Q1 2022 Global Payments Inc Earnings Call
Okay.
We are pleased to have delivered yet another quarter of strong results that exceeded our expectations heading into 2022, despite incremental macro headwinds throughout the period.
Specifically, we achieved record first quarter revenue margin and earnings per share with solid free cash flow and our performance again highlights our business resilience and track record of execution.
We are especially delighted with our merchant solutions performance, which exhibited ongoing momentum as our strategies for differentiated growth are winning in the marketplace.
We continue to see favorable new sales trends across our businesses, providing further evidence that we are gaining share.
And our results today reflect those gains.
The strong bookings, we have been reporting and global payments integrated and U S payments and payroll drove attractive growth for both businesses during the quarter.
And early this year, we combine these two businesses to unlock additional market opportunities and accelerate growth by creating a more streamlined go to market strategy and capitalizing on the best of these two high performing cultures.
We are in the early stages of leveraging our heartland sales professionals to increase our penetration with GPI partner customers as.
As well as harmonizing the cross selling of our commerce enablement solutions across these channels.
We are also excited to have recently launched the co selling facet of our Google partnership and we expect our joint go to market efforts will drive significant referral and new customer acquisition opportunities for businesses of all sizes.
We also expanded our acquiring relationship with Google, which utilizes our unified commerce platform or UCP to North America. Following the success of our initial launch in Asia Pacific late last year.
Further we remain on track to launch the next phase of Google, One and grow my business to help our merchants grow faster by connecting additional Google services to our digital platform later this year.
Speaking of our leading Omnichannel platform global payments is excited to announce a new partnership with Brooks sports to modernize its payment acceptance capabilities in the UK and across Europe in.
In addition, we are pleased to be expanding our partnerships in Asia Pacific, including with Hilton to incorporate new payment features and functionality as well as with the Swatch group across multiple brands and regions.
We are also increasing the scope of our agreement with charge point, the world's largest network of EV charging stations in North America and Europe .
Beyond our existing card present relationship to now include E Commerce.
Our partnership with city, the UCP that stands North America, the UK and Continental Europe continues to gain traction.
And we are currently targeting approximately 300 of Citi largest treasury and trade solutions customers.
We also continue to add new geographies through our partnership.
Including recently launching in Italy, Spain, Ireland, the Netherlands, and Germany and.
And we expect to be live together in a dozen European countries by year end and will launch seven additional countries in Europe by early 2023.
Across our merchant businesses, we are unique in our ability to combine software hardware and payments across in person mobile and online channels.
As one example, our POS software solutions generated revenue growth of nearly 50% in the first quarter as we continue to see great traction with our vertical EIS solutions, particularly in restaurant and retail as well as across the vital platform.
Which we plan to bring to key international markets, including the UK, Spain and Central Europe later this year.
Our vertical markets portfolio delivered strong double digit growth with a 36% increase in bookings and we expect these businesses will remain a tailwind for our merchant growth going forward.
In our stadium <unk> events vertical we have now gone live with our <unk> cloud point of sale solutions and Mercedes Benz Stadium.
As part of our partnership to enable its multichannel commerce ecosystem.
And in enterprise <unk>, we successfully completed the rollout of our POS solution with Dutch Bros. And will soon be expanding our relationship to include additional software offerings to support the brand's robust growth.
We also remain on track to complete the rollout of our cloud Pos solution to all Denny's and long John Silver's restaurant prior to the end of calendar year 2022.
Further it's worth highlighting that we signed a new agreement with focused brands to deploy <unk> digital menu board solution across its Auntie Anne's Carvel, Cinnabon, Jamba juice, <unk> Deli, Moes southwest Grill, and Schlotzky's Deli franchises.
Our A&D business delivered another quarter of strong bookings growth of nearly 35%.
And eclipse a significant milestone with the number of active physicians and providers utilizing the platform surpassing 50000 for the first time.
And touch net delivered the best new sales quarter in its history, which includes the signing of the University of British Columbia, its largest single international deal ever.
Our early success in our newest vertical market real estate.
So continued in the first quarter with <unk> delivering record new bookings for the period.
As we discussed at our September Investor Conference, we continue to benefit from ongoing innovation in our ecosystem, including buy now pay later or <unk> technologies.
We launched our the NPL as a service marketplace in the first quarter to augment our 140 plus alternative payment methods portfolio exactly as we said we would.
Our marketplace allows merchants to provide solutions across multiple the NPL providers in their target markets through a single integration point.
Spanning our alternative payments offerings on a regulated compliant and responsible basis, while supporting merchant enablement and consumer choice.
In combination with our <unk> initiatives to our market, leading issuing business that target financial institutions and retailers, we expect to drive significant growth beyond the 2 billion transactions that we already enable through the NPL annually.
Late last year, we announced that we have reached an agreement to extend and expand the scope of our long standing relationship with Paypal.
Which leverages, our unparalleled e-commerce technology footprint across North America, Europe, and Asia Pacific for a multi year period.
And I'm happy to report that we expect to be live with Paypal this quarter in new geographies and additional verticals and will support the crypto currencies for the first time, expanding our target addressable markets.
Additionally, we are pleased to announce a strategic alliance with fact, a trusted digital asset platform that enables consumers to buy sell and hold a range of digital assets.
We will be supporting a range of use cases, starting with enabling crypto currency redemption in customer loyalty programs offered by our bank card clients <unk>.
Expanding our banking as a service offerings to include crypto currency and ultimately leveraging issuing technologies for linking virtual debit credit and prepaid solutions.
We're also excited to announce a broad collaboration with back in multinational payments acceptance.
Moving to issuer solutions.
We are thrilled to announce that <unk> Bank has recently signed a letter of intent to memorialize a selection of global payments as its technology partner for its card issuing businesses.
This is the largest potential new customer signings for our issuer business since 2013 and would double our implementation pipeline to its highest level in our history.
Providing opportunities for accelerated growth over the next several years.
In conjunction with our announced partnership with Virgin money and other recent wins.
Our relationship with <unk> Bank complements our debit strategy and positions global payments is a leading debit technology provider across Europe .
Virgin money is a significant competitive takeaway and we successfully completed the migration of the Virgin money credit portfolio to our platform in February .
And it is our first use case.
Dining issuing and acquiring capabilities to offer transaction stream optimization solutions, which we expect to go live in the next 12 months.
We're also proud to have successfully achieved significant multiyear renewal agreement with UK based Metro bank as well as with Ireland based permanent TSB.
Which are two other longstanding thesis issuer customers, where our partnership spans both debit and credit portfolios.
Further we continue to benefit from our strategy of aligning with market share winners.
We expect to add another significant portfolio to a record conversion pipeline upon the closing of a sizable acquisition by one of our largest north American based clients that is expanding in the United States.
Simply put we are winning in our issuer solutions business, because we are selling more market, leading technologies to scale leaders to more distinctive and defensible distribution channels in more markets than we ever have previously.
Our unique collaboration with AWS is tracking as planned with 10 modernized services now built and available in the cloud.
We've already successfully executed over 100 client migrations to our modernized issuer platform and recently announced a partnership with Mastercard to include authorization clearing and settlement in the cloud and.
And we anticipate <unk> bank to be among the first large financial institutions to go directly to the cloud with us by the end of 2023.
Together with AWS, our preferred cloud provider for issuer business. We now have 39 active prospects in the pipeline 11 of which are neo banks Fintech and startups.
We also currently have eight letters of intent with institutions worldwide four of which are competitive takeaways.
We are currently participating in several active 100% cloud rfps with large institutions and retailers globally.
Our fully functional modern issuing payment stack operating globally at scale differentiates us in the market.
Simply put the public cloud sales.
As we look to further capitalize on our ability to combined accounts payable SaaS technologies with our best in class capabilities into market, leading <unk> solutions, we're now managing mineral tree is.
Part of our issuer solutions business.
As we discussed at our Investor Conference last September we believe that we already possess one of the largest <unk> businesses at scale globally.
And that our commercial card and virtual card efforts within our issuer segment are the linchpins of our overall <unk> strategies.
When viewed in that light mineral <unk> capabilities are a perfect fit for that business.
We're delighted that <unk> momentum continued this quarter, including 60% growth in virtual card spend for the period and.
And achieving the highest virtual card spend months in its history in March.
Bookings grew in excess of 20% this quarter and mineral tree successfully extended key financial institution relationships with bank of the West and fifth third Bank and went live with finance of America companies, a large enterprise customer signed late last year.
It's worth highlighting that our military products have now been entered into the AWS co selling program.
Which will allow us to accelerate growth with our accounts payable solutions into both the middle market as well as larger enterprises.
Our focus on growing our <unk> solutions business continues to be successful.
We have expanded our agreement with cracker barrel to include an AWS partnership across its more than 660 stores in the United States.
This adds to our existing pay card solution relationship and increases our opportunity set with their eligible employees by more than 200%.
Also we recently renewed pay card partnerships with big lots Love's travel stops in country stores and Cumberland farms.
Collectively spanning over 2500 locations and more than 47 states.
We could not be more pleased with the investments we've made in our strategy that have enabled our resilience during the pandemic and driven the outsized growth we've achieved over the last eight years since we began running the company.
At the same time, we seek to continue to refine our portfolio by simplifying the composition of our businesses and focusing on our core corporate customers, including merchants software partners technology leaders corporates and financial institutions.
As part of that initiative.
Last quarter, we announced a strategic review of our Netbank consumer business to sharpen our focus on our <unk> assets.
I am pleased to report that we have made progress and that there is significant interest in <unk> set of direct to consumer solutions.
We look forward to providing additional details on our plans for these assets in the future as events unfold.
Before I turn the call over to Paul I Express my deepest concerns regarding the devastating situation in Ukraine.
We recently closed on the sale of our United Card service business in Russia.
And we take some solace that we've done what we can to responsibly support our team members and that we have been providing financial and humanitarian support to those impacted we.
We do not have any operating businesses in Ukraine.
This has been a difficult time for all of our team members customers and partners across the region Ulf.
Ultimately our values and culture provided the roadmap for our decision making.
Paul.
Thanks, Jeff.
We are pleased with our strong financial performance in the first quarter, which exceeded our expectations. Despite the pandemic the anniversarying of multi years of stimulus benefits incremental headwinds from the war in Europe and more recent adverse foreign currency exchange rates, specifically, we delivered adjusted.
<unk> net revenue of $1 95 billion, an increase of 8% from the prior year and 9% growth on a constant currency basis.
Adjusted operating margin for the quarter was 41, 1%, a 50 basis point improvement from the first quarter of 2021 or approximately 100 basis points, excluding the impact of acquisitions.
The net result was adjusted earnings per share of $2 seven.
An increase of 14% from the prior year or 15% on a constant currency basis.
This performance was ahead of the low double digit adjusted earnings per share growth. We indicated we were expecting for the first quarter on our February call.
Taking a closer look at our performance by segment.
<unk> solutions achieved adjusted net revenue of 134 billion for the first quarter, a 16, 3% improvement from the prior year or over 17, 3% on a constant currency basis.
Notably we delivered an adjusted operating margin of 47, 3% in this segment, an increase of 100 basis points year on year, and roughly 150 basis points, excluding the impact of M&A.
These results were driven by consistent execution of our technology enabled strategy.
To that end, our integrated business produced another strong quarter generating organic growth in the mid teens compared to 2021 compounding at the longer term growth rate, we target for the business.
Notably in addition to the strength of our POS software solutions business that Jeff highlighted our HCM and payroll business grew nearly 30%.
As far our vertical market solutions, we were pleased that the overall portfolio delivered growth in the high 20% range compared to the prior year.
As Jeff also highlighted we are benefiting from the positive bookings trends, we are seeing across our vertical markets portfolio and we continue to expect our own software businesses will be a tailwind for us this year as the recovery progresses.
Moving to issuer solutions, we delivered $443 million and adjusted net revenue a one 4% improvement on a constant currency basis from the first quarter of 2021 and consistent with our expectations for this segment.
Similar to last quarter, we had mid single digit revenue growth in our transaction and account on file revenue.
We had two offsetting headwinds in this segment as anticipated.
With last quarter, we had continuing headwinds related to our managed services repositioning and some nonrecurring revenue. This.
This impact was partially offset by the inclusion of mineral tree within our issuer solutions segment, beginning this quarter.
Normalizing for these items, our adjusted net revenue growth was in the mid single digits consistent with our long term target.
Also ex non recurring items commercial card saw sequential monthly growth throughout the first quarter, which we expect to continue.
Issuer adjusted operating margin of 42, 6% increased 50 basis points, excluding the impact of mineral tree on.
On a reported basis it was down 60 basis points from the prior year.
Finally in our business and consumer solutions segment adjusted net revenue declined in the high teens consistent with our expectations as the segment last two years of benefits from stimulus and higher levels of unemployment assistance.
Our focused efforts on our <unk> products in this segment delivered double digit revenue growth for the period.
Adjusted operating margin for business and consumer solutions expanded 270 basis points sequentially from the fourth quarter, excluding the impact of mineral trade.
Reported adjusted operating margin of 26, 1% declined year on year again due to the lapping of two consecutive years of federal stimulus spending and higher levels of unemployment benefits.
From a cash flow standpoint, we delivered $471 million of adjusted free cash flow for the quarter and we continue to target converting roughly 100% of adjusted earnings to adjusted free cash flow for the full year.
We invested $156 million in capital expenditures during the quarter and continue to expect roughly $600 million in capital expenditures for 2022.
On the share repurchase front, we repurchased just over $4 5 million of our shares this quarter for approximately $650 million.
At quarter end, we had roughly $1 7 billion remaining under our share repurchase authorization and this remains a key capital allocation priority.
Our balance sheet remains extremely healthy and we ended the period with roughly $2 5 billion of liquidity after repurchase activity.
Our leverage position was two nine times on a net debt basis at quarter end.
Turning to the outlook for 2022, we remain encouraged by the underlying trends we are seeing in the business and we could not be more pleased with our financial and operating performance. Despite the environment.
It is worth noting a couple of incremental impacts we now expect that were not reflected in the initial guidance we provided in February .
First we have exited our operating business in Russia, which we estimate will reduce our revenue in excess of $20 million for the rest of the year relative to our prior forecast.
Second we are also anticipating that adverse foreign currency exchange rates will be a more significant headwind to our performance for the full year than we had anticipated previously.
Despite these incremental adverse impacts we continue to expect adjusted net revenue to range from 842 billion to $8 5 billion, reflecting growth of 9% to 10% over 2021 or 10% to 11% on a constant currency basis, albeit at the lower end.
Of this range given the aforementioned items.
<unk> outlook remains consistent with our long term cycle target for double digit topline growth.
It also reflects the benefit we expect from a continued pandemic recovery and a stable macro economy throughout the year.
To provide some color on revenue growth at the segment level. We continue to expect adjusted net revenue growth for our merchant solutions segment to be in the low double digits range.
With the inclusion of mineral tree in issuer solutions, we now anticipate our adjusted net revenue growth to be at the high end of the mid single digit range.
We will of course provide updates on the strategic review process for our net spend consumer business as the process progresses.
On the margin front, we are raising our expectations for the year from the previous anticipated expansion of up to 100 basis points to up to 125 basis points or up to 175 basis points, excluding impacts from our recent acquisitions.
This is above our cycle guidance for margin expansion of 50 to 75 basis points annually.
Moving to a couple of non operating items, we expect net interest expense to be roughly $385 million and far our adjusted effective tax rate to be approximately 20% for the full year.
Putting it all together we are maintaining our expectation for adjusted earnings per share for the full year to be in the range of $9 45.
To $9 67.
Reflecting growth of 16% to 19% over 2021 on a constant currency basis. This reflects annual growth of roughly 17% to 20%.
So in effect, we have absorbed the expected incremental revenue impact from Russia, and recent adverse foreign currency exchange rates through actions, we have taken to enhance margin and preserve earnings.
Lastly, I would highlight that from a quarterly phasing perspective, we continue to expect a progressive growth picture as we move through 2022 building on our outperformance in the first quarter and.
In summary, we are pleased with the performance in the first quarter, despite a challenging macro environment.
Our merchant segment continues to excel and the strong underlying performance record pipeline early successes of our modernization efforts and enhanced <unk> focus and our issuer segment positioned us well for the future and with that I'll turn the call back over to Jeff.
Thanks, Paul.
I am pleased with our performance during the quarter, which has us on track to deliver record results for 2020.
We raised our cycle guidance in September 2021, and our expectations for the rest of the year remain despite the unprecedented incremental headwinds we've absorbed in the last couple of months.
We entered 2022 with substantial momentum in our first quarter results and guidance provide further support for sustained share gains.
Our targets for this year highlight the wisdom of our strategies, while deepening our competitive moat, regardless of the environment.
Looking ahead, we are focused on maintaining our momentum.
By continuing to capitalize on the trends of Digitization Commerce enablement software differentiation and Omnichannel prevalence, which we discussed in depth at our Investor Conference in September .
Winnie.
Before we begin our question and answer session I would like to ask everyone to limit their questions to one with one follow up to accommodate everyone in the queue.
Operator, we will now go to questions.
At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.
Our first question comes from the line of Darrin Peller from Wolfe Research. Your line is open.
Hey, Thanks, guys I wanted to start off with the merchant side, just because we are still seeing volume growth, obviously rebound very well in it.
It's outperforming Geezers volume again on the credit card side, which really I think does understate the underscore the market share positioning when you'd think Jeff when you think of the assets you have now.
First of all what just remind us on the reopening potential of what's still to come I know there are some verticals, but more importantly.
Just strategically talk about the position of the assets, where they can be in the next couple of years, if theres any other incremental since.
So do you think that makes sense.
Yeah. Thanks, Darren I think you are spot on in your questioning we couldnt be more pleased with the performance overall, but especially in our merchant and our merchant business. So, let's just start with where you started on the reopening question. As we said we're very excited this quarter that our vertical market business has returned to growth relative to 19, not just relative.
Two to 'twenty, one we had as I think we said in our prepared remarks high twenty's growth in our vertical markets business, our bookings actually accelerated to mid thirties.
Growth Darren in the first quarter, so actually our performance has accelerated and a number of the businesses that Cameron can described within vertical markets in terms of reopening Darrin that had been more recent laggards laggard. Examples include active in K through 12 have also returned to growth.
So we feel really good about kind of where we are there and as we said in our prepared remarks, we think thats really going to be a tailwind for our business. This year and thereafter addressing your second question before I turn it over to Cameron to give a little bit more color on this I think as a strategy matter.
I think we are very pleased with the resilience of our merchant business kind of across the board, we've been saying in our Investor day in September and again reiterated today that a number of elements of our merchant business, including in particular, our global payments integrated business, which we described the combination of that with our U S payments and payroll business. This morning that.
Business just reported another double digit growth quarter in the first quarter of 'twenty two that business Darrin is essentially at the same quantum of revenue as it would have been had there been no pandemic.
Early in the first place so I think as a strategy matter over the next number of years, we have tailwind from the vertical market segment as I described a minute ago, Anthony said for the last number of quarters, our GPI and our broader payments and payroll business here in the United States really haven't lost a step from 19 despite that.
<unk> you want to give a little bit more color sure I'll be happy to good morning, Darrin I would just start with a couple of things I'll start with the vertical markets that are obviously continuing to recover Jeff highlighted those really K through 12 and active both of them were up probably about 10 points sequentially from the fourth quarter relative to growth versus 2019, and obviously that.
Level of improvement helped to push vertical market overall to grow relative to 2019, which I think is a hallmark obviously relative to the experience over the last couple of years and it gives us a lot of confidence that our vertical market business is well positioned to be a tailwind for growth for the merchant business for the balance of 2022 as those markets continue to recur.
However, on the flip side I want to highlight touch net and advanced AMD with continued to produce just absolutely fantastic performance touch net again grew double digits. This quarter, it's up nearly 40% versus 2019 levels and advanced MD grew in the high teens, yet again, it's up over 50% relative to 2019.
<unk> level. So the vertical markets has always been kind of a tale of two stories and we continue to see that play out but now that the more heavily impacted verticals are recovering it sets up well for the balance of the year and just lastly on the merchant business overall I would just say a couple of things one is as an execution matter new sales and bookings trends remain very positive.
I agree that across the business. It was roughly 20% this quarter again, continuing with a very strong new sales performance across the business and the other thing I would highlight to Jeff's earlier point is part of what we like about our positioning as the diversity of vertical market exposure that we have across.
Both consumer discretionary and consumer non discretionary so obviously as the macro continues to evolve over time, we're very happy with how the business is positioned as a diversification matter across vertical markets.
Okay. That's really helpful. A very quick follow up for a policy. If you don't mind just on the margin side, what gave you the conviction to.
To raise it by but this time around and what's what's the cadence of it through the year. Thanks again guys.
Yes, Darren so yes, I mean, obviously, we've been very focused on margin expansion now really for the last two years, but most recently some of the actions that we took as Jeff said in his prepared remarks to kind of offset some of the incremental.
Adverse foreign exchange as well as Russia from on the cost side allows us to kind of tweak up that that margin expectation for the year and as a cadence matter.
It kind of progresses throughout the year kind of steps up as we move throughout.
The quarters to kind of get to that overall up to 125 basis points. So you saw us at the 50 basis points will have another step up in the second quarter it'll step again in the third and another step in the fourth quarter to kind of get us to that overall up to 125 basis points.
Okay. Thanks again guys.
Thanks, Dan.
Your next question comes from the line of Ramsey El <unk> from Barclays. Your line is open.
Hi, Thanks for taking my question this morning.
Can you comment on what Youre seeing in April and you're in your merchant portfolio and sort of specifically, whether youre seeing any signs that inflationary pressures are sort of tipping from from tailwind to headwind.
Yes, Ramsey it's cam.
Maybe I'll start I'll ask Paul and Jeff would chime in I would say April trends, thus far have been pretty good and I would say relatively consistent with what we saw in March.
So the short answer to your question is we're not really seeing I would say any inflationary pressure putting pressure on the consumer to a point that is changing behavior and slowing down the overall level of spend in the market. So as you know generally with an inflationary environment, we're going to benefit as volumes continue to tick up reflecting obviously that price.
And then the overall cost of goods and services that consumers are purchasing to the point. Obviously, we're there ends up being demand destruction that might offset that we're not seeing that yet I think april's trending I think consistent with our expectations thus far.
Okay.
<unk>.
A follow up from me if I wanted to ask about debit as an opportunity on the issuer and the issuer business.
To what degree does the AWS deal help you.
Move deeper into debit I think she has been traditionally more of a credit shop, how do you think about debit as we move forward as an opportunity.
Yes, Ramsey, it's Geoff it's a terrific question. So let me just start with the wins that we've already announced because they've been very significant.
Debit elements. If you go back to the fall of 'twenty one.
The Virgin money, when we've already converted the credit portfolio, but the piece that's coming in the remainder of this year really is the debit portfolios that's a very significant.
When four win for us and as I mentioned in the prepared remarks. This morning, we expect to have our relationship along the lines of the digital wallet.
The Virgin money, which is to be very much a in an environment, where we can offer non bank card rails.
I think ACTH as well as debit we expect that to be up and running within the next 12 months as I said. This morning, if you combine that with what we announced with <unk> Bank in February and now we signed a letter of intent recently cases, one of the largest debit issuers across Europe , and we had a bunch of renewals that we also announced this morning, which also are debit centric.
Again in Europe that all supports the statement. We said this morning in our press release and also in our prepared remarks that we did expect to be among the largest debit processors across Europe before you even really get into.
Additional cross sell opportunities with with AWS, Let me just start there Ron the Ramsey because that addresses the first part and the second part of what you asked about we announced that we had an LOI and pipelines with a number of fintech startups and neo banks.
With AWS I think 39 with the number of active prospects that we announced this morning I think the opportunity there really is in the virtual card side, along the lines of debit, particularly with AWS Ramsey. So in addition to everything I just mentioned with more traditional institutions, which will make us one of the leading technology providers anyway.
If you think about the virtual cards that we talked about in September plug into that what we announced this morning with backed on the virtual card issuing side with crypto currencies plug into that the relationship with AWS and the 11 prospects in the pipeline on Neo banks Fintech startups does tend to be Ramsey virtual card centric and those.
Tends to be in particular debit centric as it relates to virtual card. So I do think over the next 12 to 36 months and a very very significant significant expansion on the issuing side of our debit business aws's. It really serious role to play there, but so does back then really to be honest so to the traditional financial institutions that we've been announcing.
Not just this morning over the last several months.
Great. Thank you so much.
Thanks Randy.
Your next question comes from the line of Jason Kupferberg from Bank of America. Your line is open.
Thanks, guys. Good morning, I just wanted to start on the merchant side as we think about the cadence of growth in the second quarter, specifically thinking about it quarter over quarter I mean seasonally I know you would typically see maybe mid single digit or so kind of quarter over quarter growth and I guess, if we think about this year's second quarter.
You are going to benefit a little bit arguably from the fact that omicron impacted Q1 to some extent, but then you've got Russia, and FX I guess that kind of go the other way so make sure our expectations are calibrated properly in terms of how youre thinking about the <unk>.
Order over quarter growth rate in merchant for Q2, assuming that the.
The macro stays relatively stable.
Yes, Jason This is Paul I'll start and Cameron may want to add on top of that.
As we talked about even in our last call around kind of a low double digit kind of growth on a year over year basis for the merchant business. We did have an easier comp in the first quarter.
He kind of 16% or over 17% from a constant currency standpoint, and then that kind of low double digit growth kind of continues then for the following three quarters.
And really you're almost kind of get into just how it compares on a year over year basis fundamentally the organic growth is it's similar but just on a comparative basis. We obviously there is an M&A impact in the first half of the year, that's a little bit of a comparative tailwind.
Fourth on the merchant side.
Relative to the back half and so you kind of started this kind of 16 north of 16% reported or over 17% constant currency and then we kind of go down into that low double digit kind of growth rate for the remaining three quarters and really the only kind of annoying because just the difference between what we're comparing to broad base matter Cameron.
I think that covers it pretty well if you look at the cadence of growth in 2021 versus 2020, obviously in the first quarter. We grew 4% in the second we grew 41, so naturally youre going to have a very.
Three different comp as Paul highlighted earlier, but to his point, obviously, we expect the merchant business overall to grow double digits for the full year and we expect every quarter to be in the double digit range, obviously Q1 being the high watermark because of easier comp.
Right, Okay that makes sense following up just on issuer, obviously nice to see the K show when I wanted to see if I caught the comment right.
This would be potentially implemented by the end of 2023 and then if you can just talk more generally about quarterly progression of issuer revenue growth for this year just based on how you see the implementation backlog.
Thanks, guys.
Yeah, Jason. Thanks. This is Jeff It also I'll start and I'll ask Paul to talk a little bit about the about the cadence. So we expect the implementation of tighter to begin at the end of 2023.
That will have some impact in 'twenty three but that's really the start of it and obviously given the size of that will continue into 2024.
And beyond as we said in our prepared remarks, it's the largest single letter of intent signed we've had since 2013 and effectively doubles the size of our implementation pipeline. The other thing I mentioned in our prepared remarks that the 56 million cards in the implementation pipeline does not include other things.
Hope to announce in the second quarter call and I referenced one of those in my prepared remarks, which is the acquisition by a north American bank of a large U S Bank, which we expect to have as well just to be clear that's not in the $56 million. So we hope we're in a position when we head into the back half of the year than as we burn through the implementation pipeline, which Paul will talk about.
In a moment as we burn through that rapidly replenishing it and keeping it relatively constant at the record level or thereabouts as it is today, probably let Tom yes, so Jason.
Jason on the step up as it relates to the revenue growth and as we said on our last call. We did have in this first quarter.
<unk> kind of from year over year, but we stepped to that mid single digit in the second quarter, and then step up to kind of that mid to higher mid single digit in the third and the fourth quarter for the business.
Ultimately kind of landing at that higher mid single digit rate as our expectation for the year. So we have a progressive step up throughout the year and as I said on our last call as well, we kind of exit the year at that higher mid single digit given the conversion activity, we just referenced as well as kind of some of the easier comp.
We have with managed services and some of the things that we're doing on the repositioning side. There. So it's not only just the step up aggressively in the year, but it's also kind of the exit run rate growth rate that we expect to be at when we ended the year, Yes, I would just add that Jason what Paul just said that commercial card, which Paul called out in his prepared comments saw improvement in <unk>.
March versus February February versus January obviously has done the crime waned and corporate business travel returned we expect that to be much like visa Mastercard improving as 2022 goes on so in addition to the record implementation pipeline, we do see tailwind coming in commercial card.
Really the last two years or so Jason up until kind of February March was like a headwind.
Right right, Okay, well, thanks for the remarks.
Thanks very much.
Our next question comes from the line of Dave Koning from Baird. Your line is open.
Hey, guys nice job and maybe if I can just start out by just the pricing and yield environment. It seems like maybe we're getting into a little better place just with interchange adjustments may be your own ability to price.
Maybe software growing faster than merchant like could we actually see yield start to tick up.
Coming quarters.
Yes, David look I think your overall thesis is right I think we are seeing a relatively constructive yield environment is probably the best way to characterize it obviously vertical market returning to growth versus 2019 levels is a nice tailwind for yield you called out the interchange benefits that are kind of flowing through most of our <unk>.
<unk> as you know is interchange plus but we do have some bundled pricing as well more importantly is the overall cost of acceptance goes down for our merchant customers. That's generally a good thing and generally a tailwind for the business overall, so I would say, we're seeing an environment, where a couple of things one obviously given all of the discussions have been inflation.
There is an acceptance of the fact that costs are increasing as point number one and point number two and as our business mix continues to shift towards more technology enabled more software. Obviously, we're seeing a positive environment for our own our own specific businesses as well. So I think we feel pretty good about how the overall sort of pricing pricing.
Environment is positioned for the balance of the year.
Great. Thanks, and maybe just a follow up just really high level.
You've talked about high teens EPS growth over time.
Feels to me like if anything as time goes on perhaps you as good or better about that high teens growth. I mean is that fair kind of as we kind of reflect on this quarter in April .
They are as good as ever long term is greatly intact.
Yes, David I think it's Jeff I think that's exactly right and I'll ask Paul to comment. So we raised the cycle guidance to the high teens to 20% in September here, we are in a much different worse really macro environment. We're just reaffirm today that those are our targets for this year. So I think what we've shown is the business is very resilient as Cameron described.
The vertical markets business, which during the recovery.
Darren asked that the vertical markets business during the recovery was a bit of a headwind now with the tailwind. So I think we're in a very good place as Cameron mentioned with a balanced business.
So very confident in the in the cycles I'd almost somewhat independent of the back row environment when you've seen the changes that we've seen over the last over the last couple of.
Over the last couple of months to maintain our targets that we've had over a period of time quite lending, yes, I would just say we've kind of hit on it in the last couple of questions is just the improving picture.
On the merchant side, we've talked for several quarters about the tailwind to vertical markets coming back and being an additive kind of growth dynamic and then as I just commented on the issuing side.
What we're seeing this year as of progressively stronger growth picture and this pipeline size as <unk>.
Jeff commented earlier, it's the biggest pipeline we've had in really a long time in that business and then you kind of couple that with just even as of this morning, raising our margin guidance and the things that we're doing on the on the cost side gives us kind of additive confidence that yes that EPS cycle guide is in really good shape and we've got tailwind.
Relative to the things we've talked about this morning.
Yes, thanks, guys great job. Thanks.
Thanks, Ed Thanks, Ed.
Your next question comes from the line of George Melas from Cowen Your line is open.
Great. Good morning, guys and thank you for taking my questions I guess just to kick things off some clarification on the issuer side of the equation.
How much did mineral tree contribute.
Q2 issue resolution here in the in the first quarter and then maybe to just kind of circle back to.
To Jeff's commentary on commercial how exactly did that perform in the first quarter relative to to kind of a 2019 benchmark if you happen to have that handy.
Yes.
So as it relates to the impact of mineral tree, we were roughly flat on a constant currency basis X mineral tree and so obviously being at roughly one 5% growth that's kind of the right way to think about the mineral tree impact of roughly kind of the right way to think about it for the full year, although we've got some additional add.
Versus <unk>.
<unk> that comes into play so that pulls that down but roughly about a percent or so.
Benefit as it relates to mineral tree and then as it relates to commercial card.
We still haven't reached back to kind of exceeding the 2019 levels on commercial card. We did as Jeff said saw progressive kind of growth picture.
Particularly so between March and February kind of a step up in the growth rate in our commercial card business as it relates to.
Two.
Sequential but as it relates to 19, we're still not at those 19 levels.
And certainly as we sit there and look at the overall segment. While we were pleased with the overall normalized growth rate of that business from our accounts on file and kind of transactional revenue being solidly in that kind of mid almost high mid single digit growth rate and just putting it all together when you look at it the X the manage.
Services and some of the nonrecurring where kind of solidly in that mid single digit growth rate for the quarter.
Okay. That's great I appreciate that color and then just shifting gears to merchant a little bit can you guys talk about what you're seeing on the international side. I mean, just my head I think from my last conversation was Europe was looking a lot better APAC better, but maybe slow sort of lagging just curious if you can give us a sense as to how those.
National geographies have been progressing thank you.
Yes, George it's Cameron I'll jump in there I think you have that mostly right. Obviously Europe was a bright spot in the quarter. The growth rate was in the high 20% range. Obviously, we got a little bit of a tailwind from bank.
That we acquired in the latter part of 2021, but overall organically it was well into the 20% range from a growth standpoint, as the recovery continues to progress kind of across the European footprint as it relates to 2019 levels. The U K is positive which is good and remains positive.
We had a very strong quarter, Spain continues to really be the bright spot along with our joint venture with <unk> Bank in Central Europe . Those two businesses are growing at very attractive rates.
We've seen the pandemic accelerated obviously, the digitization of payments across those two markets to up to a pretty extensive degree so those those.
Businesses I think standout again from a performance standpoint positioning in Europe , I think to have a very strong year overall as the recovery continues to progress.
Actually went backwards a little bit in the first quarter and that's completely attributable to the lockdowns in the greater China markets in China. In particular, so we did see Asia be a headwind to growth Asia grew overall about 3% in the quarter. Some of that was obviously negative currency environment.
Some of it obviously was attributable to the Lockdowns as that market again, hopefully reopens as we move into the latter parts of the second quarter and into Q3, we expect it to get back to more of a double digit growth rate, which is our anticipation for the region, but obviously, we did have to absorb a little bit of headwind in the first quarter given the continued sort of.
Covid impacts across the region.
Thank you Cameron.
Thanks George.
Your next question comes from the line of Timothy <unk> from Credit Suisse. Your line is open.
Great. Thanks for taking the question I wanted to dig in a little bit on global payments integrated so the partner business I believe in the past and pretty recently disclosed roughly 6000 software partners just wanted to talk a little bit about where that number has come from where it's grown from how many partners you've been adding on average per year and then the follow up is more around the mix.
Of those and the types of services. They are taking how many youre doing online and in store and then maybe the penetration of additional embedded financial services across dose. Thanks a lot.
Yes, Tim It's Cameron I'll start and I'll ask Jeff and Paul to jump in with any other comments I'd like to provide so obviously if you just look back in time, the global payments integrated business grew through the combination of our acquisitions of <unk> and <unk>.
And then obviously since then has been growing at an organic rate generally in that kind of mid to high teens rate. So if you think about the base of partners that exist in that business today, it's come through largely a combination of those plus organic growth and then of course lastly, when we merged with Tees us about two and a half years ago now <unk> had a portion of that.
Our merchant business that was focused on integrated partners as well and we combine that into GPI. So I would say if you look at the mix of partners that largely coming from the acquisitions, we've done coupled with very strong organic growth trends over the course of time as it relates to new partners. It's hard to give you a pinpoint estimate as to how many we add a year because it largely depends on the size of the park.
<unk>, we're targeting I can tell you in the first quarter, we added about a dozen and I would say there are three larger partners in that portfolio in aggregate they bring us an opportunity for about 130000 additional ms to be able to add to our integrated business. So those are three really sizeable wins and ones that were really attractive.
Are excited about given that that business has about 600000 mid then it today, so adding a new population of 130, we can go and target is is obviously a very good result for us. So in any given year, we will add well into 20% to 30 partners attrition in that business is very low, particularly on the partner side.
So we continue to see obviously, a favorable outlook for growth in the business over a longer period of time.
Given our ability to add new.
New partners into the portfolio and then obviously get better penetration levels within our partner base of Mitch as Jeff highlighted in his prepared remarks. We have now is a go to market matter combined our U S payments in our GPI business, a big part of that strategy is really geared around unleashing our relationship led sales professional on the Jeep.
<unk> base of partner customer opportunities and really doing that in a more seamless systematic way as we bring the two channels together. The second key element of doing that is to also improve our ability to cross sell capabilities that we have in those two businesses into the underlying base portfolios and we've already launched blending into our.
<unk> business from our U S payments business in the in the first quarter, we're going to add more products, obviously as a cross sell matter into that over the course of time. So it sort of speaks to the last part of your question, which was our ability to embed more value added services more commerce enablement solutions into the overall GPI portfolio is really going to be.
Hans by bringing those channels together as we're able to obviously unleash more capability into that environment as we have.
Slightly smoother kind of go to market motion across the U S business by merging the two channels.
Greg Kevin really appreciate the thorough update on GPI. Thanks, a lot.
Thanks, Dan.
Your next question comes from the line of Trevor Williams from Jefferies. Your line is open.
Great. Thanks, Good morning, I, just wanted to clarify on the full year Guide Paul you walk through the puts and takes relative to when you first gave it last quarter just on the macro assumptions aside from the FX impact is there any change to what you have built in for consumer spending for the rest of the year and correct me.
If I misheard it sounds like Youre still expecting progressive improvement.
Throughout the year can you just remind us there what sort of macro trajectory as bill tend to track to the low end the midpoint and the high end of the guidance. Thanks.
Yes Trevor.
As it relates to macro in each one of our businesses, we kind of build that into the fundamental kind of how we are building up based on what we're seeing and obviously depending on the segment, what we're kind of forecasting for our customers and so on so nothing's changed with that kind of rationale with the way we've looked at we did.
As we said last time that we do.
You've kind of referenced assumed a progressive kind of.
Recovery and things kind of continuing to get back to a kind of a more normalized state with that being said, we've always said we don't.
Kind of build protection into the kind of model. So we just kind of have based on all of the way we do our forecasting across all of our businesses that kind of beds in what we're expecting from an overall kind of normalized <unk>.
Standpoint, so I wouldn't say, there's anything kind of incremental that we built in and it's just been that kind of a more normalized kind of.
Growth and return to normalcy.
And with that being said, we do provide for some kind of.
Non perfection as we move along that.
<unk>.
Pendulum there.
Okay perfect. That's really helpful. And then just as a follow up on issuer I was just curious on the pricing and competitive environment, particularly.
In the U S with where the implementation pipeline as the <unk> clearly you guys have a lot of momentum in the business, but in the U S. There's been some narrative in the market just around some of your big competitors, starting to get a little bit more aggressive on pricing. So I was just curious to get your updated view on the competitive environment in the U S.
And how the repositioning of the business with the AWS partnership how that fits into kind of how you've seen the market evolve there over the last couple of years. Thanks.
Yes, Trevor chip I would say that the competitive environment really hasn't changed and issue where it's always been very competitive I think the one thing that has changed and we've seen this more recently is our ability to really lead with technology, particularly in the partnership with AWS, which is really unique to us. So I don't think its been Atlanta Cape is any different now than it was certainly.
When we did the merger of two or three years ago to be honest and that's kind of what we're seeing but I do think we have unusual things to bring to the table, particularly.
As it relates to our service the quality of our technology, our unique collaboration with AWS. If you go back to what I think we said in February that we think we believe that one of the reasons that case of bank selected us and they went through a full RFP is because they looked at our technology. They looked at where we were in the public cloud they looked at AWS.
It came to the point of view that this is an important strategic decision for them and I think that's as good a touchdown as any and I think the 56 million accounts on file as a record implementation pipeline.
Really as another so I think if you look at kind of what our guide has been in that business. Paul described progressively increasing throughout the quarter. If you look at where I think we will be over the next 12 months to 24 months in that business, which I think is a pretty good trajectory I think that kind of tells you what you need to know about the pricing environment as well as the mode of competition.
Which I think has really shifted toward.
And technology.
<unk>, so if anythings, new Trevor its leading first and foremost with with technology and I think what we have is really unmatched scale in our industry.
That's great. Thanks, Jeff.
Your final question comes from the line of Ashwin <unk> from Citi. Your line is open.
Okay.
Hey.
Alright, Jeff Ameren pulse alright, thanks for taking the question.
From you.
I was wondering if you could talk to what specifically commercial card normalization would add to your expectations through the course of the year.
If you could talk about that.
Yes, well.
This is Paul.
We have kind of a more normalized or certainly a progressive kind of recovery on the commercial card side kind of built into obviously the guide that we've talked about.
The higher mid single digit.
And so that.
<unk>, if you will on the commercial card side is.
It's built in I would call it maybe.
A point maybe of additional growth and certainly as I commented earlier, we still even with kind of this improving picture still are not back to the 2019 levels and so as we move into 2023, obviously, there could be some incremental kind of tailwind into 2023.
If we kind of get back to that kind of 2019 level. We'll just have to see how things progressed, what I'm, particularly pleased about though is what we've seen so far this year because obviously in the fourth quarter, we had seen some pull back in the latter part of the fourth quarter relative to commercial card and we have seen that come back in as I said.
Particularly we saw it in March volumes versus February when we saw progressively kind of core picture. So we are seeing coming back, albeit not yet to that 2019 level, but that would be roughly the right way to think about at Ashland.
Got it got it and then just the clarification.
No.
Basically unchanged revenues.
We're being a lot of different factors, but higher margins.
The EPS offset.
That completely on it.
Interest expense I might have missed that.
You can walk through some of the below the line items.
Yes, so we did kind of tweak up kind of the interest cost.
In the prepared remarks, I commented on relative to the environment that we're in with the rate increases and so that's baked in so we're absorbing that.
And what we're doing from a cost standpoint, so yes, I mean kind of we commented I think in the prepared remarks. That's what we're pleased with is we're kind of absorbing the Russia impact the adverse incremental FX, some higher interest costs and still staying squarely kind of in our EPS Guide range.
Okay got it thank you.
Well, thanks, Ashwin on behalf of global payments, Thanks, everyone for joining us this morning.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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Yeah.