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First Data Corporation (NYSE:FDC)
Q4 2017 Earnings Conference Call
Feb. 12, 2018, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning and welcome to the First Data Fourth Quarter 2017 Earnings Call. All participants will be in a listen-only mode. Should you need assistance, please speak to a conference specialist by pressing *0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you can press *1 on your touchtone phone. To withdraw your question, please press *2. Please note this event is being recorded. I would now like to turn the conference over to Peter Poillon. Please go ahead.

Peter Poillon -- Senior Vice President of Investor Relations

Thank you. Welcome, everyone, to First Data's Fourth Quarter 2017 Earnings Conference Call. Our call today is being hosted by Frank Bisignano, Chairman and Chief Executive Officer of First Data. Joining Frank on the call is Himanshu Patel, Chief Financial Officer. Frank and Himanshu will be referencing a slide presentation during their prepared remarks. A copy of the slide presentation, as well as our earnings press release and supplemental schedules, are available on our website at investor.firstdata.com.

Throughout this call, segment revenue, expense, and EBITDA growth rates referenced by Frank and Himanshu will be on an organic constant currency basis and exclude the impacts from currency and acquisitions and divestitures. After Frank and Himanshu's prepared remarks, we'll open the call up to Q&A, and our standard ground rules apply. We request that you limit your questions to one question and one follow-up in order to be fair to as many participants as possible.

Now, I'd like to remind you that any forward-looking statements made during today's call are subject to risks and uncertainty. Factors that could materially change our current forward-looking assumptions or actual results are described in today's presentation and in our SEC filings. We'll also discuss items that do not conform to generally accepted accounting principles. We've reconciled those measures to GAAP measures in the appendix of the slide presentation and in the supplemental schedules to the earnings release. With that, I'll hand the call over to Frank.

Frank Bisignano -- Chairman and Chief Executive Officer

Thank you, Peter. Good morning, everyone. It's a pleasure to be on the call today. The fourth quarter completed a year of solid performance for First Data. In the quarter, our adjusted EPS improved by 13% to $0.44 per diluted share. On an organic constant currency basis, segment revenue grew 4% and segment EBITDA grew 8%. Our EBITDA margin expanded 140 basis points. Free cash flow in the quarter was once again healthy at $280 million. For the full year, we generated over $1.3 billion of free cash flow.

Our leverage ratio declined modestly during the year despite spending $1.6 billion to acquire CardConnect, BluePay, and Acculynk. In short, this was a solid quarter of overall performance, completing a good year that was in line with our guidance. Himanshu will provide the deep dive into our financials, so I'd like to update you on the progress we're making on some of our important initiatives. As I've discussed in the past, one of First Data's key differentiators is the breadth and depth of our products and services and the fact that we can provide these to our customers on a global basis through an enterprise-based approach.

In the fourth quarter, we had a solid quarter in terms of closing new deals. Here is a list of some of the interesting enterprise deals that closed recently: In GFS, we continue to expand our global presence. As mentioned in our joint press release on January 25th, we entered into a significant new processing agreement with SBI Card, a subsidiary of the State Bank of India, the largest bank in India. We also signed a processing agreement with RBL Bank, one of India's oldest private-sector banks. These deals represent a meaningful expansion of our GFS business in India, where card usage is expanding rapidly.

In the U.S., we're delighted that we have entered into a new retail private-label processing relationship with a large issuer that will bring several million new accounts to our system when it is onboarded later this year, further cementing our leadership position in the space. We also signed two significant statement-printing deals with PNC and Verizon.

On the renewal side in GFS, we have renewed important relationships with several of our top financial institutional partners, including Credit One and PSCU. In GBS, we signed a number of new clients, including Innovative Control Systems, the leading provider of technology solutions for the car wash industry with equipment in over 12,000 sites in more than 30 countries around the world, Illinois Tollway, with multiple products spanning from e-commerce to TeleCheck end security, and Dell, for global e-commerce solutions. The last two were competitive takeaways.

I'd also like to provide an update on our progress in the integrated space, where, as you know, we made two strategic acquisitions during the year to accelerate our entrance into the high-growth ISV market and establish ourselves as a vital player in the market. On the integration front, both CardConnect and BluePay are deep into the integration process, and both are going well. One the revenue front, I'm extremely pleased with the growth trajectory these businesses are displaying in the short time that we've owned them.

Let me provide some quantitative substance around what has happened in the ISV business since the last time CardConnect reported as a stand-alone public company after Q1 '17. Our pipeline of ISV opportunities has tripled, and our total number of live integrations is up over 70%. During the fourth quarter, we had 24 new ISVs go live. Finally, merchant production across the ISV channel has more than doubled. Granted, we're starting from a small base relative to the size of First Data, but we're confident that we're taking market share in the integrated space. As we continue to integrate the product offering and bring our Clover platform as a component of the fully integrated offering to ISV clients, I believe it will simply add to our best-in-class offering in the integrated space.

While I'm on the subject of Clover, I'd like to provide a brief update on some Clover stats. We have over 400,000 Clover units shipped, excluding our Clover Go. Including Clover Go, over 750,000 units have shipped. We are now processing approximately $50 billion annualized on Clover, and that's up over 50% year over year.

Finally, I'd like to discuss our GBS North America JV business. First, I'm very pleased to announce that our PNC Merchant Services joint venture was recently renewed and extended to 2024. This is great news, and I can tell you that we are fully committed to continually innovating to provide best-in-class solutions to the joint ventures clients, and we look forward to continuing our work with this significant partner. I think this early renewal and extension with PNC is indicative of the strong relationships that we have across all of our bank partners.

Next, I'd like to discuss the important initiatives that we're executing against to renovate this channel. We're working closely with our bank partners to accelerate and simplify digital lead acquisition, and we're making progress. Let me explain what that means. The first thing that you'll see happen will be inside the bank branch, where our JV partners are moving to largely eliminate physical sign-up forms and converting to digital sign-up within the branch. The credit decision process -- which, for some customers can take a few days -- will be significantly accelerated, and in many cases, shortened to just seconds. That's Part 1 of the digitization process.

The next component: The ultimate self-service solution will be to allow merchants to log on to the bank's website, apply for a merchant account online, and receive a credit decision. I'm happy to say that each of our partners has committed to these initiatives and that they're in various stages of implementation. We are immensely proud to have these fabulous franchises as merchant-acquiring partners and look forward to years of continued collaboration and growth.

In summary, I'm pleased with the substantial progress we've made across many key initiatives. Our 2017 growth metrics were in line with current-year guidance despite a fairly significant headwind in the JV channel. We've announced a number of innovative solutions and acquisitions that further strengthen the portfolio of products and services we offer our clients, and we generated robust free cash flow.

I'm excited about the future of this company. We addressed what I consider a strategic gap in the ISV space with the acquisitions of CardConnect and BluePay -- in our view, the two premier stand-alone properties in the integrated space. Our Clover suite of products has great momentum with further growth ahead as we fully integrate into our ISV offering. Our enterprise sales momentum is strong and deals across all three segments are ramping. Our international businesses are growing well above industry rates. This is a business that will continue to generate significant free cash flow.

Separately, I'm pleased to announce our next Investor Day, which will be June 12th in New York City. You'll get more information on that event in the near future. Let me turn it over to Himanshu for a deeper dive into the quarter's financial results and our guidance for 2018 before we open it up for Q&A.

Himanshu Patel -- Executive Vice President and Chief Financial Officer

Thank you, Frank. Good morning and good afternoon, everyone. I'm going to start on Slide 4, the summary of our Q4 results. I'll focus on the non-GAAP and segment financial metrics, which more closely reflect how we manage our business. Segment revenue, which modifies consolidated revenue, primarily to exclude certain passthrough revenue and to proportionately consolidate the revenue of our major joint ventures, was $1.95 billion in the quarter. That was up 7% on a reported basis or up 4% on an organic constant currency basis, which adjusts reported growth rates for the impacts of currency translation, acquisitions, and divestitures.

Q4 adjusted net income per diluted share came in at $0.44, up 13% versus the prior-year quarter, driven primarily by improved operating results and lower interest expense. Q4 total segment EBITDA of $848 million was up 10% on a reported basis or up 8% on an organic constant currency basis, and segment EBITDA margin improved by 140 basis points to 43.5%. As Frank mentioned, we had another strong cash flow quarter, generating $280 million of free cash flow. For the full year, we generated $1.36 billion of free cash flow. I'll discuss cash flow in greater detail on a later slide.

Slides 5 and 6 are informational slides that summarize financial performance for Q4 and the full year respectively, including a breakout of results by segment. Let me discuss the segments in more detail, beginning with GBS on Slides 7 and 8. GBS Q4 segment revenue of $1.13 billion was up 10% on a reported basis or up 4% on an organic constant currency basis. GBS segment EBITDA of $494 million grew 11% on a reported basis or 7% on an organic constant currency basis, and its reported margin improved 20 basis points to 43.7%.

I'd like to discuss GBS revenue results by region, starting with North America. GBS North America saw 6% reported revenue growth in Q4. On an organic constant currency basis, GBS North America revenues were flat in the quarter. Normalizing this organic growth to exclude the impact of hardware revenue in both periods, GBS North America revenue was flat, a slight improvement from the third-quarter growth rate of this business, measured on a comparable basis. As a reminder, by removing hardware revenue from this growth metric, by definition, we are also eliminating the revenue benefit from the Clover accounting change in the current period.

Now, I'd also like to provide some color on GBS North American organic results by distribution channel. The JV channel saw a low single-digit decline in its normalized revenue growth rate in the fourth quarter, representing an improvement from the mid-single-digit decline we saw in this channel last quarter. We continue to expect this channel to gradually improve, although year-over-year growth rates may be lumpy from quarter to quarter.

We believe an important KBI in the JV channel is lead flow, and for the first time in several quarters, JV lead flow improved year-over-year, up low single digits in the quarter. We view this as a step toward stabilization in the channel. We are confident that GBS North America in total will continue to gradually improve over the coming quarters, supported by continued solid performance in the enterprise business, healthy organic growth within recently acquired businesses like CardConnect and BluePay, and as I just mentioned, the gradual recovery of our JV business.

I'd like to provide a brief update on the CardConnect and BluePay acquisitions before moving to GBS results outside of North America. We closed on the BluePay acquisition in early December, so we have one month of its financial results included in the fourth quarter. CardConnect and BluePay saw strong revenue growth in the quarter. We plan to continue to invest to build out the integrated solutions businesses of both companies.

We firmly believe that our ISV offering -- which combines robust solutions for both card-present and card-not-present, simple integration, and a state-of-the-art partner management tools for ISVs -- is second to none, and we believe we can build on this competitive advantage as we layer in the Clover platform into our ISV offering, further differentiating First Data's technology stack for our integrated partners and providing additional distribution opportunities for the Clover platform.

Now, let's discuss our business outside of North America, where our results were fairly strong once again. GBS EMEA revenue grew 10% on an organic constant-currency basis, driven by good growth in the U.K. and Germany and some lumpy revenue in the quarter. GBS Latin America maintained its strong growth rate, up 52% on an organic constant currency basis. Latin American revenue grew 56% in full-year 2017, led by Brazil and with solid growth in Argentina as well. In Brazil, which was a greenfield start-up just four years ago, First Data now has a merchant-acquiring business generating over $125 million of annualized revenue growing at a rapid clip. We remain bullish about the growth opportunities in Latin America for our GBS business medium-term. GBS APAC grew 24% on an organic constant currency basis, driven primarily by strength in India.

Let's turn to GFS, covered on Slides 9 and 10. GFS Q4 segment revenue of $412 million was down 1% on both a reported and organic constant currency basis. Note that GFS revenue growth was negatively impacted by the non-recurrence of year-ago items across several of its geographic regions, including a previously disclosed termination fee in GFS North America. GFS segment EBITDA of $184 million was up 6% on both a reported and organic constant currency basis as expenses decreased 6% compared to the prior year, driven by solid cost management execution, which more than offset our growth-related investments in this business. Thanks to these efforts on the cost side, GFS's reported margins improved 300 basis points to 44.7%.

Let's take a look at GFS by region. GFS North American revenue decreased 3% in the quarter primarily due to the nonrecurrence of a previously disclosed $7 million termination fee we received in the fourth quarter of 2016. The term fee was associated with business loss due to client M&A activity. Excluding this term fee, GFS North American revenue was approximately flat year over year, as we experience lingering weakness in our plastics business and some softening in the retail private label business.

Moving to the international markets, GFS EMEA revenue grew 2% on an organic constant currency basis in Q4, driven by new business and internal growth in the U.K., partly offset by some lumpy nonrecurring revenue recognized in the prior-year period. GFS Latin American revenue grew 2% on an organic constant currency basis in Q4, driven by internal growth in Argentina, partly offset by a favorable license fee resolution in the prior-year period. GFS APAC grew 6% on an organic constant currency basis in the quarter with broad-based growth.

Looking back on the full-year performance of GFS globally, revenue increased 3% on an organic constant currency basis while EBITDA increased 8%. The year-over-year revenue growth was challenged primarily by lower card personalization revenue in North America related to reduced demand for EMV chip cards in 2017 compared to 2016. The difficult plastic volume comps are mostly behind us, and as we look ahead into the coming year, we expect to see some first-half headwind associated with pricing compression from a handful of significant renewals that we recently signed, but remain confident that GFS global revenue growth will improve over the course of 2018 as we start to see the ramp-up of new deals that we've announced in this business over the past several quarters, including WiZink, Banco Sabadell, Huntington National Bank, and First Citizen's Bank, among others.

Please turn to Slide 11 to cover NSS. NSS's Q4 segment revenue of $406 million was up 4% on a reported basis or up 6% on an organic constant currency basis. NSS Q4 segment EBITDA was $209 million, up 14% on both a reported and organic constant currency basis, reflecting the combination of both good revenue growth and solid expense management. NSS's reported margins improved 450 basis points to 51.5%.

Let me break out the results by NSS's three main business lines. EFT network solutions revenue was flat year over year as transaction growth was offset by lower blended yield. Security and fraud solutions were up 4% in the quarter, reflecting low double-digit growth in our core security business, partly offset by continued decline in TeleCheck revenue. Stored value revenues were up 19%, driven by strong growth in our closed-loop gift solutions business along with moderate growth in our money network payroll card business. Gift solutions saw a $7 million benefit in the quarter from a favorable client contract modification.

Moving to free cash flow shown on Slide 12, we think of free cash flow largely as cash flow from operations less CapEx and distributions to minority interests. We provide the reconciliation of cash flow from operations to free cash flow in the appendix of the slide deck. This table on Slide 12 walks you from total segment EBITDA to free cash flow. Free cash flow of $280 million in the quarter improved $10 million year over year, reflecting improved operating results and lower cash interest payments, largely offset by unfavorable timing impacts of settlement flows on working capital. Our full-year 2017 free cash flow of $1.36 billion was up $143 million, or 12% year over year.

Now, let's discuss our balance sheet. Slide 13 lays out our debt balance as of the end of 2017, end of third quarter 2017, and the end of 2016. Our net debt increased by $413 million this quarter, as approximately $760 million in net consideration for BluePay in December was partly offset by free cash flow generated in the quarter. In conjunction with the acquisition of BluePay, we raised $250 million of new term loan A debt at a rate of LIBOR plus 175. We also utilized available lines of credit and cash on hand to fund the Blue Pay acquisition.

We continued to actively manage our debt, and during the quarter, we refinanced about $3.9 billion of term loans. We reduced the rate of these term loans by 25 basis points, resulting in expected annualized cash interest savings of $10 million. Our leverage ratio, defined as net debt to segment EBITDA, was 6.0 times at December 31st, unchanged from where it was at September 30th, despite the acquisition of BluePay. This leverage ratio is down from 6.3 times at the end of 2016.

Now, I'd like to cover a few important items that should help you with your models for 2018 and beyond. There are a couple of important issues I'd like to address. First, I'd like to discuss changes in our effective tax rate, which are primarily driven by two discrete events that are going to affect our P&L starting at the same time. Those were the reversal of the valuation allowance on the deferred tax asset associated with our U.S. federal NOL and U.S. tax reform, which was signed into law in December of last year. Second, I'll provide 2018 guidance.

It's important to discuss the tax rate before we get to the guidance because of a material change in our effective tax rate, which will significantly impact the comparability of year-over-year EPS results, and I want to provide a clear foundation of how this impacts our 2018 guidance. Please turn to Slide 14, where we provide a tax update, including a discussion of our expected tax rate in 2018.

Our Q4 GAAP results were distorted by multiple discrete tax items booked in the period, the most prevalent resulting from the reversal of the valuation allowance I just mentioned. The multiple discrete tax items triggered the recording of non-cash net tax benefits in Q4 and for the full year. Given the unique nature of the items, they are excluded from adjusted net income and adjusted EPS in the quarter and full year.

In 2017, excluding the discrete items, our effective tax rate for purposes of calculating adjusted net income was roughly 10%. Prospectively, as a result of the reversal of the valuation allowance, First Data will now begin recording a normalized-book effective tax rate starting in Q1 2018. Note that due to our NOL carry-forward, this increase in effective tax rate does not affect cash taxes.

So, the next question is what will be our normalized effective tax rate in 2018? It's important to understand that prior to tax reform, we estimate that our effective tax rate would have been in the range of 37% to 39%. However, with the enactment of tax reform, we estimate that our 2018 effective tax rate will be in the range of 27% to 29%. Said differently, First Data benefited from tax reform by about 10 percentage points on our effective tax rate or the equivalent of roughly $0.20 on our diluted EPS.

Separately, I want to explain why our 2018 tax rate guidance of 27% to 29% is above the new U.S. federal headline rate of 21%. The difference is primarily driven by limitations on interest deductibility and state and local taxes. While we estimate that our 2018 effective tax rate will fall into the 27% to 29% range, we are confident that we can bring this rate down further to around 25% over the medium term. I want to emphasize that the reversal of the valuation allowance and the enactment of tax reform have no impact on the nominal value of our U.S. federal NOL carry-forward, which stands at approximately $4.5 billion at the end of 2017. Because of this sizable NOL, we expect to be largely shielded from U.S. federal cash taxes through the end of 2020, meaning at least the next three years.

So now, let's move to our full-year 2018 financial guidance. I'd like to start with two important notes about our guidance. First, revenue and EBITDA growth guidance are provided on a constant currency basis. That simply means that we assume that foreign exchange rates hold constant versus the comparable prior-year period. Second, our headline revenue and EBITDA growth estimates include the net benefit of a full year's impact of previously announced acquisitions and dispositions in 2018, so these growth rates are not stated on an organic constant currency basis, but rather on a reported constant currency basis. Note that we do provide an estimate of the net benefit to our reported constant currency growth guidance from previously announced acquisitions and dispositions to allow you to clearly understand what organic growth guidance is as well.

We chose to provide our headline guidance on the reported constant currency basis because we have not publicly disclosed 2017 revenue and EBITDA metrics that are pro forma-ed for a full 12 months of acquisitions and divestitures, so we want to ensure that we are providing guidance on a basis that is applicable to disclosed 2017 actuals. For every quarter in 2018, we will continue to report our growth on both a reported and organic constant currency basis, as we did on Slide 5 and 6 this quarter.

Now, our guidance for full-year 2018. We expect to achieve reported constant currency revenue growth of 5% to 7%. This range includes about 2 percentage points of net growth attributable to the full-year impact of previously announced acquisitions and dispositions. We expect to achieve reported constant currency EBITDA growth of 7% to 9%. This range includes about 1.5 percentage points of net growth attributable to the full-year impact of previously announced acquisitions and dispositions. We expect adjusted diluted EPS of $1.35 to $1.40.

Our 2018 EPS guidance is below the $1.52 of adjusted EPS that we reported for full-year 2017. However, given the significant increase in our effective tax rate between 2017 and 2018 that I discussed earlier, the decline in headline adjusted EPS is not an apples-to-apples comparison and clearly not indicative of the company's expected underlying earnings growth. Said differently, using a comparable tax rate in both periods implies solid underlying diluted EPS growth.

We expect to generate free cash flow in excess of $1.4 billion in 2018 and to continue to strengthen our financial position by paying down debt. Finally, we once again reaffirm our medium-term guidance of mid-single-digit organic revenue growth, mid- to high single-digit organic EBITDA growth, continued growth in free cash flow, and target a leverage ratio that approaches 4 times by the end of 2019.

In closing, we feel very good about our business and financial outlook, and we believe we are well-positioned to achieve our near-term and medium-term growth goals. With that, let me hand it back to the operator to open up the call for Q&A.

Questions and Answers:

Operator

Yes, thank you. We will now begin the question and answer session. To ask a question, you may press *1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press *2. At this time, we will pause momentarily to assemble the roster. The first question comes from Jason Kupferberg of Bank of America.

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

Hey, good morning, guys. It was nice to see the improvement in the North America JVs in terms of the key metrics there. I just wanted to get a sense -- I know it can be a little lumpy going forward, but how soon is it realistic that the JVs could turn positive from a revenue perspective again?

Frank Bisignano -- Chairman and Chief Executive Officer

Why don't I start? First of all, you saw us renew PNC. I think that's a statement about where those partnerships are. I feel it's on course to how we thought things would work with our partners, that being PNC, Bank of America, and Wells. All of our time inside at the senior-most levels of both the banks and ourselves is about the next turn here, and that turn is about digital and how we embed a better digital experience to drive that.

And so, we think stabilization occurred, clearly, and you're going to see us reinvesting with our partners who are completely committed, and we'll see a steady drumbeat of progress. We talked about the lumpiness because we really don't think it's a quarter-to-quarter item as much as a long-term trajectory, that we've seen the worst days of it, and both the partners and ourselves are committed to digital forward growth, automation, Clover, and all the investments we've made in the SMB suite and growing these businesses.

Himanshu Patel -- Executive Vice President and Chief Financial Officer

Jason, I would just add to Frank's comment that we've previously talked about one of the key items that affect revenue growth -- not the only one, but one of the major ones -- is lead flow. The rate of lead flow in the fourth quarter improved year over year slightly. A lot of that was because of an easier comparison, but that is the beginning of stabilization happening. We have talked about an approximately six- to nine-month lag from when we see lead flow improvement to that translating into a commensurate benefit on revenue, holding all other revenue variables constant. So, I think that gives you a little bit of a sense of what we're thinking about on timing.

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

That's helpful. It sounds like there's some comfort that at least the worst is over there. And then, Himanshu, can you help us think through some of the revenue growth expectations for '18 by segment as you deconstruct it into the three pieces?

Himanshu Patel -- Executive Vice President and Chief Financial Officer

Yeah. I would say overall, if you looked at this year, 2017, it's reasonably indicative, and the three global divisions were basically 3% to 4%, all three of them. Two of them were 4%, one was 3%, and as a company, we posted 4%. So, you can see we don't tend to have significant dispersion around total company growth by division, and we would expect something comparable for 2018.

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

Okay, great. Thank you.

Operator

Thank you. The next question comes from Sanjay Sakhrani with KBW.

Steven Kwok -- Keefe, Bruyette & Woods -- Assistant Vice President

Hi, thanks for taking my question. This is actually Steven Kwok filling in for Sanjay. First question is just around the PNC Merchant Services renewal. Congrats on that. How did the economics of that deal look versus the prior one? And then, also, are there any upcoming large renewals that you have? When did the other JV contracts expire? Thanks.

Frank Bisignano -- Chairman and Chief Executive Officer

First, I'd look at PNC as us working on modernizing the JV. You heard me talk a lot about modernization and renovation. I think sometimes, people wonder what that means. It means an embedded set of changes, even including how the bank and us run the JV. So, I would look at it as achieving both sides' objectives to getting nimbler JVs that are going to continue to grow and invest in innovation. It was an early renewal, but that was an early renewal because we were talking constantly about how to do our work better, and the output of it was a series of changes to how we operate, and I'd put it as a big check-plus in terms of how the bank and us both feel at the senior-most levels.

The other two JVs -- with the oldest one coming up in 2020, the other in 2019 -- I think you've got to look at them as a constant dialogue about how we grow the business and how we do things. Across the whole company, we're always going to have a lot of renewals. You heard us talk about some today. It's very normal in a recurring-revenue business for us to pay 15% on an annual basis. When we got there, we renewed a large part of the GFS book, which was extraordinary at that point in time. If you remember that business, the U.S. business was up for sale. We took it off the market, we renewed a large part of it, and you see us continuing to renew business. That will be a constant drumbeat within the company. It's normal for us and it'll change year to year how much there is of it.

Steven Kwok -- Keefe, Bruyette & Woods -- Assistant Vice President

Got it. And, my follow-up question is just around -- your guidance is on a constant currency basis. Can you talk about how we should think about currency impacts in 2018 as it stands right now?

Himanshu Patel -- Executive Vice President and Chief Financial Officer

Obviously, that's a forecast. Given where currency rates are projected right now, we expect a $20 million benefit to revenue on a full-year basis and no impact to EBITDA.

Steven Kwok -- Keefe, Bruyette & Woods -- Assistant Vice President

Great. Thanks for taking my question.

Operator

Thank you. The next question comes from Darrin Peller with Barclays.

Darrin Peller -- Barclays Investment Banks -- Managing Director

Thanks a lot, guys. Putting aside the JV channel, the rest of GBS North America -- can you comment on the trends there? I know there was a period last year where it was obviously growing, and then it decelerated a bit, but retention and the overall growth of the SMB channel, especially pro forma for CardConnect and BluePay.

Frank Bisignano -- Chairman and Chief Executive Officer

Maybe I'll talk a little bit about what's going on across the board there, and then we'll dive in a little deeper. Like I said, the CardConnect acquisition -- the integration of our agent business, the old Ignite business, and the CardConnect agent business has come together. That's under one leadership. The technical consolidation on the back end has happened, and you can look forward to that channel distributing Clover during the course of this year, and the ISV channel during the course of this year distributing Clover, and we highlighted some facts there. That's off to a fabulous start. BluePay is as good a property as we thought it was, and the bringing together of the parts of BluePay, CardConnect, and First Data are completely coming together.

We feel very good that our attrition rates in our own portfolio have normalized and stabilized and are performing at industry. The real play there in the future is getting our new signed-up RSA partners up and running and delivering more, being able to bring digital into that channel, as we've talked about. So, that's really how we see the future growth there. It's very strong from a quantitative and a qualitative standpoint on our offering, on our products, on partner receptivity, so I think when we look at it, it's probably the best we've felt about the business itself and the direction it's headed in.

Himanshu Patel -- Executive Vice President and Chief Financial Officer

Darrin, I would agree with Frank's comment. The non-JV channel is doing very well. It's a little bit hard to see in the numbers quarter to quarter because of some noise occasionally, but on an underlying basis, we're seeing very solid double-digit growth in both CardConnect and BluePay, we're seeing an SMB direct business that is still not growing, but definitely approaching stabilization and an enterprise business that is posting very healthy growth.

Darrin Peller -- Barclays Investment Banks -- Managing Director

All right, that's very helpful, thanks. Himanshu, very quickly, on the strategic use of capital now -- I know you guys were obviously deleveraging and still are, but we saw a couple acquisitions last year that clearly helped your position, but also may have been a surprise to some versus deleveraging. So, now that we're looking at '18, do you have the full suite -- or, Frank if you want to answer -- do you have the full suite of what you need to be competitive in North America, or are we expected to see more tuck-ins? Thanks again, guys.

Frank Bisignano -- Chairman and Chief Executive Officer

First, I'd go to that for us, first and foremost, the use of cash is to delever. We had always thought that the ISV channel was of interest. We were building it out. The fact that we were able to get what we viewed as the two best properties that were available -- which were CardConnect and BluePay -- was a pause, and we thought would be better for our long-term growth trajectory, and ultimately, for shareholder value, and that's why we did that pause. We feel good about the GBS North American hand the way it is right now.

Himanshu Patel -- Executive Vice President and Chief Financial Officer

Darrin, you can see that both of those transactions that we did this last year -- I think we tried to be very thoughtful of how much leverage we would take on and did it actually solve for anything strategically. Despite those two deals, we still closed out the year at 6 times levered. We started the year at 6.3 on a two- or three-year trajectory to delever the balance sheet to roughly 4 times by the end of '19. We think both of those acquisitions will show up as a flip -- nothing significant -- and going forward, our objective is still to reach that 4-times number.

Darrin Peller -- Barclays Investment Banks -- Managing Director

Great, thanks, guys.

Operator

Thank you. The next question comes from David Togut with Evercore ISI.

David Togut -- Evercore ISI -- Managing Director

Thank you. Good morning. On GFS, it looks like 1% organic revenue growth if we adjust out for the year-ago benefit on 6% AOF growth. Can you comment on unit pricing outlook in GFS and why you've continued to see significant unit pricing pressure?

Himanshu Patel -- Executive Vice President and Chief Financial Officer

Yeah, David. The accounts-on-file growth is an overall accounts-on-file growth number. We did see some softness in our retail private label business where the gross active accounts -- which tends to be the more primary revenue driver there as opposed to accounts on file -- has softened up a little bit, and that's really the big disconnect. It's not a disconnect on per-card pricing.

David Togut -- Evercore ISI -- Managing Director

So, in terms of unit pricing, what are you seeing in North America?

Himanshu Patel -- Executive Vice President and Chief Financial Officer

It's hard to answer that question generically because each contract is different. I would say we're not seeing anything materially different from where it was a year ago. Obviously, if you undergo a renewal in GFS for a seven-year or five-year deal, if the client is buying the same exact mix of products again, you do take price compression upon the time you see that renewal, but absolute pricing when you sign up a new client -- I would say it doesn't feel that different to us.

David Togut -- Evercore ISI -- Managing Director

Understood. Thank you very much.

Operator

Thank you. The next question comes from Georgios Mihalos with Cowen.

Georgios Mihalos -- Cowen & Co. -- Managing Director

Good morning, guys. Himanshu, I wanted to go back to the GBS JVs, and I think you said that lead flow had turned positive low single digits. Is there a certain growth rate in the lead flow that we need to see before the JVs can turn positive, assuming that attrition pricing and the other stuff in the existing portfolio stays constant?

Himanshu Patel -- Executive Vice President and Chief Financial Officer

No, I don't think we would want to put out a number like that because lead flow is one of the key metrics -- probably the key metric we're looking at now. But, I would say there are many things that go into First Data's reported JV revenue growth. I would remind everyone that our lead flow comp in the fourth quarter of 2017 was very easy, so while we did see slightly positive year-over-year growth in lead flow, from an absolute level, those leads are still not acceptable or healthy from our perspective. That growth rate number -- we anticipate it will bounce around for the next few quarters.

When I think of absolute lead flow by quarter, we are down double digits from where we were in 2016, so I think that gives you a little bit of a sense of the magnitude of the ultimate recovery needed to get the business back to an absolute revenue number that we would consider acceptable. I would take the slight growth we saw in lead flow in Q4 as an encouraging but modest step toward stabilization. There's obviously a lot to get through between now and the ultimate growth in that business.

Georgios Mihalos -- Cowen & Co. -- Managing Director

Okay, I appreciate that color. The free cash flow guide for '18 -- I think the $1.4 billion -- that's pretty much in line with what you guys did in 2017. Is there something keeping that back?

Himanshu Patel -- Executive Vice President and Chief Financial Officer

No, it's just... First Data -- like any other company, free cash flow is probably incredibly volatile compared to most of the other metrics, so we obviously put a number out there that was a little bit above our actuals for 2017 to give a sense that we do expect it to be better, but you could have some volatility over the course of the year that is a little bit hard to predict. It is not intended to indicate any sort of lack in FCF conversion between EBITDA and free cash flow. We still think we have a very cash-generative model, low CapEx, virtually no federal cash taxes in the U.S., but things like working capital, settlement, timing -- those things do tend to cause a little bit of lumpiness.

Georgios Mihalos -- Cowen & Co. -- Managing Director

Okay, thank you.

Operator

Thank you. The next question comes from Tim Willi with Wells Fargo.

Timothy Willi -- Wells Fargo -- Director

Thank you and good morning. I have two questions. First, this quasi-modeling -- Himanshu, as we think about the margin and the expansion implied between revenue and EBITDA in your guidance in the medium term, how much of the margin expansion would you now pin on revenue mix in organic growth versus a lot of the restructuring and internal cost efforts that you have been undertaking over the last couple of years?

Himanshu Patel -- Executive Vice President and Chief Financial Officer

That's a great question, Tim. It's definitely both, and I don't have a split handy for you because obviously, geographic mix of business, the product mix of business -- all of that also goes into the margin, not just the absolute percentage growth in revenue. But, I think it is fair to say at a qualitative level, if we are a business that does low-40% EBITDA margins in 2017, we do expect our contribution margins to be above that level assuming constant product mix, constant geographic mix. That's just good old-fashioned operating leverage from the guided revenue growth on organic dropping to the bottom line.

On top of that, though, I think you did see a very nice amount of margin expansion in Q4 specifically, and I think that is indicative of the fact that we are continuing to find additional efficiency opportunities, and it's sort of a steady journey in this company. I wouldn't say it's one and done, so I would expect that to be a contributing factor as well to 2018's anticipated margin guidance.

Timothy Willi -- Wells Fargo -- Director

And then, my follow-up was just on Clover and the developer community. In terms of how that continues to build, are you seeing increased demand and interest from developers about becoming part of that program and thinking about the content and the ecosystem with Clover?

Frank Bisignano -- Chairman and Chief Executive Officer

We clearly feel Clover is a platform. It's demonstrated that platform capability in the ecosystem. I think what we see is our next large pivot there, and we're working diligently on supporting the ISV community with Clover, and that's another form of the development community. When we first came out with Clover, you saw us appealing to the individual development communities and writing a series of apps, which attracted a lot of development and had very good ecosystem effect.

What we learned through that journey was that the ISV community is probably the best software community to support, and we found that them seeing Clover as an option as opposed to a competitor became very strong, and that's the pivot you'll see during 2018. So, very strong, very good. We brought out a new version of Clover Station, which has good receptivity, and you'll continue to see us invest heavily and build out that platform.

Timothy Willi -- Wells Fargo -- Director

Great. Thank you very much.

Operator

Thank you. The next question comes from Brian Keane with Deutsche Bank.

Brian Keane -- Deutsche Bank -- Director

Hi, guys. Good morning. I just wanted to ask about NSS -- maybe by segment, what the outlook might be in EFT, network revenue, security and fraud, and historic value. And then, secondly, my second question was on interest expense. What's a good number for modeling purposes going forward for this year? Thanks.

Himanshu Patel -- Executive Vice President and Chief Financial Officer

Brian, I think what you saw this quarter was flattish EFT business, which is the combination of both our STAR business as well as debit processing in the United States. You saw mid-single-digit growth in security and fraud, and both of our stored value businesses were up, even if you exclude the client contract modification. I think that's reasonably representative of how we're thinking about next year. We probably expect some modest growth in the EFT network, but debit processing is a more competitive business than credit processing and most other issuer processing businesses.

Security fraud is a really good growth business, but remember, included in our security and fraud business is a TeleCheck business which obviously has more of a secular decline, so I think that's more the mid-single-digit growth number you saw for that business. On a reported basis, it is reasonably representative. The prepaid business is what we call stored value network. Those are clearly growth businesses for us. Both closed-loop gift and the money network open-loop business have very strong secular tailwinds, and we'd probably expect both of those to probably be some of the stronger performers within NSS.

Brian Keane -- Deutsche Bank -- Director

Okay, great. Just on interest expense, Himanshu, what should we expect for modeling purposes?

Himanshu Patel -- Executive Vice President and Chief Financial Officer

Book interest expense -- I would expect a modest decline of roughly $10 million in 2018 versus 2017. 2017 was $937 million. The reason for that modest decline is it's multiple items going in and out of that. You get a full year's benefit of deleveraging, which obviously takes the interest expense down, but that is partly offset because you have the full year of acquisition impact-related leverage. Remember, we only owned CardConnect for half of last year and BluePay for one-twelfth of last year. You get a full twelve months of the interest burden of those acquisitions in 2018, and we are also assuming interest rates are rising per the forward curve, and all of that is embedded in that $10 million decrease guidance.

Brian Keane -- Deutsche Bank -- Director

Okay, helpful. Thanks so much.

Operator

Thank you. The next question comes from Ashwin Shirvaikar with Citibank

Ashwin Shirvaikar -- Citigroup Research -- Managing Director

Hi, Frank. Hi, Himanshu. Can I ask you to provide a bit of macro commentary in terms of what your spend plan's expectations are as you look at major geographies, and what sort of improvement is embedded in your expectations?

Himanshu Patel -- Executive Vice President and Chief Financial Officer

I'm not sure I completely follow, but I think if you're looking at our spend trend report, I would not use that as an analogy for anything related to our publicly reported results.

Ashwin Shirvaikar -- Citigroup Research -- Managing Director

No, not the spend plan report specifically. I was asking about macro commentary on what consumer spending expectations you have embedded in your outlook.

Himanshu Patel -- Executive Vice President and Chief Financial Officer

Fair question. Obviously, we have a total company revenue growth guidance that we've given of 5% to 7% including the benefit of the two acquisitions. You can see that includes 2 points of acquisition-related benefit. We generally think that when we take the collective of all of our businesses together, we have a core unit volume growth in the industry in the United States of Visa/Mastercard volume transaction, which we think of as mid- to high single digits. And then, our mix of business as well as some issues related to pricing in various geographies -- we think all of that nets back down to our guided revenue growth.

Ashwin Shirvaikar -- Citigroup Research -- Managing Director

Okay. And then, as I look at the impact of global accounting change going away, is that roughly a 2% headwind, and are there any other one-time impacts to consider as well?

Himanshu Patel -- Executive Vice President and Chief Financial Officer

Under the new revenue recognition standards -- what's known as ASC 606 -- the Clover accounting item that affected our 2017 results will become a non-event in addition to several other accounting changes that happened. Maybe I'd take a moment to comment on the impact of the revenue recognition standards. So, we expect the impact of the 606 revenue recognition standards to be immaterial to our full-year 2018 guidance growth rate when applied to a restated 2017 actual segment result. You will get from us in an 8-K shortly -- call it in the next month or so -- restated 2017 numbers on the new revenue recognition standard for both revenue and EBITDA. We expect the nominal numbers to change, but we do not anticipate any impact on our guidance, which is expressed on a growth rate basis from that.

Ashwin Shirvaikar -- Citigroup Research -- Managing Director

Got it. Thank you, guys.

Operator

Thank you. The next question comes from James Friedman with Susquehanna.

James Friedman -- Susquehanna International Group -- Analyst

Hi, guys. It's Jamie at Susquehanna. In light of some of the capital markets activity, I wanted to ask you about Latin America. Nielsen has you as a Top 5 acquirer depending upon the market in Latin America. I remember Gustavo had a presentation at the Analyst Day describing what he was targeting. Can you contextualize what the end objective is with your Latin America business? Do you run it for growth because it's such a growth market, or margin? At some point, given the valuations there, might it make sense to at least partially monetize that?

Frank Bisignano -- Chairman and Chief Executive Officer

We've invested...probably from '13 to date on building out Latin America, so we've done a fair amount of investing that is now showing the benefit. I think it's great in Brazil. I think we feel good about Argentina, we feel good about Colombia, and if you ask us are we investing for growth, I'd say we're investing for growth to create shareholder value, to build a franchise that can compete at the highest level, and take market share, and that's really what you've seen us do there, and we intend to continue to do it. That question you asked about given valuations in that market [background noise].

There are large parts of this company that grow well and perform well. We like running integrated property, but we'll always think about what to do in the future. I'd like to thank everyone for dialing into today's call. We enjoyed talking to you and appreciate the opportunity. Thank you for your support and ownership, and we look forward to talking to you over the next few days and weeks, and we'll talk to you soon. Thank you.

Peter Poillon -- Senior Vice President of Investor Relations

Thank you, operator.

Operator

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

Duration: 62 minutes

Call participants:

Frank Bisignano -- Chairman and Chief Executive Officer

Himanshu Patel -- Executive Vice President and Chief Financial Officer

Peter Poillon -- Senior Vice President of Investor Relations

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

Steven Kwok -- Keefe, Bruyette & Woods -- Assistant Vice President

Darrin Peller -- Barclays Investment Banks -- Managing Director

David Togut -- Evercore ISI -- Managing Director

Georgios Mihalos -- Cowen & Co. -- Managing Director

Timothy Willi -- Wells Fargo -- Director

Brian Keane -- Deutsche Bank -- Director

Ashwin Shirvaikar -- Citigroup Research -- Managing Director

James Friedman -- Susquehanna International Group -- Analyst

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