Q4 2019 Earnings Call
This time, all participants are listen only mode.
They do open Alaska question and answers.
Sure Chris This is doing.
Please press Star then zero.
Today's conference call will be recorded.
At this time, let's turn the call somebody else Senior Vice President Investor Relations when he's got please go ahead.
Good morning, and welcome to global payments fourth quarter and for your 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 Sep filings, including our most recent 10-K and any subsequent filings these risks and uncertainties could cause actual results to differ materially.
We caution you not to place undue reliance on these days.
Forward looking statements during this call speak only as of the date of this call and we undertake no obligation to update.
Another comment made refer to non-GAAP financial measures such as adjusted net revenue I guess your operating margin and adjusted earnings per share, which we believe are more reflective of our ongoing performing.
For a full reconciliation of these and other non-GAAP financial measure and that's comparable GAAP measure in accordance with that BP regulated. 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 any investor relations area of our website at <unk>.
You got global payments Inc. dotcom.
Joining me on the call our Jack flown CEO, Cameron Bready, President and COO and Paul <unk> Senior Executive Vice President and CFO now I'll turn the call overdone.
Thanks, Wendy we exceeded our expectations in 2019, while delivering one of the finest strategic operational and financial results in our history, our transformational merger with Tces redefined the industry landscape in our distinctive focused on software partners known omni channel businesses and faster growth markets.
That's driven industry, leading performance and generate significant competitive wins over the last 12 months further validating our pure play payments model.
For the full year, we generated strong revenue growth achieved meaningful operating leverage and grew adjusted earnings per share 20%.
We also processed in excess of 56 billion transactions across our businesses highlighting our significant scale.
These outstanding results were achieved while simultaneously executing in our partnership with Jesus.
Largest merger in our history.
I'm extremely proud of our 24000 team members worldwide, who made it all possible.
We ended at 29 team by accelerating performance in the fourth quarter and carrying strong momentum into 2020.
Exactly as we said we would do.
A few metrics.
During the peak holiday period, we processed more than 7 billion transactions the high single digit increase year on year, Despite a shorter calendar season.
Results provide us with confidence to now raise our estimate for annual run rate expense synergies from the merger to $350 million within three years. The second time, we've increased our expectations in as many quarters.
Finally, we delivered the highest adjusted earnings per share growth rate in the fourth quarter that when you generated all you're setting us up nicely for ongoing growth in 20 Twond.
Let's review our business performance by segment.
Merchant solutions, which now represents 65% of our company.
Made substantial progress aligning go to market strategies and our senior leadership team is in place for the consolidated business.
Milestones in the quarter included.
Combining our respective technology enabled and relationship like Salesforce is.
Rebranding Arkon mine integrated payments business as global payments integrated.
Receiving recognition from J.D. power for providing an outstanding customer service experience with our call center support making us the first payments technology company to be so recognize.
And re signing agreements with 15 of legacy pieces is 50 largest Ais b customers since closing murder.
Our integrated business is unmatched breadth, serving more than 4000 I.S.P. partners across our 70 vertical markets.
We continue to have a robust pipeline of new partners. Following a record year for Openedge in terms of partner production in 20 Nike.
Positioning this business well for future growth.
We also expect to begin realizing synergy benefits as we introduce genius to the Openedge ecosystem. This year and provide Tces partners International access beginning with Canada.
As for own software portfolio, we delivered strong revenue growth for the fourth quarter and full year as we leveraged our distribution and payments capabilities to scale our solutions in their respective vertical markets.
For example, zunil generate revenue growth well into double digits and 29 team and is seeing strong demand for its cloud based point of sale software solution, which is currently in production in 400 locations.
We have high expectations bar restaurant business in 2020 with continued rollout of Zunil at the enterprise level.
The ongoing success of Harlan restaurant in a small to mid market.
On the expected substantial rollout of our new digital outdoor menu boards of course thousands of franchises in North America.
Our campus solutions business.
So executed its largest contract to date outside the United States, signing a new partnership with Concordia University in Quebec.
Further we ended the year, having doubled the annualized recurring revenue from our cloud based analytics and customer engagement platform.
Regarding our omni channel businesses, we successfully executed the rollout of our unified Commerce platform or you CP in the United Kingdom in the fourth quarter.
Physician global payments to seamlessly combined the virtual and physical world to sort of complex merchant needs.
You see P is now live in United States, United Kingdom, Canada in Asia Pacific.
We're also making great strides in our partnership with Citi software payment acceptance services switch multinational banking clients on an omni channel basis.
In December we activated city bands in the United States, We launched pilot production this quarter with the UK, Canada in Continental Europe to begin in the second quarter.
Going forward, we expect to leverage our extensive network a financial institution relationships significantly enhanced through our partnership with Jesus.
Cross sell our best in class you CP solutions.
We're also focused on the immediate opportunity we have to enhance the omni channel experience for all tces customers with our leading single Apiay solution and we'll buy capabilities.
Turning to our relationship led business, we have aligned our distribution channels and are now operating one combined salesforce under the Heartland model.
As one use case, we're pleased to have significantly expanded our relationship with a large enterprise customers. A direct result, the breadth and depth of our combined products and services.
By pairing propay with our existing functionality, we were able to deliver a distinctive customized solution said to meet the unique needs of his key partner.
We also ended the year with our two strongest sales productivity months supports our distribution channels and delivered solid double digit growth in payroll new sales for the quarter as we benefit from the ongoing rollout of our cloud based platform.
Our merchant businesses outside the United States continue to experience strong momentum.
We successfully closed the acquisition of days, our Dan's merchant portfolio at the end of December.
And the integration is proceeding as planned.
Leave referrals will commence later this quarter and we will begin converting existing customers score platform at the same time.
In Europe, we outperformed in the UK once again, despite ongoing weakness the macro consumer spending trends with new UK merchant sales, increasing well into the double digits.
We also continue to drive terrific results in Central Europe, with Arista and in Spain, with Asia and look forward to further expanding our partnerships with these two leading financial institutions, particularly with the breadth of product offerings, we now have with Jesus.
In Asia Pacific, Our omni channel business is accelerate growth significantly in the quarter.
Notwithstanding ongoing impact on the rights in Hong Kong.
Our central Education software business in Australia also had terrific performance. It is poised for more outstanding growth in 2020, despite the terrible fires that have been ongoing in that country.
Turning to our issuer solutions segment, which represents roughly 25% of art to mine revenue.
We achieved record revenues operating income and transactions for both the quarter and the full year.
We also ended the year at an all time high number of accounts on file.
We renewed existing contracts with several large customers, including one of the biggest commercial card issuers in the United States for both commercial and government markets.
As well its capital one and Rogers that.
And we also executed and managed services agreement for another existing top 20 clients.
We signed several new customers, including a new processing partnership with noted help.
And internationally, we signed a managed services agreement for nationwide debit and amendment with Virgin money to move the Clydesdale York Shire Bank credit book to Tces.
The issue where business successfully converted the capital one Walmart portfolio in October among others throughout the quarter.
We also had or enterprise license business in the United Kingdom with private bank see Horan CTO go live with Prime hosting an application management services.
This is one of several new business models with Prime as a service part of our initiative to further expand our prime proposition.
As mentioned previously we intend to bring or prime business into new markets on a cloud SaaS basis as part of our issuer modernization program.
We continue to maintain a healthy conversion pipeline going into the new year in our prospects for newish, where customers remain robust.
In summary, sure business.
Is well positioned for continued growth in 2020 and beyond.
Finally, our business and consumer solutions segment, which now represents roughly 10% of our business finished the year with growth accelerating from the third quarter.
Well execution remains strong.
And we are already making significant strides our differentiated strategy.
Specifically, we recently signed an agreement generate new drug joint venture with I should bank owned money to pay.
Which provides prepaid payment solutions to consumers corporations governments and other institutions across multiple markets in Europe.
This transaction represents an important first step in our effort to expand and diversify our business into new international markets.
The digitization of payments remains an ongoing strategic area focus and we completed the integration of our payment solution into the Samsung pay digital wallet in the fourth quarter.
New account registrations exceeding our initial expectations.
We are also executing against a large and rapidly growing b to b opportunity set and we had several notable new wins this quarter, including multi year, new pay card relationships with a top 25 consumer bank.
Additionally, based on the positive results of our mid 2019 pilot, we were expanding our distribution to pay Pal branded prepaid card.
All of Walmarts U.S. locations.
Looking ahead.
The strong momentum we drove in 2019 is set to continue in 2020.
As we execute on our pure play strategy and benefit from the realization of the meaningful revenue and cost synergies from our partnership with Jesus.
In addition to the 350 million of expense synergies, we now expect to realize over the next three years. We also continue to have line of sight toward achieving our goal to deliver at least $125 million a valuable run rate revenue benefits over the same period.
As I've already mentioned, our efforts to align our merchant organizations and go to market strategy in the U.S. are complete.
And we expect to begin realizing revenue synergies in 2020.
As we ramp to our target over the next three years so.
Specifically, we have now enable tces genius customer engagement platform support payment facilitation through propane.
With this new capability.
Partners across our businesses will be able to improve merchant onboarding and create complex payment solutions.
I went to the needs of innovative and faster growing markets.
Further we are launching bio Pos in the Heartland distribution channel next month and expect to deliver it to Canada later this year.
We are developing self select capabilities for heartland accelerating our plans to enable this new distribution channel by leveraging the capabilities are problematic.
Additionally, we anticipate to begin cross selling carbon payroll into the legacy pieces merchant base and the second quarter.
We're also integrating netspend pay card solution into our payroll platform significantly enhancing our value proposition in key vertical markets, including restaurants and hospitality.
Moreover, we are executing against development roadmaps deliver products like genius in Propay, two additional geographies internationally and enable tces his legacy customers outside of the United States.
So that end, we are already supporting legacy pieces integrator partners in Canada.
Later this year, we expect to launch our analytics and customer engagement platform into the legacy Tcs portfolio.
We also anticipate making our own software businesses available to Tces merchants.
While we execute on these cross selling initiatives to begin generating near term revenue enhancements.
We continue to engage in discussions with bank partners across three continents on issuer processing opportunities for Jesus.
We remain optimistic regarding our ability to extend existing relationships by marrying or issuer processing with or acquiring capabilities globally to optimize transaction flows.
Of course these opportunities are in addition to core merger referral relationship possibilities.
From existing Tcss, fives, and private label retailers to global payments.
Lastly, we were actively working on expanding Netspend, BB and BDC capabilities into our existing businesses.
In addition to the pay card solution I previously highlighted we are also playing to leverage that's been in our gaming business and integrate Netspend b to B solution as a funding option for our instant deposit product.
Oh. This is in addition to our newly announced joint venture and money to pay with our partners a cruise ship Bank. A clear example of our ability to generate synergies through our distinctive relationships Paul.
Thanks, Jeff.
To reiterate how pleased we are two it delivered outstanding financial results that exceeded our expectations for both the fourth quarter and before year end 2019.
Notably we accomplish this also executing on the largest merger and our history and we're incredibly proud of all that we have already achieved together in just a few short months.
As we mentioned on our last earnings call based on feedback from the FCC starting with this quarter. We're now reporting on an adjusted net revenue basis. Excluding the addition of network fees, we filed combined supplemental financials for the first three quarters of 2019 with this convention in mid January.
The combined supplemental financial also reflected changes to our segment structure now merchant solutions issuer solutions and business and consumer solutions, which aligns with how we operate the company beginning in the fourth quarter.
With that backdrop, we delivered adjusted net revenue of 4.59 billion for the full year, reflecting growth of 48% over 2018.
For compare ability of this performance to the prior convention guidance range. We gave on our last call you would need to count an additional 1.05 billion for the year that was previously included in our non-GAAP guidance that included network fees.
The result would be above the high end of the previous 5.60 to 5.63 billion guidance range.
It is worth reminding you that the change in our non-GAAP revenue Convention has no impact on operating income net income our earnings per share, but does serve to increase our overall margin profile.
Turning to margins for 2019, we reported adjusted operating margin of 39.7%, which substantially exceeded our expectations and reflects our new adjusted net revenue convention.
On our last call. We mentioned, we expected adjusted operating margin for the full year to expand by up to 40 basis points on our prior convention and on a comparable basis, we exceeded that result, with an expansion of approximately 70 basis points.
This better than expected result was in part driven by the stronger topline performance solid execution across our businesses and expense synergy benefits.
For the full year, we reported adjusted earnings per share up $6 in 22 cents, a 20% increase over 2018 and ahead of the top end of our prior guidance range of $6 in 12 cents to $6 in 20 cents. We're delighted with the performance we were able to deliver for 2019.
Being as we continue to execute on our differentiated pure play payment strategy.
Moving to the fourth quarter total adjusted net revenue was 1.8 billion, a 120% increase over the fourth quarter of 2018.
Adjusted operating margin was 38.3% and adjusted earnings per share was $1.62, an increase of 22% compared to the fourth quarter of 2018, which is the highest growth rate we delivered all year.
Taking a closer look at our performance by segment merchant solutions, which combined the legacy global payments and Tces merchant businesses delivered adjusted net revenues of 1.16 billion and adjusted operating margin of 45% for the fourth quarter.
In North America, which accounts for approximately 80% merchant segment revenue, we continue to see strong momentum driven by our technology enabled software driven strategy.
Our combined integrated and vertical markets businesses delivered consistent low double digit growth and we again delivered high single digit growth in our relationship led channel.
Our Canadian business grew in the mid single digits for the quarter slightly above our low single digit target on the back of a strong holiday season.
We continue to have good momentum in Canada, and our course pleased to have closed the acquisition of the days yard and merchant portfolio at the end of December.
Our merchant business in Europe, which accounts for roughly 15% of segment revenue also posted another solid quarter, achieving high single digit constant currency growth.
This is consistent with our long term target for the region, despite a challenging macro environment UK.
Recall that our UK merchant business now represents nearly 4% accompany revenue post our merger.
Our businesses in Spain, Central Europe, and Russia, all grew double digits in the quarter.
Our Asian merchant business, which accounts for roughly 5% of segment revenue continued to deliver double digit constant currency growth, excluding Hong Kong.
Notably our Omnichannel business in Asia Pac grew nearly 30% driven both by a shift to E commerce in Hong Kong and several new customer wins in the region this quarter.
Moving to issuer solutions, we delivered a record 459 billion and adjusted net revenue for the fourth quarter, a little more than 3.5% wrote on an organic constant currency basis from the prior year and an acceleration in the sequential quarterly growth rate from the third quarter, which is consistent.
With our expectations.
As expected the issue or growth acceleration resulted from several significant conversions and a strong peak holiday season.
Importantly, underlying trends in the issuer business continued to be consistent with our long term outlook for mid single digit growth.
We also added 20 million accounts on file during the quarter.
Roughly double the number of accounts added in each of the prior three quarters.
As Jeff mentioned this allowed us to end the year at a record number of total traditional accounts on file.
Reported adjusted segment operating margin for the assure business was 40.2%.
Finally, our business in consumer solutions segment delivered adjusted net revenue of 200 million, which is essentially flat with prior year results and this is despite continued headwinds from the effect of the CFPB prepaid rule.
This performance represented a meaningful acceleration sequentially from the third quarter and is consistent with our commentary on the last call.
Adjusted operating margin for the quarter was 21.5%.
We continue to be pleased by the performance of our D.A. products and realized improving trends in gross dollar volume while the team had a number of significant new contract wins and successfully completed the integration with Samsung pay.
Also want to express my excitement regarding our agreement to purchase 51% of money to pay in partnership with Passion Bank.
Not only is this an important milestone in our strategic plan to expand into new markets, but it serves as another example of how we continue to broaden our relationships with leading financial institutions in faster growth regions.
We expect close money to pay mid year.
We said at the time of the merger that our international footprint would allow us to expand this business outside the United States and our announcement today helps us to realize the potential that we saw at the time of the merger.
The solid operating performance, we delivered across all our businesses allowed us to continued to generate significant adjusted free cash flow as we converted at a rate equal to roughly 100% of adjusted earnings for the quarter.
On the investment side, we reinvested approximately 107 million back into the business in Capex to develop new product and technology solutions invested $300 million to complete the purchase of the days, our den merchant portfolio in Canada, and repurchased roughly 520000 of our share.
Shares for approximately $95 million.
At the ended the quarter pro forma leverage was at roughly 2.6 times basically flat to where we ended last quarter inclusive of these incremental investments and some deleveraging.
Our strong balance sheet, an impressive free cash flow generation positions, the new global payments with significant capacity to pursue our balanced capital allocation strategy going forward, while maintaining our investment grade rated.
Turning to our outlook for 2020, we expect adjusted net revenue to range from 7.68 billion to 7.75 billion, reflecting growth of 67% to 69% over 2019.
This represents combined growth of 8% to 9%.
For comparability of this guidance range to our prior convention that includes network fees, you would need to count an additional 1.6 billion.
On the margin outlook for next year, we expect adjusted operating margin to expand by up to 250 basis points on a combined basis as we benefit from the natural operating leverage in our business and expense synergy actions on a reported basis, we expect adjusted operating margin expansion of up to 70.
Five basis points.
We expect net interest expense of just north of 300 million for the year and we are forecasting our effective tax rate to be in the range of 21% to 22% in between the legacy historical rates of global and Tces Standalone companies.
We expect our capital expenditures to be in the high 500 million to low 600 million range with a combination of growth investments and some onetime capital costs related to the integration.
And finally, you will notice that we have broken out the equity and income line from our equity method investments, which is primarily made up of our approximate 45% ownership and cup data and we currently expect this line to mirror the fourth quarter annualized run rate in 2020, putting.
It all together, we expect adjusted earnings per share in a range of $7.43 to $7.62, reflecting growth of 20% to 23% over 2019.
Given our typical seasonality and our expectation that revenue and expense synergy benefits will naturally build as we go through 2020, we expect adjusted net revenue growth and adjusted earnings per share growth to be higher in the second half relative to the first half of the year.
As is well known we will benefit from the lapping of the CFPB impact in our business and consumer solutions segments, beginning in the second quarter and expect growth in the issuer solutions segment to normalize in the second half of the year. After we anniversary the effect of the in sourcing of a singer.
Oh product I, one client that we have discussed previously.
Given these two previously discussed items, we expect growth in these two businesses in the first quarter to be roughly consistent with the year over year quarterly growth of what we saw in the fourth quarter and accelerate thereafter.
Finally, we expect the ongoing strong growth of our merchant business as we exited 2019 to continue throughout 2020.
In closing we couldn't be more pleased with the significant financial and strategic progress. We've made in 2019 and how we're positioned to perform as we build on our momentum in 2020 and with that I'll turn it back over to Jeff.
Thanks, Paul.
The outlook for our businesses as bright as we enter the next decade as the leading provider of integrated payment solutions owned software and omni channel capabilities globally in the most attractive markets are early integration efforts are well underway and we are delighted at this stage to be that position to raise our expectations for expense synergy.
For the second time in as many quarters.
Hi, exceeding our expectations for the fourth quarter any year, we exited 2019 with substantial momentum across our businesses a strong investment grade balance sheet and significant opportunities to continue to accelerate growth and extend our competitive mount well into the future winning.
Before we begin our question and answer session I'd like to ask everyone to limit their questions to one with one follow up to accommodate everyone in the queue. Thank you operator, we will now go to question.
Thank you, ladies and gentlemen, I wanted to ask a question. Please press star one on your Touchstone telephone.
To withdraw your question please press the pound King.
Please standby while the compound you many roster.
Our first question comes from Dave Koning of Baird. Your line is open.
Yeah, Hey, guys congrats on a great year.
Dave.
Yeah, and I guess first of all just because it isn't new revenue kind of mechanism that you've given to us what what was merchant growth organic constant currency growth in Q4 and then.
It should that immediately kind of accelerate into Q1 and in through the year, just given that the synergies coming on.
Yes, Dave This is Paul and Cameron may want to add but we saw high single digit organic growth on the merchant segment in the fourth quarter and yes, we're expecting.
That kind of growth rates to continue and accelerate throughout the year next year.
Yes, David Scare me the only thing I would add to that is remember in Q4, we were impacted a little bit by the Hong Kong situation that probably was about appointed drag on that growth as we enter 2020, we see really good momentum in a in the merchant business and as we begin to generate revenue synergies across emerging business as we get towards the back half of two.
As of end 20, I would expect that number to be close to double digits.
Okay, great to end and secondly, your leverage isn't a really good spot even after buying that the Canadian asset should it is it in guidance basically to assume that you use the full cash flow the year to either make use of the Spanish acquisition coming up now or hand, or buybacks kind of using the full amount of cash.
Or would that be upside if you do that.
Yes, so Dave obviously, we're thrilled to be in position that ran from a capital structure standpoint, and as we said in our prepared remarks, we do have good capacity to be able to do the kind of strategic things were wanting to do to continue the growth of the business. Obviously in our guidance, we have kind of capital deployment assumptions around various.
Kind of scenarios and so you'll see us throughout the year do a combination of things like we did in the fourth quarter, where there'll be some acquisitions there'll be some de leveraging there'll be some share repurchase and that is kind of baked into the overall guide.
Okay, great. Thanks, guys.
Okay.
Thank you.
Our next question comes from Ashwin Shirvaikar of Citigroup. Your line is open.
Thanks.
Good morning folks congratulations on the quarter appreciate the commentary that provided the bridge to pad outlook and the prior to the F. reporting.
[music].
I wanted just ask about about the underlying say macro assumptions here in your outlook.
I know you do tend to set up.
So you can do and against the initiative guide.
But to what extent have you already taken into account.
Conditions in Asia UK.
It is easy money to pay piece already in there if you could break that out in terms of impact.
Ashwin its Jeff I'll start on as Cameron to join in on that on the back part of your question as well I would say that consumers very healthy I think as Paul alluded to in his prepared remarks, we saw a continuing health through the fourth quarter and we expect that momentum to continue into out into 2020 as I mentioned.
In the prepared comments, we saw record a peak volumes for US 7 billion transactions during peak period up high single digits, a year over year, despite the shorter holiday period.
And I think our confidence in our guidance and kind of where we are as a company reflects the underlying health of the consumer. We also pointed out, particularly impulse commentary the strength of our business in Europe. We continue to be pleased with how we're outperforming in the United Kingdom. Despite a more difficult macro environment, there, but I would say, it's probably been six or seven months of that.
Outperformance in the UK and of course, we remain very pleased with Ursa in Continental Europe and kaisha in in Spain camera alluded. This.
This in response to Dave's question minute ago.
But we do expect in the back half of 20, our Asia Pacific business relative to the Hong Kong Ryan that we saw in the back half of 19.
Q2, improve so certainly a we've been reporting that X Hong Kong last number quarters that number's been double digits, we certainly expect to lap that in in 2020 and that would certainly be.
And a an improvement over where we worse I would say ashwin, we think the consumers pretty healthy.
I think our expectation tend to this year.
Assume that continued momentum that we had really coming out last year that we see coming into into this year. So we're very optimistic about.
Ability to continue to drive and Hansgrohe Cameron you want to add any yeah. This that maybe just a couple points Ashwin North America, which is 80% of the merchant business. Obviously to just point I think remains very healthy we have very strong momentum across both volume transactions and obviously revenue growth in the North American business heading into 2020 feel good about.
The outlook just at the macro matter for the balance of the year you asked about UK, specifically I think we envision an environment relatively similar to what was on the back half in 2019, they continue to muddle through the Brexit process, obviously as you get closer to the ended the year and the brings it becomes more of a quote unquote reality on the ground it'll we'll see.
Ill.
I will trend continue to hold up but as we sit here today I think our outlook is they'll continue to maintain a reasonably stable environment, albeit not a growth environment. We've been benefiting by very strong sales performance in the UK, which has help offset what's been a obviously a slow to know growth macro environment in that.
Market and of course age is a little bit of a wildcard I would note the greater China is less than 2% of our combined revenues as a company there will be some impact on the business from the Corona virus outbreak across the region would or early to tell how much of an impact that will be but given the relatively small size of that.
Given global payments as a whole, we certainly think we'll be able to absorb that and move through and as Jeff highlighted as you get to the back half of the year, assuming things settle out from accretive Irish standpoint, we do expect Asia to return to more normalized growth in that low double digit range.
As we lap the Hong Kong protest impact from last year and Ashwin its Jeff again on money to pay on your question. There. It's important strategically to us because we think part of a differentiated strategy involves bringing our our netspend business into lesser penetrated at more attractive underlying markets outside the United States, which imports.
But it is immaterial to us as it relates to any financial.
Revenue or other impact to the company I just declared.
Got it and then.
Strategically do you mean and over time to do the same sort of.
Whittling down with the.
You know Tcs ISO.
Business that that that you did.
From a pricing type standpoint.
Due to the GPN business or what's the intent data means that in your numbers.
Yeah, I would say the intent as a combined business ashland's would've been different than globals historical stands around the wholesale channel today wholesale represents about 8% of the merchant business.
So little bit less than that obviously on a consolidated basis for global payments as a whole our view on that is we're very happy to stay in that business around that same level.
We're not actively looking to exit the business, we have very good partners in that business that we want to continue to serve well.
We'll continue to support and we'll continue to renew we're not going to go out and aggressively seek to sign new sort of wholesale customers through that channel. We may sign a few new and select circumstances, but I think by and large our strategies continue to maintain that business largely as it is it's roughly a flattish kind of growth business.
For us going forward and we'll continue to really focus most of our energy around our direct distribution channels of which we have a.
What drove good opportunities clearly in the U.S market as a combined business that Jeff talked about in his script.
Got it thank you guys.
Thanks.
Thank you. Our next question comes from 10 Jen Wong Your line is open.
Hey, Thanks, so much good morning, I just some question for you just on industry consolidations still going on around you and all of us So.
Appetite to do a deal has that changed in any way and I'm curious if the type of asset also that you might consider is change as well, yes tend to Jeff I would say it as we said before I think ongoing consolidation. We think it's something that provides further validation really the strategy that we've had and have adopted over out over many.
Here, So I know that surprise, it's definitely certainly thought heavily heavily about I think just reinforces that competitive position ran as Paul mentioned, a few minutes ago, I think given our balance sheet and our leverage levels coming out of the a partnership with teased US I think we're as well position as we ever had been.
To think about more transactions I think the gating item for US really has been how do we feel about the integration.
Without with pieces.
I'd say as you've heard US now in this call. It also last quarter, having raised our estimates twice on the expense side, obviously can just for yourself the quality operating performance things very good today and our guidance thing is great. I think we feel really good about kind of where we are heading into a into 2020. So our pipeline as whole it's fall off a variety of types of transactions.
Other large are naturally large consolidations software related businesses et cetera, as always we're pursuing everything to see.
Where we think the light angle is for shareholder value creation, but I would say learned as good a position today as we as we really have in February one today in terms of our appetite to pursue more transactions.
Okay. Good then just.
Maybe just a quick follow up just what the interchange adjustments in the U.S. I'm curious if there's any impact there and maybe just comment on pricing.
Overall on the merchant side and the any change there. Thanks.
Yeah, Jeff I'll start off cavern object comment more detail in the merchant side, but you know twice a year at least twice the usually they for October as you know the networks I change I interchange related pricing pricing, if not more often than that so that's something we expect a in our management of business. That's true globally for us So really that's not a surprise as we've said before.
For any change in interchange pricing is good for us as a company we prefer of course it to go down a at the margin because that's better for our customers our merchants, but again today.
We provide value added services and the more complexity in the more value. We can provide we just better for us.
Over time, I would say as it relates to.
Adjustments in pricing before I turn it over to Cameron you know any pricing action that we would ever take place to state as to when he was running the company. It's a very efficient competitive market will be competed away over time at the yesterday and those are obviously very transparent so I.
I think this is kind of nothing new for us it's something we see all the time in our markets.
Around the world. So as I mentioned this all good news in the scheme of things we of course prefer prices to our customers to come down, but it's not something that's unexpected from us and it's obviously something we're very well prepared to lot to accommodate carry much older than on pricing trends in merchant, yeah, I would say pricing trends kind of across the board a relatively stable I.
I think we continue to see a strong market for our offerings that I think our motto of providing what we believed to be a superior level of products service capability to our customers allows us to get paid fairly for delivering those services and to Jeff's point earlier, our ability to continue to drive more value added services and deliver more innovation.
It is to our product is only providing more of a tailwind for us to be able to maintain a stable pricing environment across the core part of the processing solutions that we deliver so I think we feel very good about how we're positioned in the market and I think the overall pricing behavior in the market continues to be relatively rational.
We're not seeing a lot of sort of irrational behavior in the marketplace, which is certainly a comforting as well and just lastly on jeffs point as it relates to changes in interchanges game fees that we see these all the time. This is a part of running the business. We're not in the business of absorbing those and obviously anytime visa or mastercard or any of the network make a change we have worked that way.
We have to do to accommodate that and to be able to pass out along to our customers and obviously, we look to do that in a very efficient way, but obviously, we're not in the business of absorbing that in our in our different businesses around the globe. So it's just part of running the business is getting more headlines this year, but it's something that we see obviously every single year.
Terrific. Thank you forgot that.
Thanks.
Thank you. Our next question comes from Steven Kwok of KBW. Your line is open.
Great. Thanks, guys good quarter and thanks for taking my questions. Just the first one was just around the 25 million of incremental cost synergies can you elaborate on around like where that's coming from and if there is upside potential upside and also a follow up around but the hundred 25 million of revenue in Threeq 50, a cost synergies how much is.
That is embedded within your 2020 guidance. Thanks.
Yes, Stephen is camera and good morning, I'll start on the first part and maybe ask Paul to jump in on that specific guidance. That's no longer my business [laughter] I'm on the first part I would say broadly across really operating environments and technology I think most of the corporate overhead savings in public company expenses, we expect.
Good to realize I think we remain very much on track with our initial estimates there I think as we continue to line operating environments. We continue to work through our technology architecture and make decisions about what we want future state technology.
Environment to be for the merchant business, specifically, obviously I think we've been able to five more opportunities to rationalize expenses and improve upon the original estimates that we had for cost synergies from the transaction. So having just up them today. Another 25, it's a little premature to talk about future upside to that new raise number but obviously, we're working very.
Hard to make sure that we deliver.
On the commitments that we've already made and obviously to the extent, where we can do better than that we will the last point I would make on that and I would more called as a reminder, relative to what we talked about when we announced the transactions our synergies had been designed to ensure that we do a couple of things one is positioned the business for success long term to realize the value that we.
So on the transaction combining two companies and three most importantly, not disrupt the momentum in the business. So we're very careful as we're making these decisions that we don't.
Disrupt the strong momentum in the strong growth, we're seeing in the merchant business in particular, so we're very cautious as we think about taking costs out of the business to ensure that we don't do that we also absolutely want to position the business for long term sort of margin expansion. So we're going to take the actions are going to take over the next three years, but I think even beyond that we'll have a lot of.
Opportunities continue to scale the business drive.
Sustainable margin expansion for the long term and that's an important part of our thesis as well called out in total in the second part sure and Stephen on the on the guidance and how much of the.
Synergy is built into the guidance on the expense side you heard us on the last call talk about a $100 million that we've already actioned on the expense item fully obviously that fully baked into the guidance and we have obviously actions more than that are going to enter going to continue to action throughout the year additional items and so those will be coming in as.
The year progresses. So 100 is fully baked in and then there's some more that's coming in throughout the year on the revenue side. We have said really from the start that a lot of the revenue synergies are really more of a 2021 and so we will as we've mentioned earlier on the merchant side, we will start seeing some in the back half a year on the revenue side.
It is embedded in but the significant items on the revenue synergy side or have more of a longer tail too low.
Got it and just a quick follow up around the unified Commerce platform.
What's the current uptake among your customers and then or the other geographies that you can expand the product into thanks.
Stephen It's Jeff I'll take the second question first is now worldwide. So I'm sure they're different geographies. We can go in because we're currently physically and 38 countries as a combined company in cross border and 101 hundred not all the countries, but in terms of global payments and where we sit today as a copy you see if he is alive and every one of them. So I would say worldwide, we're very pleased where the footprint isn't.
And as a volume our that's by far the vast vast majority of where volumes are transacted around the world. So we're in the right markets in terms of customer interaction Lenny mentioned this on on the previous call I'll refer running with a number of customer say, particularly overseas on CP in the feedback has been really good I think you mentioned.
Let me a time in the last fall and number of those wins.
Those kinds of companies are being booked into and booked online into GCP when a lot. When they go lives. The business is up and running so I'd say, we feel very good about kind of where we really are today, it's selling very well competitively we had some real bright spots this past quarter, which just to point out a few of them.
And in particular in Spain, and Russia in Canada in.
In terms of our E Commerce, Paul mentioned in his prepared remarks, our omni channel business and not in Asia Pacific, which grew 30% in fourth quarter year over here. So clearly I think any omni channel business, where exactly where we want to be and use it is a big part of that story.
Great. Thanks for taking my questions.
Thanks, David.
Thank you. Our next question comes from Glenn Greene of Oppenheimer. Your line is open.
Thank you good morning persist going back to the.
Maybe for Jeff the revenue synergy potential obviously sort of raise the cost synergy goal and the revenue synergy aligned where it was before but maybe a little bit more color sort of the early conversations with clients, putting combined solutions together just sort of the update on the last three months or what you're seeing.
Yeah, Glenn as Jeff I'll start and I'll ask Cameron to add to add to the we feel really good as I said in his prepared remarks about where we are on the on the revenue synergies part of the reason, we didnt increase them now that Paul mentioned just in response to Stephen's question is by nature does tend to be long dated so whereas expense synergies as camera due to the detail our kind of in front of us right now and easier to.
Quantify time and see obviously revenue takes time to kind of come in so that really get to that the 125 and how we're thinking about it but I would say on as it relates that I mentioned my prepared remarks, we're starting to book those this year. So I gave a few examples that selling vital Pos into the Harbin base I think we said in the call is going to be in the second quarter, which obviously is unlike fixed.
Lease so that near dated selling to pay card into the from my Netspend into the heartland into the heart of a base also I think tied to the second quarter toward the back half of the year selling the legacy easy on global payments I didn't analytics and customer engagement platform into the pieces base. So those are things that will be.
We.
Realized throughout the year, we also made significant progress Len.
I will call transaction optimization.
Which is finding ways to marry as I mentioned my prepared remarks, the issuing and acquiring benefits. We have active ongoing discussions with multiple large corporations, primarily outside the United States in direct in Canada about ways to match issuing and acquiring and to provide more efficiencies in terms of customer engagement costs.
Data analytics and reporting together, we made a ton of progress on that since our last call in October but of course, those two really long dated because that will take time and I will take time to do I'd also say as I mentioned my prepared remarks global payments acquiring outside the United States, where pieces did not have a business and merchant before the merger.
Also is making a lot heavily in signing new customers on competitive takeaways from other providers because pieces was not in that business overseas. So I would say Glenn we feel very confident have Caroline insight into the 125 I wanted to revisit upping that India in the future, but those are long dated do take some time that plays into our thinking as to what that.
Yes.
And then a follow up question just maybe for Paul at a high level sort of appreciating the second half skewing issuer and consumer but sort of segment growth and profitability expectations. During calendar 2008 merchant, we still shouldn't be sort of thinking any high single digit ups and can we get back to mid single digits.
You know it's sure we're on a couple on your business or is that too optimistic.
Glenn that's that's you're thinking about it right is the on the merchant side, you know the longer term kind of growth rates are still intact from a a go forward standpoint, as I said those kind of progress throughout the year, particularly at some of the synergies come in as we talk about issue. We're obviously, we've still got another quarter and a half of headwind related to this.
One single product deconversion once we anniversary that in the back half of the year, we get back to that strong mid single digit growth.
There and in really in the and the sweet spot of the longer term growth range. There and then on the business and consumer side, obviously for the first quarter. The headwinds still continue for the CFPB, but once we get passed there also a mid single digit kind of story there. So when you blend that together.
Thats the the overall kind of growth.
Underpinning behind the 8% to 9%.
Guidance that we gave and obviously at the beginning of year, we're a little bit lower and at the end of the year, we end up more at the at the higher into the range.
Okay. Thank you.
Excellent.
Thank you. Your next question comes from Darrin Peller of Wolfe Research. Your line is open.
Hey, Thanks, guys. So we just a follow up on the revenue synergies. We have had some feedback from the industry that you guys had some early successes around vital ingenious being I think you mentioned, Jeff being cross sold through the Heartland.
The openedge platforms I, just I'd be curious to hear where you believe you are is it.
Actually whereas in sales process in that now or the or your people actually selling it already is it hasn't been going so far.
What kind of ramp you expect on that.
It seems like a competitive opportunity versus the others that have done well like closures and others and then just curious what the attrition and price points you can get for those versus your current levels.
Yeah, there and it's Kevin I'll start here, and then ask a jeff involving jump in as anything they want to have you're right. We have had some early success, we're rolling vital out through the Heartland distribution channels. We said on the call actually in early March that'll be the launching of it and we do expect that obviously to continue to position are.
You should relationship what changed on us very well competitively in the marketplace. We think vital is a terrific solution.
We think it obviously competes very well for that register replacement part of the Pos market as a specialty Dios solution, we think its capabilities our robust.
And our team is delighted to have the opportunity to sell that we're rolling it out at our Diamond conference. The first week of March and there will be in the market selling it thereafter on the integrated side. We've had really good success, thus far really with genius integrated into the open edge the legacy Openedge environment, we have two new partner wins.
I think we would had a good shot at winning on our own but certainly the combined capabilities of gene is with our integrated solutions put us over the top with two large partners that were very excited about where exchanging contracts now and expect those to be done here shortly and will obviously with the ramp those up as we get into.
The back half of 2020, but very excited about the prospects of being able to leverage genius across the integrated business to drive new wins on that front. The other thing, we're particularly excited about already supporting legacy Tces integrated partners in Canada. So we've already been able to turn that on for them and obviously look to be able to expand that into other markets.
Internationally the teachers historically didnt have the opportunity to do just given the footprint of their merchant business was was in the U.S. and then the last thing I would highlight that we're particularly excited about we've already seen some early early wins coming out of this and Jeff highlighted in his script as well is the ability to leverage the capabilities of propay across both our.
Integrated business as well as our relationship led business has already led to some early success and obviously, we expect to see that ramp over the course of the year.
The second part of your question I would just simply say in this reflects a little bit on the comments I made earlier when we can add more value around the transaction when we can deliver more innovative technological capabilities, whether its genius integrated into our integrated environment or propay being used as a disbursement engine or self select onboarding engine.
Leveraging those capabilities selling vital as the POS solution allows us to add more value to our customers allows us to get paid and continue to be paid barely in appropriately for the level of innovation product service, we're delivering to them. So it creates a nice tailwind and obviously is very important in terms of our ability to continue to drive sustained growth.
And the merchant business at the levels were targeting.
Okay. That's great. Thanks, guys, just quick follow up but Jeff on Netspend during the legacy mess that business consumer, but I mean, just any updated thoughts on the strategic process going forward I mean is it going as well as you would have thought you'd want to keep it in Q cross selling it or do you have any other other thoughts about the business. Thanks.
Yes. There is you have I would say it's exactly in line with their expectations. I think we said that's on the October up all that we expected to see improvement and in fact, we did a flattish in the fourth quarter of course now here in the first quarter as Paul mentioned, we're about to anniversary starting in the second quarter. The CFPB reaction I think we have two strategies that are differentiated for that business. The first is to expand overseas.
These are partnership with patient, which were always looking to extend now in any direction. We can I think successfully positioned that for success heading into the middle of the year as Paul described in the second one is to go deeper into B to B. We mentioned the pay card wins that we've had the top bank over last three times and certainly I would say guaran consistent with our expectation just.
Where the business ought to be but I've also said overtime as it relates to all of our business is not specific to lot to debts that we are here to maximize value for our our shareholders in our stakeholders. So every one of our businesses. These be thought out in that down in that contact that is exactly what we're doing.
Right now with with Neff and so we think we have a differentiated strategy. Obviously, we set those things all the time and if at some point back to change then we'll change with bass.
Okay. Thanks, guys.
Thanks, Dan Thanks.
Thank you. Our next question comes from Jason Kupferberg of Bank of America. Your line is open.
Hey, Thanks, guys. So I just wanted to clarify the 89% growth in 2020 is that is that all organic or does that include the Canada acquisition does it include the headwind.
From wholesale et cetera.
Yeah, Jason So yeah. It is on a combined basis. So it's you know on a like for like basis. We obviously are getting some small benefit as it relates to the day Jarden portfolio, but you know that's relatively small and obviously, there's some other impacts obviously at a better playing through but the way to think about it really is.
This is if you going back to what I said earlier around the components. Each one of the businesses from a fundamental standpoint is growing once we anniversary. These two items in the first quarter are growing at those established kind of long term expectation growth rates and so all the math is kind of 8% to 9% for this year.
Year, the key messages each one of those businesses and you're going see this in the back half of the year are performing exactly in line with those kind of long term established growth rates that we've had for the business.
Okay, and then just as a follow ups can you I think you mentioned that issue where grew 3.5% organic constant currency. In Q4 can you just quantify how much acceleration that represented and then to the extent there were any cost synergies realized in period in Q4, what what those came in at thanks sure.
Yes, So we had about 100 basis points acceleration in issue in the fourth quarter relative to the third quarter on kind of a like for like basis. So is exactly the kind of acceleration that we talked about it on our last call I would say that if you kind of took out the governmental headwind. It also this one product yen you'd kind of layer that on top of battery and a half.
Present, you get squarely back in that mid single digit growth range. We've talked about this business. So that kinda underlies the fundamental growth rate that we look at when we're managing the business as it relates to cost synergies. Yeah. We had a great margin quarter an issue here for the fourth quarter. So we are getting some cost synergies.
In that business just like we are in and throughout the company show you know that business is also positioned for great margin expansion in 2020, which is embedded in the guide.
Thank you.
Thanks, Dan.
Thank you and our last question will come from George Mihalos of Cowen Your line is open.
Hey, Thanks for squeezing me in guys and appreciate all the color.
Maybe just to point of clarification, if we look at the fourth quarter 19 performance Firstly on a on a year over year pro forma basis, which was the growth rate roughly 7% and then you're talking about the 7% accelerating to eight to nine in in 2020, and then if we sort of disaggregate the merchant solutions business to the extent we can buy.
A legacy global and thesis is the right way to think about it that legacy global grew in the low double digits and tces sort of in in the mid single digits.
Yes, so I'll start and then Cameron you may want to add or as it relates to the to the overall kind of merchant growth. So as it relates to fourth quarter, yet George at about the right range that kinda seven percentage is pretty close on a pure kind of apples to apples basis.
And so you would also want to think about that growth rate being somewhat similar just like we said in our prepared remarks for the first quarter and then accelerating meaningfully throughout the year I'd. Just say that you know that is a high single digit growth rate for the merchant business and then these two kind of a headwind growth rates as it real.
Rates to the to the other two businesses.
As it relates to kind of margin expansion also we did get good margin expansion in the fourth quarter on an apples to apples basis, and I said in our prepared remarks, we exceeded our margin expectation substantially in the fourth quarter and that gives us nice tailwind for the annual margin expansion that we expect you don't want to go forward basis for 2020.
Kevin do you want to give color on the legacy.
Merchant side, Yeah, Georges Cameron. So obviously, we've combined the business. So it's hard to get a very clear definitive view of what legacy global was versus legacy Jesus, but what I would say is if you look at the legacy global business, obviously on a constant currency basis, excluding Hong Kong, which was about a point of headwind we were in that low double digit growth range, which.
Very consistent with what we saw throughout the course of 2019, So I would just say.
More of the same really on the legacy global side with Hong Kong being a little bit of a headwind in the quarter as we've talked about previously on the pieces side I think they were in that kind of high single digit range accelerating from the third order as we indicated they would.
So when you blend that together I think you get a high single digit rate for the merchant business, which is the jumping off point heading into 2020, which we feel very good about and then accelerating through the course of the year as we begin to realize synergies within the merchant business.
Got you very helpful. And then just one quick follow up Jeff anymore color on the M&A pipeline, maybe to be more specific is it software more traditional asset then you reference strength in restaurant again is that a vertical where you're interested in do more M&A do you think you're you're sort of fully built out there.
Yeah, I'd say I would say George that we're looking at everything at the next is soft brass at the mix of other merchant and processing assets I would say the timing a lot of stuff is outside the United States, such as kind of where it is but some stuff uptick in the software side is more likely to be inside the United States, because as larger targets in software and more likely inside the United States that outside.
But I would say, we have full pipeline and kind of looking everything we're very proud of our restaurant business. My thank we called it out in the prepared remarks decide come acquisition, you're a half ago has been really Grand plan for US we of course alcohol deal, which was the old Harbor name of the Heartland business is done terrific well for us so what we're at scale that business obvious.
Immigrants scaling the business you'd like to do more and more scale is a good thing I'd also say, though I think part of the rationale but behind this like on deal was that we wanted to be end to end vertically integrated from the front for the middle to the back of house with payments, but also with hardware software and data analytics anything else and we're really that way, we're really that way today that.
And about $50 million capital in Xeno more broadly ex acquisitions icon by clean the pro forma company in Alaska purity of years compares our competitors, who sank half a billion. We're in 400 locations operating today, which as I said in our prepared remarks, I think that speaks to our ability.
To invest wisely and scale our businesses. So yes sure if someone wants to sell their business, Steve We're always going to look because we're in the market were sale. If I do think we've done a good job executing there and we're exactly where we want to be a in the restaurant business. So I don't think we need to do more I think we'll be opportunistic.
Congrats guys.
Hi, Eric.
On behalf of little payments. Thank you for your interest in us today and thanks for joining us this morning.
Ladies and gentlemen. This concludes today's conference you may now disconnect.
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Okay.
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