Q1 2023 Global Payments Inc Earnings Call
Speaker 1: you
Speaker 1: •
Speaker 2: Ladies and gentlemen, thank you for standing by. Welcome to Global Payments first quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. Later, we'll open up the lines for questions and answers.
Speaker 2: If you should require operator assistance during the call, please press star then zero. As a reminder, this conference is being recorded.
Speaker 3: At this time, I'd like to turn the conference over to your host, Senior Vice President, Investor Relations, Winnie Smith. Please go ahead, Winnie. Good morning and welcome to Global Payments first quarter, twenty, twenty-three conference call. Our earnings release and the slides that accompany this call can be found on the investor relations area of our website at www.investorrelations.com.
Speaker 3: www.globalpemex.com
Speaker 3: 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, among other matters, expected operating and financial results. These statements are subject to risks, and may be related to financial results.
Speaker 3: uncertainties, and other factors, including the impact of economic conditions on our future operations that could cause actual results to differ materially from expectations.
Speaker 3: Certain risk factors inherent in our business are set forth in filings with the SEC, including our most recent 10K and subsequent filings. We need to ensure that the SEC is not to place a new reliance on these statements.
Speaker 3: forward-looking statements during this call speak only as the of the date of this call and we undertake no obligation to update them.
Speaker 3: We will also be referring to several non-GAAP financial measures which we believe are more reflective of our ongoing performance.
Speaker 3: For a full reconciliation of the non-GAAP financial measures discussed in this call to the most comparable GAAP measure in accordance with SEC regulations, please see our press release furnished as an exhibit to our Form 8K file this morning and our supplemental materials available on the Investor Relations section of our website.
Speaker 3: Joining me on the call are Jeff Sloan, CEO , Cameron Brady, President and COO, and Jock Whipple, Senior Executive Vice President and CFO . Now, I'll turn the call over to Jeff.
Speaker 4: Thanks, Wendy. We are pleased to have delivered our best 1st quarter in 4 years. Exceeding our expectations to start 2023, despite continuing macro uncertainties.
Speaker 4: Our ongoing businesses produce adjusted net revenue growth, adjusted operating margin expansion, and adjusted earnings per share growth consistent with our cycle guidance once again.
Speaker 4: This performance reflects the wisdom of our strategies and our consistent focus on execution.
Speaker 4: We accomplished these results while also turning the page on our strategic initiatives. First, we are delighted to have closed our acquisition of EVO payments in late March, and we are already off to a strong start.
Speaker 4: Cameron will provide more details on our integration efforts now underway, but let me preface his comments by saying that we remain as excited about the many opportunities we have together as we were at the time we announced the transaction nine months ago.
Speaker 4: I am delighted to officially welcome Ivo's Value Team members to the Global Payments family. We are pleased to have also recently completed the divestitures of NetSpend's consumer assets and our gaming solutions business.
Speaker 4: With the successful execution of these transactions, we are focused on managing our go-forward business composition with merchant solutions representing approximately 75% of our adjusted net revenue and issuer solutions including B2B comprising roughly 25%.
Speaker 4: This platform provides us the ideal set, core capabilities from which to grow for many years to come.
Speaker 4: called Issuer and Merchant posted exceptional results for the first quarter.
Speaker 4: Starting with issuer solutions, our core business again generated substantial sequential financial and operating improvement.
Speaker 4: achieving high single-digit growth, and marking its best quarterly performance in more than five years.
Speaker 4: It is worth highlighting that our core customer base consists of money center and systemically important financial institutions globally.
Speaker 4: We believe that we've been the beneficiary of incremental depository flows for larger institutions, combined with several significant implementations during the quarter, which we expect to provide tailwinds for some time to come.
Speaker 4: Year over year consumer transaction volumes grew into the double digits.
Speaker 4: Our commercial part business also continued to perform with transactions growing nearly 25% in the first quarter as cross-border and domestic corporate travel continued its recovery trajectory.
Speaker 4: Traditional accounts on file increased by roughly $20 million sequentially and double digits from the prior year to a new record due to strong conversion execution of new accounts and growth with existing customers.
Speaker 4: Our decades-long strategy of allying with market share winners continues to bear fruit.
Speaker 4: And I think it's clear at this point that the Legacy versus Fintech hypothesis from 2021 has now been thoroughly debunked and turned on its head.
Speaker 4: We are delighted that we successfully converted a significant portion of one of the top 10 commercial banks in the United States in early March. This win was a double competitive takeaway early after the announcement of our merger.
Speaker 4: We also completed the conversion of the post-bank portfolio in April .
Speaker 4: And in collaboration with AWS, we successfully deployed our cloud-based data and analytics platform for a leading financial institution partner in the United States.
Speaker 4: Finally, we are pleased to have signed multi-year extensions with M&T Bank, as well as another long-standing US-based FI partner during the quarter.
Speaker 4: We currently have nine letters of intent with institutions worldwide, nearly all of which were achieved through a competitive RFP process.
Speaker 4: Turning to B2B, we continue to drive strong growth with both corporates and financial institutions as we leverage our virtual card, mineral tree AP automation, and employer solution capabilities.
Speaker 4: This quarter, we achieved record supplier enrollments as middle market companies further digitized their payments.
Speaker 4: It's worth noting that Mineral Tree delivered normalized growth of roughly 20% for the period and we continue to expect near 30% growth for this business in calendar 2023.
Speaker 4: We are proud of the resiliency of our merchant business.
Speaker 4: which deliver double digit growth excluding dispositions and a one week contribution from EVO.
Speaker 4: This performance was achieved despite incremental macro uncertainties driven by the banking crisis that developed in the latter part of the quarter.
Speaker 4: Stand out for the period again, include our worldwide e-commerce and omnichannel businesses.
Speaker 4: We're both accelerating to the high teams.
Speaker 4: Speaking of UCP, we are making great progress in our partnership with Spring by City that now spans North America, the UK, and continental Europe .
Speaker 4: We are currently live across 14 countries and run rating at more than 100 million transactions and over $3 billion in volume annually.
Speaker 4: And based on our pipeline with many of Citi's largest treasury and trade solutions customers, we are on track to more than double our volume together by the end of 2023.
Speaker 4: We also continue to see strong trends in our integrated business in the US.
Speaker 4: which grew at a mid-teens rate with sustained rates of accelerated growth.
Speaker 4: We also produced a record quarter for new sales on this channel, demonstrating ongoing strong demand for our solutions.
Speaker 4: Additionally, vertical markets achieve double-digit growth led by School Solutions, Zeego and Real Estate and Xenion quick service restaurants and stadiums.
Speaker 4: After announcing our partnership with the brave last quarter, we are excited to have gone live with our Xenial Cloud point of sale solutions on April 6th, opening day for Truis Park.
Speaker 4: And we are pleased to have reached an agreement with the leading parts and entertainment company to provide both our zenial food and beverage solutions.
Speaker 4: as well as our retail solutions at all of its theme park locations across the United States.
Speaker 4: Our pipeline remains full across our fixed service restaurant and sports and entertainment businesses.
Speaker 4: Stay tuned. Outside the United States, our Asia-Pacific business produced its best first quarter since 2018 as COVID-related restrictions were lifted at the end of 2022, including in Greater China.
Speaker 4: We continue to see strong trends in other faster growth geographies, such as Spain and Central Europe , and we are excited to enhance our scale with EVO in these markets.
Speaker 4: We also had several successful product launches during the quarter in Europe , including our point-of-sale solution in central Europe and our tap-on phone solution in the UK.
Speaker 4: Please all go well for the cross-cell opportunities with EVF.
Speaker 4: Before I turn it over to Cameron, I'd like to address the announcement of my departure as CEO of Global Payments effective June 1st and the appointment of Cameron Brady as our next CEO .
Speaker 4: I've known Cameron personally for nine years and he's held the most senior and trusted positions in our company during that time. First as our CFO and today as our president in COO.
Speaker 4: Cameron is an outstanding leader and the right person to succeed.
Speaker 4: I have every confidence in his and our company's continued future success and will do everything I can to ensure a smooth transition to cameras over the coming weeks.
Speaker 4: Now is the right time for us to execute on our succession plans.
Speaker 4: We recently closed on all three of our strategic transactions and we've produced our best first quarter in four years, with our first beaten raise in 18 months.
Speaker 4: We recently closed on all three of our strategic transactions and we've produced our best first quarter in four years with our first beaten raise in 18 months. Our businesses are exceptionally healthy.
Speaker 4: We delivered on a heightened cycle guidance in 2022 and are poised to do the same in 2023 excluding of course dispositions.
Speaker 4: While challenges undoubtedly remain, we are on a path to return to normalcy, as I suggested and hoped for on our February call.
Speaker 4: When we arrived at Global Payments 13 years ago, we had many strengths, but we lacked direct distribution, scale and e-commerce.
Speaker 4: a B2B strategy, and we have much legacy technology debt to repay.
Speaker 4: Now roughly 10 years after I became CEO , we have distinctive software assets owned and partnered.
Speaker 4: market-leading ECOM and omni-channel presence, enhanced exposure to faster growth markets, and sizable B2B assets.
Speaker 4: We coupled distinctive distribution with a solid technology footprint and unique multi-year collaborations with both AWS and Google.
Speaker 4: Finally and importantly, over the last nine and a half years since we've been running the company, GPN stock has compounded at nearly 16.5% annually, 650 basis points in excess of the S&P 500 index and 300 basis points in excess of our peers despite all the turmoil over the last three years.
Speaker 4: Simply put, we've accomplished our goals.
Speaker 4: accomplish our goals. Now let's bring the call to Cameron.
Speaker 5: Thanks, Jeff, and good morning. Let me start by acknowledging what an honor and privilege it is for me to be named the next CEO of Global Payments. I'm grateful for the Board's confidence in me leading the company going forward, and I look forward to working with all of you in this capacity, continuing what has been a long history of outstanding leadership at Global Payments.
Speaker 5: On behalf of the 27,000 team members of Global Payments, I also want to thank Jeff for his leadership as CEO over the past decade.
Speaker 5: The transformation under the business under his stewardship has been remarkable and it shaped the company into the payments technology powerhouse it is today.
Speaker 5: Further, on a more personal note, I want to express my sincere appreciation for his mentorship and friendship during my time here at Global Payments.
Speaker 5: Jeff and I have worked side by side over my nine years at the company and importantly have been completely aligned on the four pillared strategy we articulated at our investor conference roughly 18 months ago.
Speaker 5: We remain committed to this strategy as we endeavor to build the leading technology enabled software driven payments
Speaker 5: Having now closed the acquisition of EVO and the divestitures of our net spend consumer and gaming solutions businesses, we have completed our strategic pivot. I'm delighted to be taking over at a time when our business now reflects the simpler model more geared towards our corporate customers we've been foreshadowing since August of last year.
Speaker 5: Over the next month, Jeff and I will work closely to ensure a smooth and orderly transition.
Speaker 5: I look forward to continuing the company's rich history of investing strategically to drive differentiated growth and value for our shareholders, customers, and team members while fostering a culture that is second to none and enhancing our corporate citizenship in the communities in which we live and work around the globe.
Speaker 5: With that, I would like to echo Jeff's remarks welcoming EVO team members to Global Payments.
Speaker 5: While we are still in the early days, we have made substantial progress on our integration and remain enthusiastic about the synergy opportunities available.
Speaker 5: Since announcing the transaction in August , we have had ample time to formulate integration plans and prepare for day one, allowing us to truly hit the ground running.
Speaker 5: We have established a robust leadership and governance structure, as we do with all of our acquisitions, which has resulted in a smooth transition and enabled us to implement early actions that align with our targets.
Speaker 5: I'm pleased to report that we currently have executable plans to achieve the run rate EBITDA synergy target of at least 125 million dollars within 2 years that we committed to at the time of the announcement.
Speaker 5: The substantial expense synergy opportunities are expected to come primarily from aligning our business operations and go to market strategies, streamlining technology infrastructure, eliminating duplicative corporate and operational support structures, and realizing scale efficiencies.
Speaker 5: As always, we remain focused on sizing expense energy expectations with an eye towards ensuring that we maintain momentum in the combined business and that it is well positioned to continue to grow and expand in the future.
Speaker 5: And regarding the potential revenue enhancements, I will start by reiterating that as one company, we are uniquely positioned to deliver an unmatched suite of distinctive software and payment solutions to our combined customer base globally.
Speaker 5: More specifically, I would highlight three broad categories that we believe provide us with ample run rate to drive revenue synergies from the acquisition.
Speaker 5: First, we see significant opportunity to bring further value to EVO's relationships by leveraging our extensive distribution platforms and product portfolio, as well as our unique partner integration capabilities.
Speaker 5: This includes our point-of-sale technologies, commerce enablement solutions, and
Speaker 5: As one example, we are bringing our point-of-sale software to key international markets where we overlap with EVO, including the UK, Spain, and Central Europe .
Speaker 5: We plan to cross-sell our point-of-sale software into Evo's customer base in these geographies, as well as bring these capabilities to Evo markets where we do not overlap today, including Mexico, Ireland, Poland, and Greece. Second, we expect to capitalize on our ability to provide Evo's multinational customers e-commerce and omni-channel solutions across markets and geographies.
Speaker 5: initiated discussion with some of EVO's largest MNC clients to explore opportunities to support them in additional markets around the world.
Speaker 5: Third, EVA's accounts receivable automation software and B2B payment solutions augment our existing accounts payable automation and other capabilities, rounding out our full suite of B2B offerings.
Speaker 5: Together with EVO, we are well positioned to further grow and scale our B2B portfolio, particularly on the acceptance side, which includes leveraging EVO's extensive proprietary integrations to some of the most widely used ERP environments in the marketplace.
Speaker 5: Together with EVO, we are well positioned to further grow and scale our B2B portfolio, particularly on the acceptance side, which includes leveraging EVO's extensive proprietary integrations to some of the most widely used ERP environments in the marketplace through its pay fabric platform.
Speaker 5: We could not be more excited about the many opportunities we have together with Evo given its alignment with our overarching strategy. Further reinforcing our position as the preeminent payments technology company with extensive scale and unmatched global reach.
Speaker 4: Josh? Thanks, Cameron. We are pleased with our strong financial performance in the first quarter, which exceeded our expectations despite ongoing macro concerns highlighting the strength and durability of our business.
Speaker 4: Specifically, we delivered adjusted net revenue of $2.05 billion, an increase of 6.5% from the same period in the prior year on a constant currency basis.
Speaker 4: Excluding the impact of dispositions and roughly one week of contribution from EVO, adjusted net revenue increased 9% on a constant currency basis.
Speaker 4: Adjusted operating margin for the quarter increased 200 basis points to 43.1%. The net result was adjusted earnings per share of $2.40, an increase of 18% on a constant currency basis compared to the same period in 2022.
Speaker 4: Taking a closer look at performance by segment, Merchant Solutions achieved adjusted net revenue of $1.46 billion for the first quarter with constant currency growth of 10%, excluding dispositions and the contribution from EVO. This performance was led by the ongoing strength of the Canadian
Speaker 4: of our technology-enabled businesses while we benefited from the recovery.
Speaker 5: In Asia Pacific as covered research restrictions, eat across greater China markets.
Speaker 4: We also saw consistent double digit growth from our vertical market, POS, and payroll businesses.
Speaker 4: This strength was partially offset by ongoing headwinds from adverse foreign currency exchange rates along with macro softness and limited geographies including the UK.
Speaker 4: We delivered an adjusted operating margin of 47.3% in the segment, consistent with last year.
Speaker 4: excluding the impact of EVO's close in March, adjusted operating margin, expanded 25 basis points, and was in line with our expectations.
Speaker 4: We are pleased with the fundamental performance of our issuer solutions business in the first quarter which produced adjusted net revenue of $490 million, reflecting growth of 7.2% on a constant currency basis.
Speaker 5: Notably, Core Issuer grew high single digits this quarter, excluding the impact of FX, which was over 300 basis point acceleration sequentially.
Speaker 5: As Jeff highlighted, traditional accounts on file increased by approximately 20 million sequentially, driven by strong account growth from our major consumer portfolio customers, as well as several portfolio conversions we successfully completed during the period.
Speaker 4: Transactions also grew double digits compared to the first quarter of 2022, with strong contributions coming from both commercial and consumer card transactions.
Speaker 4: Finally, we delivered adjusted operating margins of 43.9%, an increase of 80 basis points from the prior year fueled by our accelerated growth.
Speaker 6: As for adjusted free cash flow, consistent with the prior period, we converted approximately 80% of adjusted earnings into adjusted free cash flow.
Speaker 6: We continue to target converting roughly 100% of adjusted earnings for the full year, excluding the impact of the timing change related to recognition of research and development tax credits.
Speaker 6: We expect our adjusted free cash flow conversion for the year to follow a similar trajectory as 2022. We invested 162 million dollars in capital expenditures during the quarter and continue to expect capital spending to be around 630 million dollars in 2023 consistent with our long term targets.
Speaker 6: This quarter we repurchased approximately 2.1 million of our shares for roughly $200 million, which was executed prior to the closing of our acquisition of EVO payments on March 24th.
Speaker 6: To help fund the EVO transaction, in early March we successfully priced an 800 million euro inaugural European debt offering at a fixed rate coupon of 4.875% due in 2031.
Speaker 6: With this transaction, we continue to evolve our capital structure to align with our global operations and gain access to a broader investor base and new sources of capital.
Speaker 6: Separately, in January , we established a $2 billion commercial paper program.
Speaker 6: The CP program is supported by a revolving credit agreement.
Speaker 6: At the end of the quarter, we had approximately $1 billion of commercial paper outstanding.
Speaker 6: We currently have in excess of 3 billion dollars of available liquidity.
Speaker 6: Following the aforementioned capital markets transactions and drawing on the revolver to close EVO, our total indebtedness is approximately 90% fixed with a weighted average cost of debt of 3.8%.
Speaker 6: We are also delighted to have closed both the divestiture of NetSpend's consumer assets and the sale of the gaming solutions business in April .
Speaker 6: Following all of these transactions, our balance sheet remains healthy.
Speaker 6: And our leverage position is roughly 3.8 times currently.
Speaker 6: We continue to expect to return to a similar leverage level to where we ended 2022 by year-end 2023 while maintaining existing investment grade ratings. We are pleased with how our business is positioned following our first quarter performance.
Speaker 6: and we are raising our financial outlook for the year. We now expect reported adjusted net revenue to range from $8.635 billion to $7.5 billion.
Speaker 6: To 8.735 billion dollars reflecting growth of 7% to 8% over 2022.
Speaker 6: An increase from 6% to 7% previously. Continue to forecast annual adjusted operating margin to expand by up to 120 basis points for 2023.
Speaker 6: As a reminder, this is above our cycle guidance for margin expansion of 50 to 75 basis points annually, driven by benefits to our business mix from our ongoing shift towards technology enablement and the divestiture of net spend.
Speaker 6: partially offset by the lower margin profile of EVO prior to full synergy realization. To provide color at the segment level, we continue to anticipate our merchant segment to report adjusted net revenue growth of roughly 15%
Speaker 6: To 16% for the full year, but now expect to be toward the higher end of that range.
Speaker 6: We continue to expect more than 100 basis points of adjusted operating margin expansion from the existing global payments merchant business, excluding disposition in 2023.
Speaker 6: Which again is ahead of our cycle guide.
Speaker 6: We expect this expansion will be more than offset beginning in the second quarter with the absorption of the lower margin profile of evo payments.
Speaker 6: We anticipate this impact to be mitigated by Synergy Realization as the year progresses. As a result, we are forecasting margin contraction in the second and third quarters and then margin expansion in Q4 as Synergy's ramp for our merchant business.
Speaker 6: The net result will be a modest decline in our total merchant business reported adjusted operating margin for the year consistent with our prior guidance.
Speaker 6: Moving to issuer solutions, we now expect to deliver adjusted net revenue growth in the 5% to 6% range.
Speaker 6: Up from four and a half percent to five and a half percent previously for the full year compared to 2022
Speaker 6: This outlook reflects our better than expected performance in the first quarter and the benefit we anticipate from our conversion pipeline.
Speaker 6: Specifically, we now expect core issuer to grow about 5% and continue to expect mineral tree and net spent B2B businesses to grow low double digits.
Speaker 6: We anticipate adjusted operating margin for the issuer business to expand by up to 60 basis points, consistent with our prior outlook as we benefit from the natural operating leverage in the business.
Speaker 6: In terms of quarterly phasing, there are 2 continuing items to note. 1st.
Speaker 6: While we expect foreign exchange rates to be roughly neutral for the full year, we still anticipate a currency headwind to adjust in that revenue of up to 100 basis points in the second quarter.
Speaker 6: Second, we expect a successful closing of the sale of net spend toward the end of April to add roughly $25 million of incremental revenue to the second quarter versus our prior expectation with no change to our expected earnings per share dilution impact for the year.
Speaker 6: Moving to a couple of non-operate items.
Speaker 6: We expect net interest expense to be roughly $550 million, a modest $10 million increase from our prior guide in light of yield curve movements.
Speaker 6: And for our adjusted effective tax rate, be in the range of 19% to 19 and a half percent consistent with our prior guidance.
Speaker 6: For modeling purposes, we continue to assume excess cash is used to pay down indebtedness in 2023 until we are recurrent to our targeted leverage levels toward the end of the year with minimal share repurchases until then.
Speaker 6: Putting it all together, we now expect adjusted earnings per share for the full year to be in the range of $10.32 to $10.44, reflecting growth of 11% to 12% over 2022. Who are you enhancements to to easyly and effectively complete Q and A community business climate?
Speaker 6: from 10% to 11% previously. Excluding disposition, adjusted earnings per share growth is expected to be 16% to 17% for 2023. This is consistent with our updated 2021 cycle guide, despite incremental adverse changes in a macro environment since then.
Speaker 6: Our first quarter results represent roughly a five cent adjusted earnings per share beat relative to our internal forecast.
Speaker 6: Our raised guidance for calendar 2023 essentially rolls the beat, plus a couple of cents, for the year in light of the uncertainties of the current environment.
Speaker 6: Similar to what you've heard from others, we saw strength across our markets in January and February , which moderated somewhat in a number of our businesses in March.
Speaker 6: Our issuer business did not experience any discernible moderation as our large Money Center bank customers benefited from the regional banking crisis that developed in March.
Speaker 6: Trends in this business continue to remain resilient through April and similar to March levels of activity.
Speaker 6: Our updated outlook today presumes a worldwide macroeconomic backdrop that is consistent with the current environment throughout the remainder of calendar year 2023. And with that, I'll turn the call back over to Jeff. Thanks, Josh. I couldn't be more proud of what we've achieved as a management team together.
over the last near decade with more than 27,000 team members across 40 plus countries. I'm also very pleased with our long history of management depth and succession planning. Cameron is only the third CEO of Global Payments in nearly a quarter century. He has my complete confidence and I look forward to working with him closely.
to effect a smooth transition over the coming weeks. I personally thank all our team members for what they do for us every day, as well as our millions of customers and thousands of partners and shareholders, the trust you've put in us and in me over the last 13 years. The future is bright at Global Payments.
Thanks, Jeff. 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 questions. Thank you, and I'll be conducting a question and answer session. If you'd like to be placed in the question queue, please press star 1 at this time.
And Jeff, happy for you. It's been a pleasure. And everyone, congratulations on the promotion.
And just happy for you. It's been a pleasure Cameron. Congratulations on the and the promotion
Let me start with merchant if you can provide a......
a more detailed geographical walkthrough as you consider macro and other factors, you know, US and the Americas now includes a couple of new geographies for you. Europe , including the EEO footprint, how should we think of sort of normalized growth rate and Asia pack recovery as well.
if you could sort of unpack that for the application. Hey Ashwin, it's Cameron. Why don't I go ahead and start? I'll ask Jeff to chime in with any other color he'd like to provide as well. So I think if you look at the overall backdrop for the merchant business, I think we feel pretty good about, obviously, our performance in the first quarter and how we're positioned for the full year.
as evidenced by obviously a reiteration of our guide and an increase, so to speak, up to the high end of our growth expectation for the merchant business for the full year. Starting here at home in the US, we continue to see good trends kind of across the business. I think like others who have reported already, you know, January and February were very strong months for us, we obviously saw a little bit of a pullback in March and we see April kind of looking similar to March right now, so.
Assuming a relatively consistent macro, you know, based on where we are today for the balance of the year, I think our U.S. business is really well positioned to grow nicely over the course of the year and obviously it's the biggest component of our portfolio. So as it goes, generally the rest of the merchant business goes. So I think we feel very good about where we are in the U.S. I'll weave an EVO into that conversation really by saying the B2B portfolio that EVO has.
to come on that. I think Europe is overall a good story, obviously a mix of various geographies there. We continue to see very strong trends in Central Europe and Spain, obviously two important markets for us. IBO will add to that with the addition of Poland and Greece, both of which again are strong secular markets with good long-term growth fundamentals that we're very attracted to now be in through the acquisition.
of a headwind for us, but I think as we look at Europe overall, you know, we're obviously pretty excited about the long term prospects there. And then lastly in Asia Pacific, as Jeff highlighted in his prepared remarks, we had our best first quarter in Asia since 2018. We saw, you know, mid to high teens growth as we finally got reopenings across really all of the Asia Pacific markets in which we operate.
at the merchant business, you know, we accelerated a point sequentially versus the fourth quarter from a top line growth matter before factoring in obviously the addition of EVO for roughly one week of the quarter. So feel very good about the trends kind of coming off of the quarter and remain very poised I think for the balance of the year to achieve the guidance, the updated guidance that we provided this morning.
That's very useful, thank you very much. And then sticking with merchant, adjusted rev growth was greater than volume growth, I think, probably for the first time in a couple of years. What's driving that? Is that value-added services, is there sort of different business model with more subscription revenue or something like that, or do you expect that to sustain?
Yeah, it's really mixed Ashwin more than anything else. Our vertical market businesses which are predominantly software driven and had a strong quarter which obviously contributes a little bit more to the top line than it does to the volume related metrics, but you're talking you know a few tens of basis points difference between the two one rounded up one rounded down.
you know, that's kind of the difference. So I wouldn't put too much weight to the 11 versus the 10. It's gonna, you know, fluctuate. Sometimes it'll be on top of each other. Sometimes volume may be a little bit better. Sometimes revenue growth may be a little bit better. I think what we step back and look at fundamentally is are those two moving in correlation to each other and is that gap relatively minimal? You know, 10 to 11 is very tight, you know, versus others in the marketplace. So I think.
First of all, Jeff and Cameron, congrats to both of you on the transition.
Jeff, if it's possible to give us a sense of where you, you know, the timing and why now, and maybe a little more in your thought process of what's to come for you, as well as...
You know what you're most excited about when you look at GPN going forward I'm just curious if we can give a little more color on the change.
Thanks for saying that. Let me start by saying Cameron and I have worked close together for nine years and probably in his judgment it's nine years too late. Probably where I start. I would say as we said in the press release and prepared remarks we just posted the best first quarter since 2019.
We talked about in February hoping that we were back in an environment of normalcy. I think we're there today We've got our first real beat and raise, you know in 18 months and then really importantly, Darren Yeah, we've said publicly for 12 months that we're focused on closing Evo closing NetSpan closing the sale I'm getting solutions but not surprising to you. Those probably started like 18 months ago, right? It's like the last 12 to 14 months. They really kind of ramped up. So just speaking for me I mean the board I agreed that
I think with these important strategic transactions behind us, I just would thank Cameron for putting up with me, you know, for all this period of time until we got, you know, until we got these things done. And then I'd also say it's important. I talked about the return on normalcy, but I want to make sure we have a stable macro economic environment and really this is the 1st period since.
I'm going in. Darren, if you're ever in South Florida, just come visit me.
Well, congrats again. I guess my quick follow up would just be on thinking about pricing in the industry. We've now seen, I know you talked a lot, Cameron, you just talked a little more about value added services and mix and it being pretty tight, but we've seen now between Pfizer and just across the industry visas, well, showing pricing changes. After having over 300,000 hundred people also, it was amazing how quickly those changes have
seen quite a bit of cost inflation for a couple of years, we would think there could be some opportunity on the price front. Any comment on that or any thoughts? Yeah, Darren, I think, you know, our perspective around pricing really hasn't changed and the philosophy that we have has been pretty consistent for many years now. We try to price our services, you know, to reflect the level of value and capability that we're bringing to the market, which we do think in many ways is differentiated from our competitors. I think we work very hard to try to optimize our pricing and have for...
more recently. I think that bodes well as it relates to the competitive landscape and particularly how we've tried to position our business over a long period of time. So nothing unusual coming from us as a pricing matter. I would say it's more of the same looking at portfolio optimization and pricing strategies again that try to reflect the value and service that we bring to the customer.
But obviously, the backdrop with other people doing that makes it a little bit easier for those to stick. It is probably the point I would make in the day.
Great. All right. Nice job on the quarter, guys. Congrats again. Thanks. Thanks, Aaron. Thanks, Aaron.
Thank you. Next question is coming from James from Morgan Stanley . Your line is now live. Great. Thank you very much. I want to add my congratulations to both you, Jeff and Cameron.
I wanted to follow up on Darren's question there about timing and maybe Cameron, you know, with a few key things now accomplished and closed, how are you thinking about strategically next steps, especially given, you know, you're still in very good capital position and is it
still time to keep looking at doing other acquisitions or does your prioritization change to integration and, you know, incorporating everything that the recent acquisitions, including EVO payments range? Yeah, James, great question. So I would say first and foremost, Jeff and I have pretty much been locked at the hip for the last nine years. So you shouldn't expect a radical.
strategy for us as a business matter going forward. So my highest priority will continue to be to execute against that strategy as we move forward. I think from a capital allocation perspective and priority perspective as Josh highlighted in his prepared remarks, we're very focused on getting back to our targeted leverage ratio by the end of this year. That is a priority of the capital allocation matter as well as make sure that we integrate EBO effectively over that same period of time.
We're going to continue to try to strike the right balance between obviously investing to grow the business. You know our priority is finding ways to invest in the business to grow and expand our footprint to support the various pillars of the strategy that we're pursuing and find ways to augment that through inorganic activities as well as organic investment in the business.
An absent, you know, meaningful opportunity to do that in a way that drives, you know, value and returns for our shareholders will look to return capital as we have over a long period of time. So, I don't think the overall philosophy or approach to capital obligation is going to change dramatically. I think it's going to be more of the same and I think more of the same will be very good for our shareholders over a long period of time. Got it, got it. And then just.
revisiting a little bit the outlook is that when you came into the year your planning assumption had been really no slowdown or economic recession. You know we've seen a little bit of a slowdown in consumer spending as you mentioned in late March and through April and it seemed like at least some of the qualitative commentary was a little more cautious for late March.
assumes you know the macro backdrop as I said in my prepared remarks is consistent with the current environment and really there's really two primary you know changes to the guide. What I would say is you know the first change is the the outperformance that we saw in Q1 which was you know approximately 40 million you know from a revenue perspective and EPS was about five or six cents you know better relative to our internal forecast.
or that we received from that spend in the month of April . Other than that, nothing has really changed relative to our guide that we went through on the February call and laid out specifically, very specifically by quarters. Yeah, James, just to add some color to the math that Josh went through, we're looking at current volumes and transactions in April .
So that already reflects to your point and I think Josh said this in his prepared remarks, what you've heard from Visa, MasterCard and some of the other folks. So I think that incorporates the current environment. Yet despite that, we've been able to raise our outlook a little bit better than the beat internally as Josh described. So we're very comfortable with where we are and as I mentioned a minute ago too, with my prepared remarks. Thanks.
particularly in the issuer business, you know, we're the beneficiaries of the tailwinds coming from some of the consolidation from regional banks into the Money Center and SIFIs. So of course, to start the JPM, you know, announcement today with First Republic, I would just say that our issuer business in particular hasn't seen any discernible moderation. Obviously, we pointed to acceleration today in our outlook and that very much reflects current events. As I mentioned a minute ago, our trends through April sitting here today from a...
This question is coming from Jason Kupferberg from Bank of America. Your line is now live.
Good morning, congrats to everybody. I just wanted to ask about quarterly revenue margin cadence for the last three quarters of the year. I know last quarter you laid out a pretty detailed outlook by quarter and just wanted to see if there's any little tweaks there so that we get the quarterly modeling right. For example, I think in merchant...
growth rates on revenue and earnings per share and I would say Q2 through Q4, nothing has really changed. So if you go back to the earning presentation that we put out there, we said adjusted net revenue reported, 5 to 6, Q2, 8 to 9, and Q3 and 4, we did obviously raise the overall outlook to 7 to 8 based on the performance that we saw in Q1. So that's it for today. Thanks for watching.
And which I just outlined and then from a margin perspective look We saw a really good margin expansion in q1 of 200 basis points exactly what we said we would do and from q2 Through q4 we expect 100 base points margin Expansion which we laid out on the February call and then from an EPS perspective again We're right in that that 9 to 10 percent, you know range for q2 through q4 which we outlined in February , so
Roughly half discretionary, half more non-discretionary spending. Is that still the right breakdown post-EVO closing? And if you can just talk about what you're seeing in terms of relative growth rates between the discretionary and the non-discretionary spending volumes in merchant. Yeah, Jason and Cameron, I'll jump in there. I would say that overall split holds roughly...
other even if their split is slightly different. I would say, and I'll use the U.S. as kind of example, you sort of saw the trend around retail sales in the U.S., which is really food and kind of retail more broadly. In the first quarter, January was very strong and February slowed down relative to January and March kind of slowed down relative to February .
But I would say overall from a spending perspective, we continue to see spending skewed towards more services and experiences and less so sort of retail goods and food to some degree. So a little better trends in the non-discretionary categories that we are heavy in.
particularly as it relates to services, healthcare, etc. And a little, you know, lighter trends in the traditional kind of retail, food and beverage, etc. But overall the portfolios, I think, hang together pretty well. I don't think the trends we're seeing in our business are any different than what you heard from Visa MasterCard as relates to March and April activity more broadly, which we talked about already. But I like, obviously, the diversification we have across, you know, nearly 70 different vertical markets. I like the split.
And sort of waiting that we have across discretionary non discretionary categories. So I think we're well positioned obviously for the macro environment as it continues to evolve through the balance of the year. Okay, appreciate the thoughts.
in sort of weightings that we have across, you know, discretionary, non-discretionary categories. So I think we're well positioned, obviously, you know, for the macro environment as it continues to evolve through the balance of the year. Okay. I appreciate the thoughts. I appreciate it. Thanks, Jason.
Next question today is coming from Ramsey LSL from Barclays. Your line is now live. Hi there. Thanks so much for taking my question. I will add my congratulations as well to both of you. I wanted to ask if you could provide a little bit more commentary on the timing of the revenue synergies with EVO. When do those start flowing in? Is there any work that needs to be done in order to unlock those?
Next question today is coming from Ramsey LSL from Barclays. Your line is now live. Hi there. Thanks so much for taking my question. I will add my congratulations as well to both of you. I wanted to ask if you could provide a little bit more commentary on the timing of the revenue synergies with EVO. When do those start flowing in? Is there any work that needs to be done in order to unlock those? And how long might that take?
Yeah, Bram, it's a great question. I tried in my opening comments to give a little bit of color on the types of revenue synergies that we're pursuing with EVO. Naturally, all those involve some level of investment. You know, I wish more than anything else we could flip a switch and start distributing our products and capabilities through their distribution pipes, you know, overnight or, you know, bring some of our capabilities to markets that they operate in today that don't have them. But as you can imagine, there's a significant amount of work to stand those up, to integrate those environments into different platforms that EVO operates under to make sure that we have distribution to support, obviously, the product that we're bringing to market, et cetera.
Be able to light EVO multinational customers up in new markets on different platforms takes time as well. So there's a lot of work that goes into driving kind of the revenue synergy potential that we see in the EVO business over a longer period of time. That's why near term much of the emphasis we talk about as it relates to synergies is really around the expense side. That's much more actionable in the short to medium term. We have clear line of sight of the 125 million expense synergies that we highlighted.
you know, at least, you know, 10 to probably 15 million of revenue synergies from the EVO business once we're able to get up and running, you know, with respect to the various levels of revenue synergy activities that I talked about earlier on in my prepared remarks. So we see good potential to drive incremental revenue in that business.
think increasing their revenue growth, you know, by a point or two on top of what they're already doing is a good target for that business and obviously, you know, we're very confident over a period of time that we'll deliver on that if not more, you know, once we're able to light up all those opportunities.
increasing their revenue growth by a point or two on top of what they're already doing is a good target for that business. And obviously, we're very confident over a period of time that we'll deliver on that, if not more, once we're able to light up all those opportunities. Got it. Okay. And one follow up for me.
Could you give us an update on value added services and how that part of your business is evolving? I'm just curious how important value added services have become to things like either new sales or retention and how attach rates are trending. Yeah I would say it's an incredibly important part of our strategy as we talked about back at our investor conference a little over a year and a half ago. I think as I look at it there's clearly an element of attracting new merchants to.
referral rates, largely based on the portfolio capability that we can bring to bear on their customer base. So we offer much more than the pure payment experience that a lot of integrated providers are able to offer their customers. I think the breadth of value added service we can bring is a differentiator in terms of working with our integrated partners and it's been a big reason we continue to see the strength in that business.
that we have over the last many quarters. So it's an increasingly important part of the value proposition that we're delivering to our customers. It's an important part of the growth profile over a longer term period. And again, I think we've done a very good job of utilizing the capabilities we have to drive differentiation and distinction in the market. And it's even more important as we look at markets outside of the U.S. Bringing some of the capabilities that we have in the U.S. to markets like Central Europe .
to build on as we move forward in time.
Thank you. Next question is coming from Brian King from Deutsche Bank. Your line is now live. Hi guys. Good morning and congratulations of course to both of you guys.
Just thinking about the merchant margins, they were up 80 basis points I think last year and they came in more flat in the quarter. Anything to call out in the quarter in particular, even before we integrate EVO, just thinking about organic margin expansion opportunities in the merchant segment. Yeah Brian , it's Cameron. I'll just start at a macro level and I'll let Josh maybe jump in if he has any additional.
as a vertical market, businesses continue to perform well and recover in some of those verticals relative to what they experienced during the pandemic. That tends to come in at a lower margin profile, which from a mixed matter kind of weighs to the overall margin expansion we're seeing in the business. But I would say for Q1, we delivered margin expansion for the merchant business ex-EBO.
overall more of that will be driven through gaining better scale across our corporate functions and obviously continue to see those expenses as a percentage of revenue you know not grow at the same pace and then secondly obviously in the issue of business that has a little more runway I think around margin expansion over the over the near to medium term so merchant was exactly what we expected for the quarter we still expect the same expectation for the full year as Josh articulated in his prepared remarks around merchant more
expansion in Q4 and then the net result of this will just be a modest decline in merchant margins for the full year, which is again consistent with the guide that we outlined on the February call.
Got it. No, that's really helpful. And then just as a follow-up, just thinking about the trends and issuer, I know you guys raised the issuer segment revenue growth for the year.
But the trends obviously are pointing in your favor towards the movement towards assets towards larger banks. And I think it was nine LOIs. So just thinking even about longer term, are you guys feeling a little bit more positive about maybe the issue or outlook even beyond 2023 as a result of some of these trends? Yeah, Brian and Jeff, I couldn't be more positive about
to the core issuer business. So yes, I would say not in the 9 RFP number or other things that are going on in terms of large financial institutions looking to select either new providers for the first time or with providers. I think we're very well positioned there, as I said, on a call in February that the cloud sells right? So, when we first started this, we weren't.
I think the more we see toward Monday Center and CIFI, I think the more confidence we have in the tailwinds over the next number of periods, and those aren't going to reverse themselves immediately. We've got a very nice tailwind heading into the next period.
Even today's announcement at JPM, yeah, that's good news, right? So I think the more we see toward Muddy Center and CIFI, I think the more confidence we have in the tailwinds over the next number of periods, and those aren't going to reverse themselves immediately. So I think you've got a very nice tailwind heading into the next period of time. Okay, great. Congrats again. Thank you guys so much.
Thanks, Brian . Thanks, Brian . Thank you. Our final question today is coming from Vasu Gogo from KBW. Your line is now live. Thank you very much and congratulations to you both. I want to add that as well. My first question is for you, Jeff. I think you mentioned mineral tree grew 20% in the quarter and you're expecting it to grow 30% for the year. So just wanted to know, what is your plan for the year?
that's an incremental tail end to kind of what we're doing. So look I think the answer to your question is there's a long and deep pipeline that we've been selling over at military for quite some time. The person running our business now started last summer I think was right around July 1st so he's been very busy building that pipeline. We're seeing the benefit of that now. We're also seeing a very substantial benefit.
from Clossela Virtual Card, where T-SAN is one of the largest virtual card providers on the planet, into our core business, and that's growing at rates well in the world of 20%. So I just think, Basu, to answer your question, it's the mathematics of selling a recurring cloud SaaS business. The deeper the pipeline is, the more it rolls in. It's obviously very visible on the cross selling at catch rate.
from virtual cards into the core on the software sale is very high. So it's really just the mathematics, you know, of what we've, of what we built. In terms of notable wins, I think we said those, to be honest, on February call. I think we talked about US Bank. I think we talked about citizens. Those are obviously, you know, two notable wins and I expect over, you know, the balance of here, Cameron and Josh and team will, will be describing more, but we couldn't be more pleased with where that business is and its trajectory. And look, you know, increasing the rate of growth from 20 to 30% or a 50% increase, I think is evidence of our confidence in it. That's great. And then just my follow up on just the macro backdrop. I know you guys are.
were on our February 10th call, we're actually going with what the current trends are today. And I think we said as it relates to the issuer business, we obviously have the KPIs through the vast majority of April on there, as we said, and our prepared marks, we don't see any discernible moderation in what we're doing. So we don't assume things get better, we don't assume things were the way they were two, three months ago in February , rather we're taking kind of where they are today and obviously are raised outlaw for today.
you know, for the balance of the year relative to our current outlook to obviously achieve the expectations that we've set forth today. So I think we feel good about, you know, how we're positioned to deliver on the overall guide that we've shared and obviously that can withstand I would say, you know, relatively
you know, it contains, withstands slight deviations, I'd say, in the overall macro environment that we're anticipating for the balance of the year. If things fall off precipitously, then obviously we'll revisit it. If things obviously improve more than we anticipate, obviously that creates some upside opportunity. So I think we feel good about obviously how the business is positioned for the balance of the year. The guide I think today reflects that.
Thank you. That does conclude today's teleconference and webcast. Let me disconnect your line at this time and have a wonderful day. We thank you for your participation today.