| Quarter | Q1 FY22 |
|---|---|
| Call date | 2022-05-03 |
| Results reported | 2022-05-02 |
| Length | 63 minutes |
| Speakers | Jeff Sloan, CEO; Paul Todd, CFO; Cameron Brady, President and COO |
Results, guidance and Q&A analysis for this call
Jeff Sloan (CEO)
Ladies and gentlemen, thank you for standing by and welcome to Global Payments First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will open the lines for questions and answers. If you should require assistance during this call, please press * then zero. And as a reminder, today's conference will be recorded. At this time, I would like to turn the conference over to your host, Senior Vice President, Investor Relations, Winnie Smith. Please go ahead. Good morning and welcome to Global Payments first quarter 2022 conference call, our earnings release and the slides of the company. This call can be found on the Investor Relations area of our website at www.globalpayments.com. Before we begin, I'd like to remind you that some of the comments made by management during today's conference call contain forward-looking statements about expected operating and financial results. These statements are subject to risks, uncertainties and other factors including the impact of COVID-19 and economic conditions on our future operations that could cause actual results to differ materially from our expectations. Certain risk factors inherent in our business are set forth in filings with the SEC, including our most recent 10K and subsequent filings. We caution you not to place undue reliance on these statements. forward-looking statements during this call speak only as of the date of this call and we undertake no obligation to update them. We will also be referring to several non GAAP financial measures which we believe are more reflective of our ongoing performance 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.
Paul Todd (CFO)
Please.
Jeff Sloan (CEO)
See our press release furnished as an exhibit to our Form 8K filed this morning at our supplemental materials. Joining me on the call are Jeff Sloan, CEO, Cameron Brady, President and COO, and Paul Todd, Senior Executive Vice President and CFO. Now I'll turn the call over to Jeff. Thanks, Winnie. 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've been reporting in Global Payments, Integrated and US Payments and Payroll drove attractive growth for both businesses during the quarter and early this year. We combined 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 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 Run 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 Omni channel 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 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 Chargepoint, the world's largest network of EV charging stations in North America and Europe. Beyond our existing car present relationship to now include e-commerce, our partnership with City via UCP that spans North America, the UK and Continental Europe continues to gain traction and we are currently targeting approximately 300 of City's 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 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 verticalized 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 and events vertical, we have now gone live with our Xenial Cloud point of sale solutions in Mercedes-Benz Stadium as part of our partnership to enable its multi channel commerce ecosystem. And in enterprise QSR, we successfully completed the roll out of our POS solution with Dutch Bros and we'll 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 roll out of our Zeno Cloud POS solution to all Denny's and Long John Silver's restaurants prior to the end of calendar year 2022. Further, it's worth highlighting that we signed a new agreement with Focus Brands to deploy Xenial digital menu board solution across this Auntie Ann's, Carvel, Cinnabon, Jamba Juice, Mcallister's Deli, Moe's Southwest Grill and Schlotzsky's Deli franchises. Our AMD business delivered another quarter of strong bookings growth of nearly 35% and eclipsed a significant milestone with the number of active physicians and providers utilizing the platform surpassing 50,000 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. Early success in our newest vertical market real estate also continued in the first quarter with Zego 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 BNPL technologies. We launched our BNPL 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 BNPL providers in their target markets through a single integration point, expanding our alternative payments offerings on a regulated, compliant and responsible basis while supporting merchant enablement and consumer choice. In combination with our BMPL initiatives to our market leading issuing business that targets financial institutions and retailers, we expect to drive significant growth beyond the 2 billion transactions that we already enable through BMPL annually. Late last year, we announced that we have reached an agreement to extend and expand the scope of our land standing relationship with PayPal, which leverages our unparalleled e-commerce technology footprint across North America, Europe and Asia Pacific for a multi year. And I'm happy to report that we expect to be live with PayPal this quarter in new geographies and additional verticals and we'll support the cryptocurrencies 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 cryptocurrency redemption in customer loyalty programs offered by our bank card clients, expanding our banking as a service offerings to include cryptocurrency 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 Kaisha Bank has recently signed a letter of intent to memorialize the selection of Global Payments as its technology partner for its card issuing businesses. This is the largest potential new customer signing 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 Kaisha Bank complements our debit strategy and positions Global Payments as a leading debit technology provider across Europe. Virgin Money is a significant competitive take away and we successfully completed the migration of the Virgin Money credit portfolio to our platform in February. And it is our first use case combining 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 successfully achieve significant multi year renewal agreements with UK based Metro Bank as well as with Ireland based Permanent TSB, which are two other long standing 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 our 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 through 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 authorizations, clearing and settlement in the cloud. And we anticipate Kaisha 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 neobanks, fintechs and startups. We also currently have 8 letters of intent with institutions worldwide, 4 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 sells as we look to further capitalize on our ability to combine accounts payable SAS technologies with our best in class capabilities into market leading B to B solutions. We're now managing Mineral Tree as a part of our Issuer Solutions business. As we discussed at our investor conference last September, we believe that we already possessed one of the largest B to B businesses at scale globally and that our commercial card and virtual card efforts within our issuer segment are the linchpins of our overall B to B strategies. When viewed in that light, Mineral Trees capabilities are a perfect fit for that business. We're delighted that Mineral Trees momentum continued this quarter, including 60% growth in virtual card spend for the period and achieving the highest virtual card spin month 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 5th 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 BDB solutions business continues to be successful. We have expanded our agreement with Cracker Barrel to include an EWA 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 two, 100%. Also, we recently renewed pay card partnerships with Big Lots Lodge Travel Stops and Country Stores and Cumberland Farms collectively spanning over 2500 locations in 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 Netspend consumer business to sharpen our focus on our B to B assets. I am pleased to report that we have made progress and that there is significant interest in Netspend instead of direct 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 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. Ultimately, our values and culture provided the road map for our.
Paul Todd (CFO)
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 anniversary of multi years of stimulus benefits incremental headwinds from the war in Europe and more recent adverse foreign currency exchange rate. Specifically, we delivered adjusted 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 $2.07, 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, Merchant Solutions achieved adjusted net revenue of 1.34 billion for the first quarter, a 16.3% improvement from the prior year are 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 ACM and payroll business grew nearly 30%. As far as 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 in adjusted net revenue, a 1.4% 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. Consistent with last quarter, we had continuing headwinds related to our managed services repositioning and some non recurring revenue. This impact was partially offset by the inclusion of mineral tree within our issuer solution segment beginning this quarter. Normalizing for these items are just a net revenue growth was in the mid single digits consistent with our long term target. Also ex non recurring items, commercial cards 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 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 lap two years of benefits from stimulus and higher levels of unemployment assistance. Our focused efforts on our B2B 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 Tree, 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 471,000,000 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 2.9 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 we're not reflected in the initial guidance we provided in February 1st. 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 8.42 billion to 8.5 billion, reflecting growth of nine to 10% / 2021 or 10 to 11% on a constant currency basis, albeit at the lower end of this range. Given the aforementioned items, this outlook remains consistent with our long term cycle target for double digit top line 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 and 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 Netspend 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 385,000,000 and for 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% / 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 out performance in the first quarter. 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 B to B focus and R issuer segment position as well for the future. And with that, I'll turn the call back over to Jeff.
Jeff Sloan (CEO)
Thanks, Paul. I am pleased with our performance during the quarter, which has us on track to deliver record results for 2022. 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 and 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 mode 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 Omni channel prevalence, which we discussed in depth at our investor conference in September. Winnie, 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. At this time, I would like to remind everyone in order to ask a question, press * then #1 on your telephone keypad.
Jeff Sloan (CEO)
Your first question comes from the line of Darren Peller from Wolfe Research. Your line is open.
Paul Todd (CFO)
Hey, thanks guys. You know, I want to start off with the merchant side just.
Cameron Brady (President and COO)
Because we're still seeing volume growth, you know, obviously out very well and it's outperforming Visas volume again on the credit card side, which really I think does understate the_the market share positioning when. You 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's some verticals, but more importantly, you know, just strategically talk about the position of the assets where they can be in the next couple of years and if there's any incremental assets, you think that makes sense.
Jeff Sloan (CEO)
Yeah, thanks, Darren. I think you're spot on in your questioning. We couldn't be more pleased with the performance overall, but especially in our merchant, in our merchant business. So let's just start with where you started on the reopening question is we said we're very excited this quarter that our vertical markets business has returned to growth relative to 19, not just relative to to 21. We had, as I think we said in our prepared remarks, high 20s growth in our vertical markets business. Our bookings actually accelerated to mid 30s growth Darren in the first quarter. So actually that performance has has accelerated the number of the businesses that Cameron can describe within vertical markets in terms of reopening Darren that had been more recent laggard, laggard example that include that include active and 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, you know we think that's 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. You know, listen, I think is 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 in September and again reiterated today that a number of elements of our merchant business including in particular global payments integrated business which we described the combination of that with our US payments and payroll business this morning. That business just reported another double digit growth quarter in the first quarter of 22. That business, Darren, is essentially at the same quantum of revenue as it would have been had there been, you know, pandemic really in the, you know, in the 1st place. So I think it's a strategy matter over the next number of years. We have tailwinds from the vertical market segment as I described a minute ago. As we 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 the pandemic. Cameron, you want to get a little bit more color?
Cameron Brady (President and COO)
Sure. I'll be happy to. Good morning, Darren. I, I would just start with a couple things. I'll start with the 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 markets overall to growth relative to 2019, which I think is a 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 recover. On the flip side, I want to highlight Touch Net and Advanced MD, which continue 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 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 things. One is as an execution matter, new sales and bookings trends remain very positive. In aggregate across the business, it was roughly 20% this quarter, again continuing with a very strong sort of 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 is the diversity of vertical market exposure that we have across you know 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 as a diversification matter across vertical markets. OK, that's really helpful. Very quick follow up for a policy, if I don't mind, just on the margin side, what gave you the conviction to to raise it by a bit this, this time around and what's what's the cadence of it through the year? Thanks again guys.
Paul Todd (CFO)
Yeah, Darren. So, yeah, I mean, obviously we've been very focused on margin expansion now really you know, for the last two years. But most recently, you know, some of the actions that we took as Jeff said in his prepared remarks to kind of offset some of the incremental, you know, adverse kind of foreign exchange as well as Russia from on the cost side allows us to kind of tweak up that that margin, you know, expectation for the year. And as a cadence matter, you know it, it kind of progresses throughout the year here and kind of steps up as we move throughout, you know, the quarters to kind of get to that overall up to 125 basis points. So you saw us, you know, at the 50 basis points. We'll have another step up in the second quarter, it'll step again in the 3rd and and and another step in the fourth quarter to kind of get us to that overall up to 125 basis points. OK, thanks again guys. Thanks, Aaron.
Jeff Sloan (CEO)
Your next question comes from the line of Ramsey El Assault from Barclays. Your line is open. Hi, thanks for taking my question this morning. Can you comment on what you're seeing in, in April in your in your merchant portfolio and sort of specifically whether you're seeing any signs that inflationary pressures are sort of tipping from from tailwind to headwind?
Cameron Brady (President and COO)
Yeah, Ram did Cameron, maybe I'll start. I'll ask Paul and Jeff to chime in. I I would say April trends thus far have been pretty good and I'd 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, as you know, generally with an inflationary environment, we're going to benefit as volumes continue to tick up, reflecting obviously that price inflation in the overall cost of goods and services that consumers are purchasing to the point obviously where 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.
Jeff Sloan (CEO)
OK. And a follow up for me, I wanted to ask about debit as an opportunity and on the issuer and the issuer business. To what degree does the AWS deal help you, you know move deeper into debit? I think she says it's been traditionally more of a credit shop. How do you, how do you think about debit as we move forward as an opportunity? Yeah, Ramsey, it's Chef. 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. So if you go back to the fall of 21, the Virgin Money win, we've already converted the credit portfolio, but the piece that's coming in the remainder of this year really is the debit portfolio. So that's a very significant win for you know win for us. And as I mentioned in the prepared remarks this morning, we expect to have our relationship along the lines of the the digital wallet with Virgin Money, which is to be very much a an environment where we can offer non bank car rails, I think ACH 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 Kaisha Bank in February and now we signed a letter of intent, you know recently Kais is one of the largest debit issuers across Europe. 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 our prepared remarks that we do expect to be among the largest debit processors across Europe before you even really get into additional Co 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. You know we announced that we had Llis and pipelines with a number of fintech startups and neobanks with AWSI 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 US1 of the leading debit technology providers. Anyway, if you think about the virtual cards that we talked about in September plugged into that what we announced this morning with backed on the virtual card issuance side with crypto currencies. Plug into that the relationship with AWS and the 11 prospects in the pipeline on neo banks, fintechs and startups. Those tend to be Ramsey virtual card centric and those tend to be in particular debit centric as it relates to virtual card. So I do think over the next 12 to 36 months are going to very see a very significant, significant expansion on the issuing side of our debit business. AWS has a really serious role to play there, but you know so does back and really to be honest, so do the traditional financial institutions that we've been announcing not just this morning, but the last number of 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.
Paul Todd (CFO)
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.
Jeff Sloan (CEO)
Seasonally, I know you would typically see maybe mid single digit or so kind of quarter over quarter growth and.
Paul Todd (CFO)
I guess if we think about this year's second quarter, you're, you're going to benefit a little bit arguably from the fact that Omicron impacted Q1 to some extent. But then you've got Russia and FXI guess that that kind of go the other way. So make sure our expectations are calibrated properly in terms of how you're thinking about, you know, the quarter over quarter growth rate in in merchant for for Q2, assuming that the macro stays relatively stable. Yeah, Jason, this is Paul, I'll start. And Cameron may want to add on top of that, you know 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. You know we did have an easier comp in the first quarter, IE kind of the 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 kind of 3/4 and really you've almost kind of get into just how it compares on a year over year basis. Fundamentally the organic growth is, is similar, but just on a comparative basis, we obviously there's an M&A impact in the first half of the year that's a little bit of a comparative tailwind for us on the merchant side relative to the back half. And so you kind of start at this kind of 16 N of 16% reported or or over 17% constant currency. And then we kind of go down into that low double digit kind of growth rate, you know for the remaining 3/4. And really the only kind of noise is just the difference between what we're comparing to from a base matter, Cameron.
Cameron Brady (President and COO)
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 you're going to have a a very different comp as 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.
Paul Todd (CFO)
Right, right. OK. That makes sense. Following up just on issuer, obviously nice to see the the Kaisha win. I wanted to see if I caught the comment right that 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 for this year just based on how you see the implementation backlog trending? Thanks guys.
Jeff Sloan (CEO)
Hey, Jason. Thanks. It's Jeff and I'll I'll start and I'll ask Paul to talk a little bit about the about the cadence. So we expect the implementation of Kaiser to begin at the end of 2023. So we'll have some impact in 23, but that's really the start of it. And obviously given the size of that will continue into 2024 and and beyond, as we said in our prepared remarks, it's the largest single letter of intent sign we've had since 2013 and effectively double S the size of our implementation pipeline. The other thing I mentioned in our prepared remarks that the 56,000,000 cards in the implementation pipeline does not include other things we 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 56,000,000. So we hope we're in a position when we head into the back half of the year that as we burn through the implementation pipeline, which Paul will talk about in a moment, as we burn through that, we're actually replenishing it and keeping it relatively constant at the record level or thereabouts as it is today probably what to talk about.
Paul Todd (CFO)
Yeah. So you know Jason, I'm the step up as it relates to the the revenue growth. And as we said on our last call, you know that we did have in this first quarter some comparative kind of from year over year. But we step to that mid single digit in the second quarter and then step up to kind of that mid to kind of higher mid single digit in the 3rd and the fourth quarter for the business. Ultimately kind of landing at that higher mid single digit rate is our expectation for the year. So we have a progressive step up, you know, throughout the year. And and as I said, you know 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 comps that 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 to step up progressively in the year, but it's also kind of on the exit run rate, growth rate that we expect to be at when we end the year.
Jeff Sloan (CEO)
Yeah. I just add that Jason Wet Paul just said that commercial card, which Paul called out in his prepared comments, saw improvement in March versus February, February versus January. Obviously as Omicron waned and corporate business travel returned, We expect that to be much like Visa, MasterCard said, you know, improving as 2022 goes on. So in addition to the record implementation pipeline, we do see tailwinds coming in commercial card, which really for the last two years or so, Jason, up until kind of February, March was like a headwind.
Paul Todd (CFO)
Right, right. OK. Well, thanks for the remarks.
Jeff Sloan (CEO)
Thanks very much. Your next question comes from the line of Dave Koning from Baird. Your line is open. Yeah, Hey guys, nice job. And and maybe if I can just start out by just the pricing and yield environment, it it seems like, you know, maybe we're getting into a little better place just with interchange adjustments, maybe your own ability to price, maybe software growing faster than merchant, like could we actually see yield start to take up, you know, in, in coming?
Cameron Brady (President and COO)
Quarters. Yeah. Dave, I 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. You know, obviously vertical markets 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 pricing as you know is interchange plus, but we do have some bungled pricing as well. More importantly, as 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 things. One, obviously given all the discussion of inflation, you know there is an acceptance. The fact that costs are increasing is point #1 and point #2 you know, as our business mix continues to shift towards more technology enablement, more software, obviously we're seeing a positive environment for 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.
Jeff Sloan (CEO)
Great, thanks. And maybe just a follow up, just a really high level, you know, you've talked about high teens EPS growth over time. You know it, it feels to me like if anything as time goes on you probably feel as good or better about that high teens growth. I mean is, is that fair kind of as we kind of reflect on this quarter in April, like if things are as good as ever long term is greatly intact? Yeah, Dave, I think that it's Jeff. I think it's exactly right. And I'll ask Paul the comments. We raised the cycle guidance to the 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 for this year. So I think what we've shown is the business is very resilient as Cameron described the vertical markets business, you know which during the recovery, but as Darren asked about the vertical markets business, you know, during the recovery was a bit of a headwind. Now it's a tailwind. So I think we're in a very good place as Cameron mentioned with a balanced business to feel very confident in the in the cycle guide almost somewhat, you know, independent of the macro 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. Clay, Lenny.
Paul Todd (CFO)
Yeah. I would just say we kind of hit on it in the last couple of questions is just the improving picture. You know, certainly on the merchant side, we've talked for several quarters about the tailwind, the vertical markets coming back and being an additive kind of growth dynamic. And then as I just commented on the issuing side with between what we're seeing this year as a progressively stronger growth picture and this pipeline size that as Jeff commented earlier, is the biggest pipeline we've had in in really a long time in that business. And then you kind of couple that was just even as of this morning, raising our margin guidance in the things that we're doing on the on the cost side gives us that kind of additive confidence that yeah, that that EPS cycle guide is, is is in really good shape and we've got tailwinds relative to the the things we've talked about this morning.
Jeff Sloan (CEO)
Yeah. Thanks guys. Great job. Thanks, Ed.
Cameron Brady (President and COO)
Thanks, Ed.
Jeff Sloan (CEO)
Your next question comes from the line of George Mihelos from Cowen. Your line is open. Great, Good morning guys and thank you for for taking my questions. I guess just to kick things off, some clarification on the issuer side of the equation, Paul, how, how much?
Cameron Brady (President and COO)
Did mineral tree contribute to to issue resolutions here in the in the first quarter? And then maybe to just kind of circle back to to Jeff's commentary on on.
Paul Todd (CFO)
Commercial, how, how exactly did that perform in the first quarter relative to to kind of a 20?
Cameron Brady (President and COO)
19 benchmark if you happen to have that handy.
Paul Todd (CFO)
So you know, as it relates to the the impact of mineral tree and you know we were roughly flat on a constant currency basis X mineral tree. And so obviously being at the roughly 1 1/2 percent growth, that's kind of the right way to think, you know about the mineral tree impact and roughly kind of the right way to think about it for the full year, although we've got some additional adverse FX that comes into play. So that pulls that down, but roughly about you know a percent you know or so of of of benefit as it relates to mineral tree. And then you know, as it relates to commercial card, you know, we still haven't reached back to kind of exceeding the 2019 levels on commercial card. We did as Jeff said saw a progressive kind of growth picture and and particularly so between March and February kind of the step up in the growth rate in our commercial card business as it relates to to you know, kind of sequential. But as it relates to 19, you know we're still not, you know at those 19 levels. And you know, certainly you know, if we sit there and look at the overall segment, what we were pleased with is it the overall normalized growth rate of that business from a car counts on file and kind of transactional revenue being solidly in that kind of mid or almost high mid single digit growth rate. And just putting it all together, when you look at it kind of the X, the managed services and you know some of the non occurring, we're kind of solidly in that mid single digit growth rate for the quarter.
Jeff Sloan (CEO)
OK. That's great. Appreciate that color. And then just just shifting gears to merch in a little bit, can you guys talk about what you're seeing on the international side, I mean?
Paul Todd (CFO)
Since I had, I think my last conversation was Europe was looking a lot better, APEC better, but you know, maybe still sort of lagging just.
Jeff Sloan (CEO)
Just curious if you can give us a sense as to how those those international geographies have been progressing? Thank you.
Cameron Brady (President and COO)
Yeah, 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 Bankia that we acquired in the 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 UK, you know, is positive, which is good and remains positive, had a very strong quarter. Spain continues to really be the bright spot along with our joint venture with Urste Bank in Central Europe. Those two businesses are growing at very attractive rates as we've seen the pandemic accelerate. Obviously the digitization of payments across those two markets to up to a pretty extensive degree. So those those businesses I think stand out again from a performance standpoint position in Europe, I think to have a a a very strong year overall as a recovery continues to progress. Asia actually went backwards a little bit in the first quarter and that's completely attributable to the lockdowns in the in the Greater China markets and China in particular. So we did see Asia be a headwind to growth. Asia grew overall about 3% in the quarter. You know some of that was obviously a negative currency environment and 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 expected 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.
Paul Todd (CFO)
Thank you, Cameron. Thanks, George.
Jeff Sloan (CEO)
Your next question comes from the line of Timothy Shadow 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 want 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're taking, how many are doing online and in store and then maybe the penetration of additional embedded financial services across those. Thanks a lot.
Cameron Brady (President and COO)
Yeah, Tim, Tim, it's Cameron. I'll start and I'll ask Jeff and Paul to to jump in with any other comments I'd like to provide. So you know, obviously if you just look back in time, the Global Payments integrated business grew through the combination of our acquisitions of APT and and Pay Pros. 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 TSYS about 2 1/2 years ago now, TSYS had a portion of their 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, it's 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, 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 partners 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 130,000 additional Mids to be able to add to our integrated business. So those are three really sizable wins and ones that were really attractive or excited about given that, that business has about 600,000 mids in it today. So adding a a new population of 130 we can go and target is, is is obviously a very good result for us. So in any given year we'll add you know well into you know 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 that new partners into the portfolio and then obviously get better penetration levels within our partner base of Midge. As Jeff highlighted in his prepared remarks, we have now as a go to market matter combined our US payments and our GPI business. A big part of that strategy is really geared around unleashing our relationship LED sales professionals on the GPI 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 lending into our GPI business from our US payments business. And 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 is our ability to embed more value added services, more commerce enablement solutions into the overall GPI portfolio is really going to be enhanced by bringing those channels together. As we're able to obviously unleash more capability into that environment as we have a slightly smoother kind of go to market motion across the US business by merging the two channels.
Paul Todd (CFO)
Great, Kevin. Really appreciate that thorough update on GPI.
Cameron Brady (President and COO)
Thanks a lot. Absolutely. Thanks, Tim.
Jeff Sloan (CEO)
Your next question comes from a line of Trevor Williams from Jeffries. Your line is open. Great, thanks. Good morning. I just want to clarify on the full year guide, Paul, you walked 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 you're still expecting progressive improvement throughout the year. Can you just remind us there what sort of macro trajectory is built into track to the low end, the midpoints and the high ends of the guides? Thanks.
Paul Todd (CFO)
Yeah, Trevor, I mean, you know the as it relates to macro in each one of our businesses, you know, we kind of build that into the fundamental kind of how we're building up based on what we're seeing and and you know, obviously what depending on the segment, what we're kind of forecasting for our customers and and so on. So nothing's changed with that kind of rationale with the way we looked at and we did as we said last time that we do as you kind of referenced assume 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 perfection into the kind of model. So we just kind of have based on all of the the way we do our forecasting across all of our businesses, you know, that kind of embeds in what we're expecting from an overall kind of normalized, you know, standpoint. So I wouldn't say there's anything kind of incremental that we've built in. It's just been that kind of more normalized kind of growth and return to normalcy. And with that being said, you know, we do provide for, you know, some kind of, you know, non perfection as we move along that that that pendulum there.
Jeff Sloan (CEO)
OK, perfect. Now 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 USI mean with where the implementation pipeline is, the Kai should win and clearly you guys have a lot of momentum in the business. But in the US, 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 US and how the repositioning of the business with the AWS partnership, how that fits in to kind of how you've seen the market evolved there over the last couple of years. Thanks, Trevor. Jeff, I would say that the competitive environment really hasn't changed in 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 that landscape is any different now than it was certainly when we did the merger 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, you know 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 with we think we believe that one of the reasons that Kaisha 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 and they came to the point of view that this is an important strategic decision for them. And I think that's as good a touchstone as any. And I think the 56,000,000 accounts on file as a record implementation pipeline, you know, is a, you know, really is another. So I think if you look at kind of what our our guide has been, you know, in that business, Paul described progressively increasing throughout the quarters. If you look at where I think we'll be over the next 12 off 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 end to end technology leadership. So if anything's new, Trevor, it's you know, leading first and foremost with with technology. And I think what we have is really unmasked at scale in our industry. That's great. Thanks, Jeff. Your final question comes from a line of Ashwin Shirvakar from City. Your line is open. Hey, Jeff, Cameron, Paul, thanks for taking the question. Good to hear from you. I 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?
Paul Todd (CFO)
Yeah. Well, after this, Paul, you know, we have kind of a more normalizer, certainly a progressive kind of recovery on the commercial card side kind of built in to, you know, obviously the the guy that we talked about of the the higher mid single digit. And so you know that if you will on the commercial card side is, is, is is built in, I would call it you know, maybe a kind of point maybe of, of additional growth. And 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 if we move into 2023, obviously there could be some incremental kind of tailwind into 2023 if we kind of get back to that, you know kind of two 2019 level. We'll just have to see you know how things progress. What I'm particularly pleased about though is what we've seen so far this year because obviously in the fourth quarter, you know we had seen some pullback in the latter part of the fourth quarter, you know relative to commercial card and we have seen that come back. And as I said particularly we saw it in March volumes versus February, but we saw progressively kind of quirk pictures. So we are seeing it coming back, albeit not yet to that 2019, but that would be roughly the right way to think about it. Ashlyn.
Jeff Sloan (CEO)
Got it, got it. And then just a clarification with, you know, basically unchanged revenues where you're absorbing a lot of different factors, but higher margins, the EPS offset, is that completely on interest expense? I might have missed that or if you could walk through some of the below the line items.
Paul Todd (CFO)
Yeah. So, you know, we did kind of tweak up kind of the interest cost. You know, in in the prepared remarks I commented on, you know, relative to the environment that we're in with the rate increases. And so you know, that's baked in. So we're absorbing that, you know, in, in, in, in what we're doing from a cost standpoint. So, yeah, I mean kind of we, we commented I think in the prepared remarks, that's what we're pleased with is we're kind of absorbing the Russian impact, the adverse incremental FX, some higher interest costs and still staying squarely kind of in our EPS guide range.
Jeff Sloan (CEO)
OK. Got it. Thank you. Well, thanks, Ashwin. On behalf of Global Payments, thanks for 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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