selling more is really leveraging multichannel solutions for all merchants and really extending the products in a holistic way for all that TSYS has to offer.

The second prong is really about losing less, leveraging great operating excellence, and really what Troy was touching on with the integrated division, continue to change the mix of our business to more integrated and high growth verticals really we'll change the business over time long term both, again, U.S. and again, long-term, internationally as well.

James Edward Schneider - Goldman Sachs & Co.

That's really helpful. Thank you. And then maybe as a quick clarification follow-up; if you look at the North American segment and the accounts on file come in at 654 at the end of the year, given the net effect is, as you look at the deconversions, are those deconversions fully in that number? And similarly, as you look at any additional pipeline that might be coming in, is that kind of a good baseline number to use for 2016 and use that as a base of growth in terms of accounts on file to grow from throughout the year?

M. Troy Woods - Chairman, President & Chief Executive Officer

Jim, the 654 number that I mentioned in my prepared remarks for North America ending the fourth quarter is total accounts on file, so it includes all the accounts that we had, of course, on file at the end of the fourth quarter. I think Paul made a very good point earlier that I think for at least 2016, the number that I would pay particular attention to is the traditional accounts on file, which will exclude, as Paul indicated, our prepaid, government services and commercial cards, single-use. I believe that number was around 415 million. So that's probably the number that would be more relevant throughout the rest of this year as it relates to those two deconversions. Does that make sense?

James Edward Schneider - Goldman Sachs & Co.

It does. Thank you.

M. Troy Woods - Chairman, President & Chief Executive Officer

Okay. Thank you.

Operator

The next question is from James Rutherford or Brett Huff at Stephens.

Brett Huff - Stephens, Inc.

Hey guys. Just one question, follow-up on housekeeping: any assumption about currency in the forward guidance, Paul?

Paul Michael Todd - Chief Financial Officer & Senior Executive VP

So, we just obviously baked in what we are expecting from a currency standpoint that's baked in to the guidance like we typically do at the start of the year, so nothing that I'd call out there.

Brett Huff - Stephens, Inc.

So it assumes rates as of today? Is that fair?

Paul Michael Todd - Chief Financial Officer & Senior Executive VP

It's more of kind of a blended outlook of our rates, of what we're expecting from a blended output kind of standpoint. So that's how we typically do it, not kind of on just a spot basis, but more on a blended outlook of what we're expecting throughout the year. So that's what it's based on.

Brett Huff - Stephens, Inc.

And any specifics you can give us on what that number is?

Paul Michael Todd - Chief Financial Officer & Senior Executive VP

No. As it relates to what potential kind of headwinds that could – I think you could see maybe half of maybe 1% of headwinds that could be coming in on a total revenue basis of potential there. But that would be the only kind of topical level range I'd provide you.

Operator

The next question comes from Ashwin Shirvaikar at Citi.

Ashwin Shirvaikar - Citigroup Global Markets, Inc. (Broker)

Hey guys. So a follow-up: given you already have financing for the deal lined up, does that mean you're already assuming the higher cost debt in your guide? I want to clarify relative to your comment that nothing about the deal is included in here.

Paul Michael Todd - Chief Financial Officer & Senior Executive VP

That's right, Ashwin. There is nothing in the guidance relative to the deal. So, the higher cost of financing obviously will be referenced when we come out with the new guidance that has all of the effects of the deal in it.

Ashwin Shirvaikar - Citigroup Global Markets, Inc. (Broker)

Got it. And then sorry to belabor the point, but I'm still a bit confused about the North America margins because if you were sequentially flat, that would still be a delta of about $14 million, which seems like a big number for a growth comp (1:21:42). So I'm wondering if there was anything maybe in your value-add service that had a materially lower margin, maybe with regards to EMV or if there was a Canada tax impact in there or something else.

Paul Michael Todd - Chief Financial Officer & Senior Executive VP

Well, without kind of providing a detailed reconciliation of each of the ins and outs – I mean there's a lot of moving parts. Obviously, as I talked about, we had a compensation impact as it relates to team member compensation. We actually had a higher percentage of managed services in the fourth quarter, which has a lower margin to it. We had this impact of the deconversion of the prepaid. We had some deferred BofA conversion costs in the fourth quarter that played an impact. So there's a lot of moving pieces there. I was just kind of calling out the topical ones.

But I think the key point, Ashwin, on this is it's not a trend. It's not something that we're highlighting that has dramatically shifted in the overall margin of the business. And as I said, this is a business that we have pretty good insight into as it relates to what the margin profile looks like from a longer term point. And I had pointed to the margin level for the year, and we knew it was going to be in kind of a tighter band for the year. And like I said, we're expecting that margin profile to expand in 2016.

Operator

Our next question comes from Timothy Willi at Wells Fargo.

Timothy Wayne Willi - Wells Fargo Securities LLC

Thanks. Two questions, one maybe a bit on the modeling; Paul, could you talk about I guess how you're thinking about – I guess you say you have (1:23:30) the debt committed, and I apologize if I missed it, but have you talked at all about sort of the cost of that and a band of interest rates or anything like that? Again, and maybe I missed it, but if you could just – any comment there?

Paul Michael Todd - Chief Financial Officer & Senior Executive VP

Sure, Tim. So I made a comment that I think an overall blended interest rate of an increase of 50 basis points to 100 basis points is probably the right range to be thinking about what that future interest kind of cost, all in, would look like. And so that's a comment I made earlier around the potential future interest. And I'll – like I said, when we come back out with guidance on the deal, we'll give complete clarity on structure, blended increase of interest rate and factor all that in relative to the accretion of the deal.

Timothy Wayne Willi - Wells Fargo Securities LLC

Okay. And then the other question I had, I think it might touch a bit on the question earlier about geographic overlap, but if there was – for John, or Troy or Paul, if there was, if you could take that $25 million to $30 million of synergies and decide to just reinvest it in an area of the Merchant business, whether that's geography or product or add-on acquisition, what would be the areas that you see the most promise or most excited about that are on the investment priorities that maybe aren't fully scaled or really yet even started, but you think could be pretty dynamic, if there are any?

Paul Michael Todd - Chief Financial Officer & Senior Executive VP

So I'll start off, and maybe John can layer on any comments he might have. But I think it's a very relevant question, relative to the sizing of that. When we came up with the synergies amounts, those were what we felt were the relevant expense synergies to still allow for the growth profiles of the business without starving the investments in those two businesses, which will be the one combined business. So, it's not one of those situations where we're providing a tradeoff, where you're having to not invest on the growth side because you've got some higher synergy number to try to make deal economics.

That's one of the beauties of this transaction is the high accretive nature of the transaction without having to have a very high synergy number that can then cost you on the growth side because you're having to chase the synergies on the expense side and starve the growth profile. So with that being the overall wrapper, that's the machination of how we got to those relevant amounts. But in general, I'd say that obviously we'll be investing on the higher growth side of the business, which John has done in his business and we've been doing in our business, around the integrated side, the e-commerce side, and those differentiated distribution capabilities in high-growth verticals.

And, John, I don't know if you have anything to add on that.

John Shlonsky - President & Chief Executive Officer, TransFirst LLC

I think you got it right. I think as we start thinking about where growth is coming from, again, we need to continue to build that partner-centric model and get more sustainable and predictive growth. Obviously, in the integrated channels is a big area of growth for us. But I wouldn't classify substituting the synergy savings as an investment, this transaction, because of the like-kind clients in other business units, really affords us a benefit to cross-sell and get introductions across the company here. I mean, I think it's longer term, but it's really unique; you're one of the few companies that have a long-term potential to leverage issuing, acquiring and prepaid in one location with like-kind clients. So we'll be taking advantage of that.

Operator

This concludes our question-and-answer session. I would like to turn the conference back over to Shawn Roberts for closing remarks.

Shawn Roberts - Senior Director-Investor Relations

Thank you, Amy. I hope you all could hear how excited we are here about our 2015 results, our 2016 outlook, as well as the acquisition of TransFirst. As always, I'll be here for any follow-up questions you may have, so feel free to give me a call. And have a nice evening.

Operator

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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