Q3 2019 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the global payments 2019th third quarter earnings Conference call.
At this time, all participants are listen only mode.
Later, we'll open the lines for questions and answers.
Sure. Chris This is doing this call. Please press Star then zero.
As a reminder, today's conference call will be recorded.
There's gotta love to turn the conference over to your House Senior Vice President Investor Relations. When he Smith. Please go ahead.
Good morning, and welcome to global payments third quarter 2019 conference call.
Before we begin I'd like to remind you that some of the comments made by management. During today's conference call contain forward looking statements about expected operating and financial result.
Forward looking statements are subject to risks and uncertainties discussed in our at T. SEC filings, including our most recent 10-K and any subsequent filings.
These risks and uncertainties could cause actual results could differ materially.
We caution you not to place undue reliance on these statements.
Forward looking statements during this call speak only as of the date of this call and we undertake no obligation to update.
Some of the comments made refer to non-GAAP financial measures such as adjusted net revenue adjusted net revenue for network fees.
Adjusted operating margin and adjusted earnings per share, which we believe are more reflective of our ongoing for for me.
For a full reconciliation of these.
And other non-GAAP financial measures to the most comparable GAAP measure in accordance with MPC regulation. Please see our press release furnished as an exhibit to our form 8-K filed this morning, and our trended financial highlight both of which are available in the Investor Relations area of our website at Www Dot global payments Inc. dotcom.
Joining me on the call our gets one CEO Cameron Brady, President and COO and <unk> Senior Executive Vice President and CFO now I'll turn the call already John .
Thanks Wendy.
We are delighted to have completed or landmark merger with piece just this quarter.
Bringing together to industry leaders and positioning the new global payments as the Premier pure play payments technology company at scale globally.
We successfully closed this transformative partnership on September 18.
Just three and half months after we announced our agreement in late May and well ahead of our initial expectations.
Our ability to execute on an accelerated timeline was made possible by the highly complementary nature for a market leading payments and software technology businesses.
The strong alignment of our corporate cultures, and the unrivaled expertise of the 24000 people across our combined organization.
I could not be more excited about the future opportunities for all of our stakeholders.
Our terrific third quarter results highlight the continued momentum in our business, which is being fueled by broad based strength across our relationship led and technology businesses.
And underpinned by consistent ongoing execution.
In the midst of the largest integration we have undertaken to date.
Weekend delivered double digit revenue growth.
Expanded adjusted operating margin by 80 basis points and produced adjusted earnings per share growth of 18%.
We are very grateful for the hard work of our colleagues that has brought us to this point.
And we also accomplish these results while simultaneously expanding our strategy to be the partner of choice for the most complex financial institutions worldwide.
To that end, we're thrilled to announce we have signed new partnerships with days yard in.
Canada's leading financial Cooperative group and city, what are the largest money center banks globally.
These new competitive wins with marquee partners across multiple geographies further validate the distinctiveness of our pure play payments model.
Starting with these hard and we reached an agreement to purchase the Quebec based banks existing portfolio of approximately 40000 merchants and executed an exclusive referral partnership to provide acquiring solutions to its clients for the next decade.
The short end select a global payments as a direct result of the breadth and depth of our technology payment solutions local and global expertise comprehensive distribution modern architecture and infrastructure and our unrivaled track record is execution over many decades.
We expect this transaction to close by early 2020.
We were also excited to have been selected by city.
Oh partner to offer payment acceptance services twits multinational banking clients on an omni channel basis.
Our ability to offer highly competitive payment solutions physically and virtually in more markets seamlessly than our peers differentiates global payments.
And this partnership capitalizes on our local market expertise and industry, leading unified commerce platform or you CP to provide a true omni channel experience.
We expect to be in market, which city by year end 2019.
We look forward to working went HR, Dan and city to bring best in class solutions to their merchant customers around the globe.
We are winning everyday in the marketplace with the uniqueness of our strategy and we're very proud of the company we keep.
In addition to our new plenary renew with city. We recently signed several significant global omni channel customers, including with UK based online luxury retailer matches fashion and the rapidly expanding modern high Tech hotel chain Yotel.
We also continue to expand you CP.
We are now live in the United States. In addition to Canada in Asia Pacific and will fully rolled out you CP in the UK over the next few weeks.
Turning to our integrated and vertical market businesses Openedge once again delivered strong growth during the third quarter.
Driven by our ability to provide a truly integrated ecosystem across more vertical markets and more geographies than our peers.
And we maintained our consistent track record of growth.
Own software portfolio as our strategy of delivering the full value stuck in key vertical markets is creating deeper richer and more value added relationships with our customers.
Our combination with Tcs significantly accelerates our technology enabled software driven mission.
Establishing global payments as a leading provider of integrated payment solutions.
Don't software in both merchant Initialing.
And omni channel capabilities in the most attractive markets globally.
On a standalone basis teaches produce consistent results for third quarter.
Performance at Tces merchant business improved resulting in meaningful revenue acceleration.
These results were achieved while making significant progress on integration.
Contributing substantially to an increase in our expected revenue and cost savings expectations, just a few weeks post close.
Our strategy for the combined merchant businesses remains focused on cross sells a complimentary products.
Further penetration of adjacent distribution channels and rollout of you CP to the pieces customer base.
In addition.
Pieces issuer solutions business recently completed new long term agreements with the Central Trust Bank in North America.
And leading retailer Riachuelo in Brazil.
These were competitive takeaways, providing further validation of our combined pure play payments focus.
And we also expanded existing contracts with Virgin money nationwide building Society and Metro Bank.
Most notably we expect growth to accelerate in this business as the issuer solutions team successfully converted the Walmart portfolio on behalf of capital one.
Earlier this month.
This market leading business as a full pipeline today and the expanded breadth of our combined 1300, five partnerships provide significant untapped opportunities for new issuer and merchant referral relationships.
Our strategy to accelerate growth an issuer solutions involves modernizing its platforms.
Selling existing relationships globally, and extending the product suite.
As customers move to cloud based solutions, we believe that global payments can enhance the development of next generation products and services.
Turning to the consumer solutions business earlier, this month, we announced a partnership with Samsung.
As you integrate the Netspend digital Mastercard into Samsung's mobile wallet and provide a variety of payment solutions, including PDP.
Branded Samsung pay cash this solution allows smartphone users to establish a reloadable balance and whole funds for use including spending and budgeting.
Opening a significant pool of new customers for this business.
Our differentiated strategy had netspend consists of product extensions into PDP and b to b segments as well as select international expansion.
In addition to the recently announced PDP solutions like Samsung.
We are building product offerings currently to dramatically enhance the scale and scope of net spends b to b offerings.
Domestically, we expect net spends pay card products to help expand heartlands payroll offering.
We also see additional use cases for pay Cardium restaurants, one of our largest vertical markets as well as in our gaming business, which is among the largest in North America.
Finally, we believe we can bring netspend into new markets based on global payments existing acquiring partnerships outside the United States in short order.
The substantial progress we've made and just a few short weeks since we finalized our partnership.
Provides us with the confidence to now raise our expectations for both revenue and expense synergies.
Importantly, we expect the integration actions, we have already initiated to generate in excess of $100 million of expense benefits on an annualized basis.
Meaning that we believe we can achieve our 2020 accretion goals announced in May even if we were not to undertake any additional actions next year.
And of course, we intend to do more in 2020.
Cameron will provide you with the specific details on our updated targets in a moment.
Let me highlight a few of the revenue synergy opportunities already planned that give us a clear line of sight toward achieving our goals.
First our efforts to align our merchant organizations and go to market strategy in the U.S. are well underway.
And we expect to start cross selling products, including vital Pos genius in propane as well as subscription based engagement and analytics and vertical software solutions in 2020.
Specifically, we expect the capabilities of propane to provide value added products like multiple disbursement capabilities and when they self select at Heartland.
We're also laying the groundwork so we can begin to deliver products like the other vital Pos genius in Propay two additional geographies internationally.
And enable tces legacy customers outside the United States.
Second we are already engaged in preliminary discussions with our existing global bank partners across three continents on issuer processing opportunities for cases.
We have just returned from Europe .
And we believe that the market is ready for honest processing capabilities domestically and cross border in geography is like the United Kingdom, Central Europe , Spain, Ireland and closer to home Canada.
By Meringue issuer processing with our acquiring capabilities, we can emulate many of the aspects of the virtual close loop as well as provide strong customer authentication internally, which is now the law the land across Europe .
These opportunities are in addition to court merchant referral relationship possibilities from existing Tcss size and private label retailers to global payments.
Third Netspend is actively working on new b to B, BDC and PDP capabilities and opportunities.
Putting for our restaurant and gaming customers as well as in new geographies.
Netspend has already proved fertile ground for new merchant referral relationships among its larger distribution partners.
We have found a true partner with thesis and could not be more excited about the future opportunities to drive significant value creation for our employees customers partners and shareholders.
We are fortunate and grateful to be in the position we're in today.
With that I'll turn the call over to camp.
Thanks, Jeff and good morning, everyone before I begin I would like to welcome Paul as the New Chief Financial Officer Global payments. It has been my privilege to serve in this role for the last five years and to work with all of you in that capacity.
We're thrilled to successfully finalized our merger with pieces this quarter, our largest transaction today.
And as Jeff mentioned, we're already making significant progress on the integration of our two leading pure play payments businesses.
Importantly, we accomplish this while producing strong financial performance in the third quarter, a testament to our continued relentless focus on execution.
Total company adjusted net revenue plus network fees for the third quarter was $1.31 billion, reflecting growth of 27% versus the prior year.
Adjusted operating margin expanded 80 basis points to 33.8% in adjusted earnings per share increased 18% to $1.70 cents or approximately 20% on a constant currency basis.
Naturally our third quarter performance reflects pieces results from September 18, the impact of which was neutral on an adjusted earnings per share basis.
Before turning to the financial impact of the merger, let me start by covering the Standalone global payments highlights for the quarter.
Excluding teases global payments produced adjusted net revenue plus network fees of $1.161 billion, reflecting growth of 13% versus 2018 or over 14% on a constant currency basis.
And adjusted operating margins expanded by 110 basis points to 34.2%.
In North America, adjusted net revenue plus network fees for global payments on a standalone basis was $877 million.
Reflecting growth of 16% over the prior year period.
Adjusted operating margin in North America expanded 130 basis points to 35.6% driven by growth in our technology enabled businesses and consistent strong execution across the segment.
Are you at direct distribution businesses again delivered low double digit normalized organic growth this quarter led by strength in our integrated and vertical markets business.
Specifically openedge produced high teens growth, while our own software portfolio continued to deliver web double digit organic growth consistent with our outline targets.
We also saw high single digit organic growth in our U.S. relationship led channel, reflecting consistent execution in this business.
Our Canadian business grew low single digits in local currency with weakness in the Canadian dollar impacting reported results by approximately 100 basis points for the quarter.
As Jeff noted, we're very pleased to announce today, our new partnership with days are done in Canada.
Which we expect will provide new avenues for growth in this market going forward.
Lastly, our wholesale business the quite a mid teens consistent with our expectations for the quarter.
Moving to Europe , adjusted net revenue plus network fees for Standalone global payments grew approximately 11% in local currency or 6% on a reported basis as foreign currency exchange rates remained a meaningful headwind during the period.
We continued to benefit from strengthen our businesses in Spain in Central Europe .
Each of which grew well into the teams on a local currency basis.
In the UK, we delivered mid single digit organic growth, which was ahead of our expectations and if so accelerated sequentially from the second quarter, despite continuing soft macro environment and the uncertainties surrounding Brexit.
Our European E Com and omni solutions business again delivered strong growth as we further enhance our differentiated capabilities and unified commerce platform.
We look forward to completing the next phase of our rollout of you CP globally. When we go live in the UK over the next few weeks, which we expect will support continued momentum for our Pan European Omnichannel offering.
Adjusted operating margin in Europe expanded 100 basis points to 48.6% as consistent execution and scale benefits offset pressure from foreign currency headwinds.
Turning to Asia Pacific reported adjusted net revenue puts network fees growth for Standalone global payments was 5% or approximately 7% and on a constant currency basis.
Excluding Hong Kong, where we have been impacted by the ongoing protests, our Asia Pacific business delivered low double digit growth in local currency consistent with our overall target for the region.
Adjusted operating margin of 33.9% improved slightly relative to the prior year.
As a outstanding execution and expense discipline offset headwinds from both disruptions in Hong Kong and foreign currency exchange rates.
Following the close of our merger on September 18, Tces contribute to $145 million of adjusted net revenue plus network fees and $45 million of adjusted operating income for the final 13 days of September .
Overall for the third quarter the legacy thesis business produced constant currency revenue growth largely consistent with the second quarter.
While margin expansion was above the high end of Tejas its previous 25 to 75 basis point target.
Growth for the legacy Tces merchant solutions business accelerated from the second quarter moving back into the high single digits longer term targeted range.
Normalized for the exit of its government services business and the activation of a single value added product. The legacy pieces issuer solutions business grew in line with its longer term mid single digit target in the quarter.
Finally revenue performance for the legacy piece of consumer solutions business was largely consistent with the second quarter.
We expect revenue growth to accelerate in the fourth quarter across all three legacy teases businesses.
In the merchant solutions business, we are building on solid third quarter performance as we align our go to market strategies in the U.S. and begin to capitalize on cross selling opportunities.
In the issuer solutions business the conversion of the capital one Walmart portfolio earlier. This month provide those line of sight to improved growth entering the fourth quarter.
Lastly in the consumer solutions business, we are building momentum as we expand our digital product offerings, including our partnership with Samsung.
And realize benefits from recent distribution wins and renewals.
More to come on our outlook for the remainder of the year in a moment.
Turning now to capital structure in August we successfully priced a $3 billion senior unsecured notes offering.
In combination with the new credit facility, we closed in July our combined capital structure is now largely complete a meaningfully improves our weighted average interest rate going forward.
In fact that turns we achieved our more favorable than we anticipated when we announced our partnership with teases in May.
In addition at closing we received our final investment grade credit ratings from both S&P and Moody's consistent with our expectations.
Pro forma leverage for the combined business was approximately 2.5 times at the end of the quarter.
This leverage position coupled with our expected strong free cash flow generation provides the new global payments with significant capacity to invest in the business as we continue to advance our strategy and execute on our capital allocation priorities.
As for the outlook for the combined company in 2019, we now expect adjusted net revenue plus network fees to range from $5.60 billion to $5.63 billion, reflecting growth of 41% to 42% over 2018.
We also expect adjusted earnings per share in a range of $6 than 12 cents to $6 in 20 cents, reflecting growth of 18% to 20% over 2018.
Inclusive pieces from the date of the merger, we now anticipate adjusted operating margin expansion of up to 40 basis points for the full year.
Given tces business mix its margin profile is lower than that of global payments legacy business, thereby reducing margin expansion expectations for the full year period.
That said on a standalone basis thesis is forecasted to exceed its margin expansion target for the full year period.
In addition, adjusted operating margin expansion for global payments on a standalone basis is now expected to be up to 100 basis points for 2019, well ahead of our historical target.
We're very pleased with the progress we've made since closing on our partnership with teases last month and have increased confidence in our ability to accelerate revenue growth and deliver substantial cost savings over the next three years and beyond.
In fact, as Jeff detailed our revenue enhancement initiatives are already underway and based on the work completed today, we're increasing our target for run rate revenue benefits to more than $125 million within three years.
As for expense synergies, we have implemented actions that are currently run rating ahead of our year, one target and have already identified additional sources for expense optimization.
As a result, we're also increasing our total expected expense savings to more than $325 million on an annual run rate basis within three years.
The momentum we have in our business coupled with the significant progress we've made on integration bolsters, our confidence in the future and more specifically the accretion expectations. We had for that thesis merger at the time of announcement in May.
We now expect at least mid single digit accretion in 2020.
Which all else being equal would imply adjusted earnings per share expectation in the mid $7 range based on our standalone, 16% to 18% growth target.
Naturally we will share more detailed outlook for 2020 during our year end call in February .
Before concluding today I want to provide an update on or expect to go forward reporting for the business.
First as we finalize our combined structure, we anticipate reporting based on three operating segments merchant solutions issuer solutions and the newly named business in consumer solutions, which includes a legacy teases consumer business and also reflects our expanded strategy for this channel going forward.
We believe this reporting structure will best aligned with how we expect to operate our differentiated payments centric business model.
Second based on feedback from the FCC regarding the use of our adjusted net revenue puts network feeds metric that came out of the customary view of our public filings.
Going forward, we expect to report on an adjusted net revenue basis. Excluding the addition of network fees.
Although we believe adjusted net revenue plus network fees provide useful insight into the economics of our business in a manner consistent with how the company assesses and measures performance.
The FCC has requested we discontinued its use.
As a result, we report without the addition of network fees in the future consistent with how pieces has reflected this item historically.
To facilitate this change will be providing pro forma financial information for the combined business for historical reporting periods consistent with this presentation.
Of course global payments reports adjusted net revenue each period. In addition to the adjusted net revenue plus network fees metric and historical pro forma information will be built on this basis.
We will be transitioning to this methodology in the fourth quarter and will provide all the components necessary for you to measure performance under both conventions.
We cannot be more excited about the future as we build on our competitive advantages and payments leadership position and we look forward to updating you on our continued progress in the coming quarters.
Now I'll turn the call back over to Jeff.
Thanks Cameron.
We could not be more excited about the momentum in our business and the significant wins. We have recently achieved with large ESI is like Asia are down in city validate our pure play payments focus.
Payments are not just an adjacency for us.
Payments are our exclusive focus and area of unrivaled expertise.
Multiple recent successes in competitive processes confirmed the wisdom of our strategic focus and the primacy of our business model.
With Tcs, we deepen our competitive mode and confirmed the value of our ecosystem across each element of our strategy.
We have the most comprehensive software driven solutions globally with full omnichannel capabilities, the broadest market reach and enhanced exposure to faster growth geographies.
We have the very best employees, providing the very best experiences for our customers with the very best technologies in the most attractive global markets.
Together, we are positioned to deliver industry, leading growth and remain at the forefront of innovation as we head into 2020 and beyond.
This is truly an exciting time to be part of the new global payments winning.
Before we begin our question answer session I'd like to ask everyone to limit their questions. One with one follow up to accommodate everyone in the queue. Thank you operator, we will now go to question.
As a reminder to ask a question you need to press star one on your telephone to withdraw your question. Please press the pound King please standby, while the coupled with too many roster.
Our first question comes from David Koning Baird. Your line is open.
Yeah, Hey, you guys great job.
Thanks, Ed Thanks, Dave Yeah, I guess first of all just on pieces I mean, you laid it out extremely wealthy and just want to make sure. We understand 2020 should we expect accelerating revenue just given the synergies and some of the headwinds this year falling off and then I guess the other part a tces.
Am I right I understand about 100 million cost synergy run rate already in Q4.
Yes, Dave as Jeff I'll start and I'll turn over to.
To camera and Paul So the answer is yes. Your first question I think what we're very excited about.
The combined company certainly as we looked at Tces to address what you asked a we're entering the fourth quarter with our expectations of an accelerated revenue growth and Tcs just really 13 days after the close of the merger we pointed out the reasons for that including the Walmart portfolio conversion capital. One so feel really good about where we are heading into.
2020, with Tcs feels that we also did see any one area of direct overlap between global on thesis, which is in the merchant business as Kevin pointed out we did see an acceleration that third quarter in merchant already.
I think Kevin alluded to.
The thing that we see improving performance in merchant in the fourth quarter. So we think we're in a really good run rate place Dave at Tces currently in the quarter were in the fourth quarter and I think that gives us a lot of confidence heading into <unk>.
20, 2020, Cameron I kind of a little bit on the revenue synergies as it relates to Dave's question, Yes, David I'll jump in there quickly we are making good progress, particularly in the merchant business on realizing some very tactical cross sell opportunities already with our combined businesses and obviously, we expect those to continue to ramp as we head into 2020 and beyond.
A number that this point aren't going to be dramatic, but certainly they are providing a little bit of a nice tailwind in the merchant business within diesel that gives us confidence that we can continue to accelerate growth and maintain it in that high single digit target for the merchant business as we head into 2020 beyond and hopefully even build upon that in future periods. So I do think we feel very good about the momentum.
That we have in the teases business heading into Q4, and then further on into 2020 in particular to address your last question about the 100 million of of expense synergies. What we said in the script just to be clear is we've taken actions that run rate to 100 million of expense synergies in 2020, obviously that 100 million is not in Q4. So.
I just want to be explicitly clear about that the actions. We've taken today will generate $100 million of expense savings in 2020, which was our targeted for realized expense synergies for the first full year of ownership of pieces that we announced when we maybe acquisition or merger back in May.
Great. Thank you and just as my follow up just the Canada acquisition that sounds pretty cool is what roughly is is the size of that I mean is that something that adds 10% to the Canada business or something more substantial.
Yes, it's a great question day, we're thrilled to have the opportunity to partner with days are down in Canada. It adds about 40000 merchandise to our existing base of customers in Canada.
And obviously gives us a much more significant presence in Quebec.
This is an area the market where.
Days, our Dan has been very effective and certainly has a very strong presence. So we're delighted to be able to partner with them as it relates to a financial contribution it's going to add next year, probably about in the neighborhood of $17 billion or so of adjusted net revenue plus network fees to our existing Canadian business, which I think you know is it just.
A little north of 300 million. So it's a it's a nice addition, nice bolt on to our to our overall Canadian business and obviously I think opens up new avenues for growth in that market for us going forward.
Great. Thanks, guys.
Thanks, Ed.
Thank you.
Our next question comes from 10, Jen Wong of Jpmorgan. Your line is open.
Okay. Thank you so much good results. He was just on the merchant side, maybe can you help us.
Recast what percent is now.
Define this tech enabled.
Versus all the other pieces just want to give the presence of how we should think about the components of growth from Russia with thesis.
Yes engine, it's Jeff I'll start so it's essentially the same percentage at the combined business as it was for global Standalone I think we said this back in the May announcement about 50 said is that combined totaled the reason for that I'll ask Paul the commitments in the second the reason for that and Tces merchant really had two pieces that were very similar to that.
Two pieces of global payments Walnuts clan, which is very similar openedge that was completely integrated business.
Adjacent areas of overlap, which I think is great opportunity.
Openedge. The other one of course was transferred switch is very similar to a hartland at global payments and transfers have bolt semi integrated as well as relationship based businesses as well as an e-commerce asset. So I actually think it looks a lot to be honest the way global payments did on the merchant side, such it's about 50 per se.
Paul you want anything yes, the only thing I would say using the third quarter, we did see that integrated piece of our direct business of the legacy just direct business get right at 40%, which is a high watermark from an integrated standpoint in that legacy business going back a year or so ago that was roughly a third and so the fact that that has grown just kind of underpin.
Jeff's comments around the mix there.
Terrific. Thanks, Kevin I'll, just add for the merchant business in particular, if you think about its contribution to the total business. It's about 70% of the combined business now and it's roughly 50%.
Technology enabled and about 50% relationship globally. So as we talked about when we announce a deal combining teases with global payments gives us just south of $1 billion of integrated revenue. We have just south of $1 billion E. Com, an omni channel revenue and we've talked about roughly 800 million or so of software.
Revenue in our portfolio that ends up being close to half of the overall merchant business on a global basis.
Okay, that's good because and I just want to make sure we had that right and then on the.
Yeah sure side, you mentioned you got full pipeline pipeline, how about on the merchant front any any comments on pipeline or bookings on the on their software side I know, there's a lot of activity going on with without his views and dealers and even in the bank side. As you mentioned anything there. Thank you, yes, I'll talk a little bit about pipeline on the merchandise.
The engine as you know our focus tends to be small to medium sized businesses. So when we think about the pipeline for the businesses, it's a little bit different and obviously, the issuer business, which tends to be more large five focused but I would say momentum in both of our businesses is very good as we talked about in our integrated business Paul gable would've been a color on how pieces perform.
And we commented that Openedge grew high teens in the quarter, which is the high watermark for that business certainly over the last several years, which I think reflects a strong new partner growth over the course of the last couple of years and obviously good effectiveness of converting existing customers of our partners to payments customers of global payments.
There's been obviously an important part of our growth story over time, the second thing I would say in our own software businesses. We continue to see strong bookings growth across advanced MD.
And active as well so I got had a very strong quarter and has very strong momentum heading into 2020, having received recently.
Good news from one of its largest customers about a rollout of a new product across its base of franchisees in 2020, which we think will be a nice tailwind for that business heading into the year and on the relationship side, we saw strong high single digit growth in the quarter. Good consistent execution in that channel. We continue to see decent same store sales growth in the bill.
This roughly 3.5% for the quarter, and obviously, new sales and attrition rates remain very constant, giving us again, good momentum heading into the 2020 timeframe. So I would say all in all across the merchant business.
Certainly in the U.S., we've seen very strong trends Europe improved quarter over quarter accelerated on inorganic growth basis.
Largely driven by slightly better performance in the UK and of course, Banorte Central European joint venture with ours that performed really well in the quarter as well the only really point of softness was in Hong Kong. That's completely expected obviously, given the environment There X Hong Kong, we grew low double digits in Asia, which again is consistent with.
Asian for that market.
So we feel good about how the rest of Asia is holding up as a macro matter notwithstanding obviously the dislike disruptions in Hong Kong, we've had two absorbing the BNL.
Yes, just from a legacy to standpoint, I'd just add on we had an all time record level of net revenue in the merchant solutions area. Our integrated legacy Tces integrated business grew in the strong double digit range, we did get some accretive growth from the legacy indirect side and so.
Much similar to Cameron's comments on the legacy global side, just a great quarter from a a merchant standpoint.
Yeah. Thank you.
Thanks, and thanks.
Thank you.
Our next question comes from David Togut of Evercore ISI. Your line is open.
Thank you good morning, good to see the strong results and nice to see the early raise on the T. system merger synergy targets.
Perhaps just starting on the Tces side, you talked about already having taken the actions to achieve the 100 million of cost takeout in 2020.
What specifically about the cost takeout process is going better than you expected to date.
David Cameron I'll start and ask Jeff and Paul to chime in if if they have anything to add I would say a couple of things one is personal experience right. We've been down this path before we have very strong experience from an M&A standpoint, we learned a lot of variable valuable lessons in the process.
Merging with Heartland in integrating Heartland and I think that thesis has done the same with acquisitions that they've done over the course of time as well we've got an early start with our planning process you know upon announcing the merger in May and I think the governance model and the structure that we put around the the process itself I think has given us a very strong.
Start to obviously are working relationship in the ability to drive obviously ahead of schedule expense actions that we intend to take as we look to bring these two businesses together. So I really think it's the experience that we have in our ability to work collaboratively together I think our common cultures.
Have allowed us to work very.
Collaboratively in a way that has brought to the forefront very good ideas as to how we can bring the companies together in a very efficient manner. How we can find savings within the business as we look to bring our merchant businesses together in particular, we've had great momentum amongst the leadership team and merchant as it relates to our go to market strategy and finding ways to obviously drive up.
Conceived and the combined business as we work to implement our target architecture model and target operating model. So we feel very good about obviously, where we are we feel good enough to increase our target expectations around expense energies on the whole and as we said on the call in mentioned earlier in the USA, we have line of sight to $100 million of run rates.
Energies in 2020 already in the actions we've taken will allow those materialized next year as we continue to look to do more for 2021 in 2022, yes. The only thing David I would add as you know from a legacy Jesus perspective, we said this at the time of the deal that we knew each company's very well both companies had a long history of knowing.
Each other and we knew that that was going to provide kind of additive tailwinds from a synergy standpoint, just that expertise that we both added our legacy businesses and the complementary nature of the two legacy companies, putting them together and so that was our commentary at the time of the deal and after we got post close that.
Came to fruition of that kind of starting point.
Appreciate that just as the follow up Europe came in significantly better than we expected both on revenue and Kashi, but I'm just curious Jeff about any early go to market experience you've had combining your merchant business and Tces issuer processing business in Europe , which was definitely a.
Big color when you announced the transaction.
Yes, David that's a great point, so as I mentioned in the prepared remarks, we were just there is a combined management team, including literally a couple of weeks ago I would say the receptivity for the combined partnership was even better than I'd expected back in May David will be announced the transaction. The first place. We saw most of Tcs is large customers.
In Europe on the issuing side and we saw a lot of global payments large customers in the merchant side.
In Europe , when truly nine team were where there I think the market as I said in my prepared markets is absolutely ready.
On us domestic and cross border.
Processing and the markets I listed in the in their prepared remarks of course closer to home here in Canada. We just announced things are down. This morning. So I think on a combined dish for merchant basis, we have the same relative presence for the combined company in Canada than we even doing Europe , which is why singled that out in the script. This morning, I think opportunities are right there too I would also say.
I mentioned that.
PSC, two and strong customer authentication and out of all the land as of mid September in Europe .
Thats been the regular regulators have joined pushed that back about 12 months in terms of implementation I think thats. Good news for US there all sorts of matching that we can do on issuing and acquiring I think enhanced authentication services and E Commerce and Omnichannel capabilities that we also discussed with our partners. We there on Europe , a couple of a couple of weeks ago.
And the revenue opportunities David that I hadn't considered such as enabling some in the bigger retail brands that Tces has on the issuance side in Europe to become more of a payment facilitation mechanism and enabled around digital wallets using issuer and acquire capabilities, which is actually some of that really hadnt thought about it may but certainly hurt.
Latin clear from some of the consumer brands, who already on Tces. When we were there a couple of Leaseco. So I would say David sitting here today I'm more optimistic that was even back in may but what those opportunities are in fact at least one new sized one is come to pass I'd also reiterate will be side I think in the July or August call. The camera I mentioned, which was we.
Have a number of partners at global payments.
Finds in Europe , and Asia, We've asked us about moving pieces on the issuer side. These are large financial institutions and those conversations were had again we are in Europe , a couple of Leaseco, so pretty optimistic on the combined business and and where we're heading.
Congratulations thanks, so much thanks, David thank that.
Thank you. Our next question comes from Eric Wasserstrom.
It is open.
Thanks very much.
I would.
Interpreting the.
The commentary, Jeff that you made around the consumer solutions and in particular, Netspend, that's kind of indicating a renewed.
Important strategically a bit of that business to the to the combined entity going forward is that correct interpretation or you just simply giving us more insights into how it fits into the broader integration strategy.
Yes, Eric I think you're correct and what you said, let me let me to say that when we were doing diligence on that business. In May we were optimistic that so I don't know that it's a different point of view I would just say that we looked at Tcs.
In each of the segments as being a very attractive partner for us.
And we certainly view there as the view us as having a differentiated strategy and netspend versus the other public competitor I tried lifting nodes in the in the prepared remarks, but just to reinforce that number one I think we have non us opportunities, particularly in Europe to roll out the prepaid product and I think the market is right for that in those geographies.
And I would stay tuned on that in relatively short order I think that is differentiator for US number two I do think there are a lot of revenue synergies coming out of global payments and Thats been a list a few those are my prepared remarks, but as you know heartland has a very big presence with Zunil insight comments camera mentioned in the restaurant channel Theres particular, particularly as it used to.
This is in restaurants for the pay card and related services for Netspend and they also called out the gaming applicability.
We're prepaid and we're not done when doing this but writing prepaid in light of the regulatory changes you've seen in sports betting as well as the brands that we have in the gaming business Putin puts us in a particularly distinctive place on a combined basis with global payments and not and Netspend. So I actually think it's a continuation Eric that thesis we laid.
It out in in May and we think we had clear line of sight to continue to.
Enhance and grow the market opportunities that business and that's something we're very excited about I'd also say for all of our business is not that not netspend, we assess all our businesses continually and thats not specific to any one of them. So if we think theres a higher better used for anything that we're doing we're obviously open minded. We're all very focused on shareholder value, but I would say that.
We have a very strong thesis that we think we at the ability to add a lot of value and all of our businesses, but in particular in light of his question in consumer solutions by adding b to b by adding international flexibility and we intend to focus on.
Thank you for that if I may just follow up on more on on the synergies.
The you delineated first the three primary areas, where you anticipate them, but of the incremental synergies that you are underscoring today.
Can you give us an attribution of what they relate to with respect to those three buckets.
No Eric its Cameron I'll jump in I would say, they're probably roughly split between the three buckets. We've just seen a little better opportunity across all three of the primary areas, where expect to realize synergies from the transaction as an expense matter I wouldn't want to point to any particular item per say theres not one significant driver of that overall 25 million increase.
So we articulated on the call today. So it's it's a little things here and there and it's probably across all three of the primary areas, where we expect the realized synergies from the from the transaction, Yes, Jeff I would just add to that you go into a deal you make assumptions you make assumptions in may when you can see your detailed based our experiences Cameron said the poured the what those things are well, we now have the detail we now have the.
Plans, so the happy news as those assumptions prove to be conservative and we think were run rate again, a much higher level.
Thanks very much.
Thank you.
Thank you. Our next question comes from ramps.
A couple of Barclays. Your line is open.
Okay. So thanks for taking my question I wanted to ask about the M&A environment. I know you did this deal and have a pretty attractive capital structure right now what should we be thinking out in terms of timing and also what types of deals are you looking for it could be something in the future transformative or is it more series of tuck ins, how should we sort of frame.
Up your M&A opportunity.
Yes for MPS, Jeff I would just say just speaking from a strategic point of view.
I think.
Our focus on M&A for the combined company really hasn't changed so in terms of the types of deals that were looking at.
We're looking at geographic extensions were looking at anymore end markets scale consolidations, you heard Daystar, Dan today that we described which is in a market partnership in a business that were already in and of course, we're looking for more software and more vertical market.
Solutions. So I think were the strategy as it relates the combined company really hasn't changed all that much will obviously be opportunistic, but I would say sitting here today, we feel pretty good about where the pipeline is when the pipelines going to be from a timing point of view of the obviously want to make sure I think the balance sheets in a very happy place as Cameron alluded to two and half times leverage gives us a lot of capability I think.
Among the three deals that were announced is lowest level leverage among all three but as I think about as this is as much and managerial question as anything else, we want to make sure that in the next number of months that all the stuff that we've laid out internally and externally that we're going to need an even exceed those expectations I think once we feel like our sea legs are there and then.
Tracking in the right place this won't be an issue of capital availability or balance sheet. I think we have those today instead, it say hey, we're in a really good place Warner really get trajectory for very good managerially about wary about where we are so certainly as we head into 2020, if the capital markets day favorable in our execution continues or accelerates in the past, but it's.
And I certainly think we're open for business.
That's that's super helpful. Thanks, a quick follow up on your wholesale business, which I know for legacy global is increasingly small part of your business and declining energy just had a slightly different strategy there.
And I'm just curious in terms of the harmonization of those two approaches how are you viewing that that business kind of on a go forward basis.
Yes, Ram discount, but it's a really good question. We spent a lot of time as we brought the two merchant businesses together talking talking about that Barry topic, and what I would say is our strategy a global payments obviously to your point is different than the way pieces as approach sort of the wholesales last indirect channel historically I would start by saying for the combined business. It's a very small part of the overall.
Combined business and I think as a given the size of merchant organization. We're operating today, there's room for us to have a wholesale business I don't know that we'll continue to try to grow it perhaps as aggressively as thesis has grown at historically, but certainly I think there is a role for wholesale to play in the overall merchant business, we want to continue to serve the customers and partner.
Is that we have in that channel extraordinarily well as I think we have historically and I think we'll look to maintain that business without putting a lot of resources into boiling water resources towards trying to grow it going forward I think you can be a part of the overall merchant business again without being a core part of where we're deploying reach.
Sources try to grow the business in the future.
Got it thanks, so much.
Thank you.
Our next question comes from Dan Perlin RBC capital markets. Your line is open.
Hi, guys great results.
I guess that a question going back to kind of the original announcement and talking about going to this dual headquarter relationship and I'm. Just wondering as we were pretty clear on the synergy targets I think today, but are you thinking about any opportunity repurchasing.
The second location is that contemplated in the cost synergy further down the road or is there.
Some other use for that long term that we could be thinking about.
No Dan it's Jeff we are dead set on what we said at the time and announcement, which is we're fully committed to dual headquarters in Atlanta, and Columbus, We have 5000 fantastic team members in Columbus, We probably have integrator Atlanta area on a combined basis, a thousand or 12 50. So Columbus is really the heart of the company.
At the end of the day Columbus of course also is the heart of the issuer business for the two companies really don't overlap from a competitive point of view before we did the deal in the first taste, rather that's really more in the merchant segments and we're fully committed what we said.
Columbus is incredibly important part.
The company is today will be going forward and we're very committed to our team members there as well as the communities in which we live in more.
I just wanted to clarify a little bit on the Tces re acceleration and merchant I mean, I know that the company seemed like it was distracted into second quarter, especially around merchant I'm just wondering get it. In addition to other things you mentioned to me that just regained focus.
Coming into this quarter as the deal closed and then you saw better line of sight and so the people that were involved.
You on the T. suicide selling those products just reinvigorated or was there was there a bigger strategy that was kind of being put in place post kind of the second quarter, which was a little bit disappointing.
Yes so.
As it relates to the second quarter, we did have some kind of comp challenges year over year as it relates to kind of just the overall kind of a number for the second quarter I would say.
We have had acceleration kind of as part of the deal.
There, but we're glad to be in a position where that meeting FIA meaningfully accelerated and in Threeq and as Cameron mentioned, we are expecting further acceleration on that a legacy business in Q4.
The only thing I would add to that Dan is we've already lined our go to market leadership teams across our integrated businesses here in the U.S market across our relationship channels in the U.S market a key leaders from teases are now fully integrated into those overall leadership teams in those go to market channels, we feel very good about how we've come together.
There are the go to market motion as a combined company and how the team is executing in the early days of putting those organizations together. So the momentum in the business is clearly there we feel good about the pipeline as I highlighted earlier in the DNA and certainly feel like as we have more opportunity to work together have we have more opportunity to align our product strategies.
Our technology environment in operating environment, Theres, obviously more momentum to continue to build as we look forward to 2020 and beyond.
Thanks, Ed.
Thanks next question comes from Darrin Peller Wolfe Research your line is open.
Hey, Thanks, guys just coming back for Moneytwo thousand 20, it does sound like pricing has been somewhat stable at least on the SMB side, if not actually better.
We actually did here theres still some opportunities on the Tces side that we're let's call it relatively under price.
Companies, enabling software to do more of their own which I guess underscores your strategy of buying in but are you seeing that as well and.
By combining our business when we talk about revenue synergies in the merchant business, it's really across the opportunity to cross sell products and capabilities into our existing collective merchant base is obviously pieces brings us I think some very.
Attractive products in terms of the vital Pos solution, the genius platform and of course, Propay, which ties into the second part of your question as it relates to pay backs and our enhanced capabilities in that channel in the U.S market. So most of the revenue synergies, we expect to derive from combining our two businesses are really around those particular across.
Selling opportunities, bringing payroll into the existing teases based the customers obviously the pay card capabilities that Netspend brings we think provide a very attractive avenue for growth for the payroll business across our existing basic customers. Then of course, bringing some of these solutions to international markets. We've been creates other long term opportunities for revenue enhancing.
Since in the overall merchant business I'll, maybe let Jeff asked.
We won't be able to serve 20 of the top 40 QSR.
And have over 100000, the United States just full stop so I think that was driven strategically less fiveg wet weather payback might do.
And more rather by the means and mode of competition in those businesses means that you need to sell those things only they've reduced to just selling commoditized payments processing at the lowest possible price, which just is not that interesting from from our point of view, it's nice to hear than what you heard the conference is that the trend is coming our way I do think we'll have a slightly different thesis, though on why.
Sure I'm happy to do that it's Jeff So thats, the new initiative Thats called spring by city. So in essence, you can think about as a referral deal that as it relates to use CP specifically, so it's specific to the unified commerce product offering that we've been talking now for probably about a year now specific to multinational customers on an omnichannel basis. So what's so exciting that.
This is obviously number one sees a fantastic partner number two is very smart consumer.
And then the very.
Very sophisticated services so when they look down the landscape an app who's got the very best technology and distribution capability on an omni channel basis and in the markets. They care about we're very fortunate to be in a position that they selected US I think you should think about it as.
In an area Thats high value add very difficult to service for their most important largest most complicated multinational customers.
Geographies bolt virtual and physical that's something that we're very fortunate to be in that position to provide to city as part of this spring initiative. So I think that just as further validation.
The exceptionality of our.
Technologies, particularly in one of the most competitive markets that you can have which is ecommerce and omni channel business.
That's great. Thanks, guys.
Thank there.
Ladies down this concludes today's conference call. Thank you for participating you may now disconnect.