Worldpay Inc. (WP) Q1 2018 Earnings Conference Call Transcript

Worldpay, Inc. (WP)
Q1 2018 Earnings Conference Call
May 10, 2018, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good day and welcome to the Worldpay First Quarter Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Nathan Rozof, Head of Investor Relations. Please go ahead, sir.

Nathan Rozof -- Head of Investor Relations

Thank you. Good morning to everyone in the U.S. and good afternoon to those of you in the U.K. Thank you for joining us today for Worldpay, Inc.'s First Quarter 2018 Financial Community Conference Call. By now, everyone should have access to our first-quarter 2018 earnings announcement, which we have filed as an 8-K in the U.S. and released via RNS in the U.K. The 8-K filing also includes a slide presentation that we'll refer to on today's call. These documents can be found at worldpay.com in the Investor Relations section.

I would like to direct your attention to the Safe Harbor statement and other required statements on Page 2 of our presentation. Our discussion today will include forward-looking statements. These forward-looking statements are not guarantees of future performance, and therefore, you should not put undue reliance upon them. These statements are subject to numerous risks and uncertainties that could cause actual results to differ materially from what we expect.

Additional details concerning our business risks and the factors that could cause actual results to materially deviate from our forward-looking statements can be found in the forward-looking statement disclosure in today's earnings release and in the 8-K we filed today with the U.S. Securities and Exchange Commission.

Also, throughout this conference call, we will be presenting non-GAAP and pro forma financial information, including net revenue, adjusted EBITDA, and adjusted net income, and adjusted net income per share. These are important financial performance measures for the company but are not financial measures as defined by GAAP. Reconciliations of our non-GAAP pro forma financial information to the GAAP financial information are presented on Schedule 2 of our earnings release.

Turning to Slide 3, during today's call, Charles Drucker, our Executive Chairman and Co-CEO, will discuss highlights from the quarter and provide an integration update, Philip Jansen, our Co-CEO, will describe Worldpay's unique ability to harness the key trends driving growth across the global payments market, and Stephanie Ferris, our CFO, will review our first-quarter financial results and provide our outlook for the second quarter and full year 2018. After that, Charles will provide some closing remarks and we'll open the call for questions. With that, I'll turn the call over to Charles Drucker, who will begin his comments on Slide 4. Charles?

Charles Drucker -- Executive Chairman and Co-Chief Executive Officer

Thank you, Nate, and thanks to everyone for joining the call today. We closed the Vantiv/Worldpay transaction on January 16th, and it's been a great pleasure to announce our first quarter of results as a combined company and update you on the progress we have made bringing our company together. Together, we have created the new leader in global integrated omnicommerce. We continue to create shareholder value by executing on a business model that can sustain high single-digit rates of revenue growth with upside from revenue synergy opportunities.

We started the year strong, delivering on our commitments, as our first-quarter results exceeded our expectations. Together, we generated net revenue of $851 million in the first quarter. As reported, net revenue increased 81% as compared to Vantiv's prior-year results, primarily due to the benefit of Worldpay acquisition. On a pro forma basis, the underlying performance of that business was equally strong. Had we owned Worldpay in both the current and prior periods, our combined net revenue growth would have been 12%, demonstrating the strength of the underlining business momentum.

Each of our segments performed well in the first quarter. Growth in our Technology Solutions segment was particularly robust, growing well above 20% on a pro forma basis. In addition, we had several exciting new wins this quarter, including meeting restaurants, retailers, airlines, and financial institutions, all of which I'll discuss in a few moments.

Our integration is progressing according to plan. We generated $10 million in cost synergies during the first quarter as we got off of the blocks quickly to begin combining our two companies. As a result, we generated adjusted net income per share of $0.81 in the first quarter, up 19% year over year, which also exceeded our expectations. Based upon a strong first-quarter performance, we are increasing our guidance for the full year, raising our net revenue range by $10 million and our adjusted EPS range by $0.05.

It's rewarding to see our companies come together with strong executions out of the gate. It reinforces the rationale for our transaction and increases our confidence for the future. Therefore, Philip and I would like to thank all of our colleagues for their teamwork and dedication to delivering the promise of the new Worldpay.

Turning to our segment performance on Slide 5, you can see in the quarter our continued strong business momentum at each of our segments based on the strong revenue performance as well as our many new wins and renewals that we're happy to announce this quarter. Touching first on revenue, growth in our Technology Solutions segment accelerated to 29% on a pro forma basis driven by strong growth across both e-commerce and integrated payments, which each posted similar 20%-plus growth in the quarter. Our Merchant Solutions segment and Issuer segment also performed well and exceeded our expectations. Merchant Solutions grew 5% on a pro forma basis, reflecting robust consumer spending across the U.S. during the first quarter. Issuer Solutions declined 4%, slightly better than our mid-single-digit expectations, as the underlying trends in the business remain healthy, giving us continued confidence that Issuer Solutions will return to growth in the back half of the year, as we've previously discussed.

Beyond the top-line number, our momentum with our clients also remained very strong across the entire company, as shown by our several new wins and key renewals that I'll highlight on this page. Within global e-commerce, we won IDT Telcom, which is an industry leader in prepaid communication, as well as Paddy Power Betfair, PAY-ASIA.com, and Supernova. We also won leading airlines, including a multiyear contract for global e-commerce with Qantas.

We had continued success in the restaurant vertical, where I'm pleased to announce that Hotel Chocolat, Marston's, and Penn Station selected Worldpay for payment services. Hotel Chocolat sells luxury chocolate and gifts at over 100 shops and cafes and restaurants globally., Marston's is a well-known brewery and pub operated with over 1,500 locations across the U.K., and Penn Station is a quick service restaurant with over 300 locations in the U.S. In addition to these three wins, Domino's also chose to extend their relationship, where we provide them with an innovated suite of omnichannel payment solutions.

Turning to retail, we won Next, which operates more than 500 stores in the U.K. and another 200 globally. I'm also happy to announce that we signed Reiss, which is an influential fashion retailer in the U.K.

In our Issuer Solutions segment, we won new and renewed important relationships with several companies, and finally, we continue to expand our breadth of distribution across multiple sales channels. For example, I'm excited to announce that Lightspeed has joined us as a strategic partner in integrated payments. Lightspeed is a leading omnichannel point-of-sale company with more than 50,000 retail and restaurant customers globally. Arvest selected us as their exclusive merchant bank provider for its more than 250 branches in the U.S. and Citizens Bank renewed our strategic referral and sponsorship relationship, demonstrating the strength of our joint commitment to building long-term connections with our partners and clients.

Turning to Slide 6, I'd like to point out that these impressive results reflect the chemistry of our people, who are coming together across the enterprise from both our heritage companies to collaborate and share new ideas. Even prior to the closing of our transactions, our senior leaders from both companies met for several planning sessions in order to drive alignment and clarity across our company. As a result, we were executing against a detailed integration plan that enabled us to hit the ground running on Day 1.

Our team is fully aligned across objectives and we remain highly confident in our ability to achieve at cost synergy targets. We made significant progress in integrating our U.S. and global e-commerce business during the first quarter. In the U.S., we combined our sales force into a single team and successfully migrated hundreds of heritage Worldpay U.S. clients onto Vantiv's highly scaled U.S. platform. We will begin the first wave of full-scale client migration this summer and we continue to expect to complete our integration in the first half of 2019.

On the revenue side, I'm also pleased with our progress in global e-commerce, where is where we expect to generate a significant portion of our revenue synergies. We set up a global strategic solution team, which is building a pipeline of clients that will pave the way for revenue synergies in the second half of next year.

As I mentioned, it's rewarding to see our companies come together with strong execution out of the gates. I see the activity across the company, and it highlights to me that we are going to do more together than either of us would have been able to do on our own. This is a tremendously exciting time in payments, with changes creating new opportunities for growth. Now, I'd like to turn the call over to Philip to discuss these opportunities and how together, we are uniquely positioned to win. Philip?

Philip Jansen -- Co-Chief Executive Officer

Thank you, Charles. Let me first add my appreciation to our colleagues. Their optimism and eagerness to embrace the vision of our newly combined company is both gratifying and truly inspiring. Our strong financial results and early success as a combined company are a direct outcome of our strategy and our people. This strategy is to build on our core strengths while continuing to expand into high-growth channels and verticals.

As shown on Slide 8, we are a leading global technology company in the large and rapidly growing payments industry. We seek to win share by using our data to identify the fastest-growing parts of the market and we expand aggressively into those areas, either organically or through M&A. We've done this repeatedly, expanding into e-commerce, integrated payments, B2B, as well as new fast-growing geographies. Every time, we leverage our key strengths of technology, of distribution, and of scale to further accelerate our growth in these already fast-growing parts of the market, all while generating superior financial returns.

It's important to understand that there are three key trends that are driving so much growth across the global payments industry, and these are 1). Globalization, 2). E-commerce and mobile, and 3). The move to integrated payments. Worldpay is in a truly unique position to harness each of these trends to generate sustainable, above-market rates of growth.

As we show on Slide 9, the global payments market is huge and growing rapidly as electronic payments continue to steadily replace cash and checks worldwide. Individually, we started off as leaders in the U.S. and Europe. New Worldpay is uniquely placed to benefit from increased globalization with an unrivaled geographical footprint in the rest of the world. Together, we are the leading global acquirer, giving us the ability to benefit from secular expansion in the entire worldwide market. Specifically, we continue to make progress in markets like Asia and LATAM, regions that are growing even faster than the payments market as a whole, which builds on our strategy to pursue areas of high growth. The primary way that we will do this is e-commerce and mobile, which is also fueling the second wave of growth in payments.

As you can see on Slide 10, e-commerce volumes are projected to double by 2020, growing in the high teens as consumer spending continues to shift online. Cross-border e-commerce is expected to grow nearly twice as fast as the broader e-commerce market, growing approximately 25% per year. Here, as Charles mentioned, we are stronger together than either of us are on our own. Together, we are the No. 1 player in the fastest-growing e-commerce segment -- that is, cross-border e-commerce -- where we pair Worldpay's global breadth with Vantiv's strength in the U.S. to create a unique global solution.

The final secular trend that is revolutionizing payments is integrated payments. The value proposition that integrated point-of-sale devices bring to businesses of all sizes is undeniable. These systems allow companies to automate their entire operations, from order-taking and inventory, to clock-in and clock-out for employees, or seamlessly tied to the general ledger and with embedded payments. This technology will continue to expand globally from the U.S. to new markets across the world as businesses inevitably embrace technology, and we will expand with it.

Vantiv's heritage is as the leader in integrated payments, as shown on Slide 11. Our superior distribution network of developers, partners, and verticals has enabled us to win in this market by providing integrated payment solutions to SMBs at the point of sale in the U.S. We really are ideally placed to grow with our partners into new geographies as our clients embrace this technology around the world.

Before I turn it over to Stephanie, let me say in summary that I feel extremely positive about our opportunity to generate substantial revenue synergies. Our clients understand the promise of the new Worldpay, and every client with whom we have spoken to is excited to gain access to the capabilities that, together, we are bringing to the market. As Charles mentioned, we're already building a pipeline, but we will need some time to complete the integration, particularly for global e-commerce. Therefore, we continue to expect to see these revenue synergies will begin to flow through in the second half of 2019. With that, I will now hand over the call to Stephanie, who will review our financial performance and discuss our outlook for the second quarter and the full year. Stephanie?

Stephanie Ferris -- Chief Financial Officer

Thank you, Philip, and thank you, everyone, for joining the call. As Charles and Philip noted, we had a very strong quarter that continues to demonstrate the strength of our financial model. Before I get into the details of the first quarter's performance, let me briefly review the aspects of our business model that give Worldpay such an attractive financial profile, as outlined on Slide 13. Our revenue stream is highly recurring. Our contracts are long-term in nature and are with a diverse planned client based. This gives us a very high degree of visibility and predictability. In addition, approximately 40% of our revenue in growing is from our rapidly expanding Technology Solutions segment, paving a clear path to sustainable growth.

As a result of our significant scale, we enjoy operating leverage and inherent cost efficiency, which we've historically and will continue to enhance through synergies from M&A. Finally, our visage generates significant free cash flow. Our high rate of free cash flow conversion provides us with the flexibility to strategically deploy capital and to reinvest into high-growth businesses.

Now turning to Page 14, as Charles mentioned, we began the year with another strong performance, exceeding our expectations for net revenue and EPS in the first quarter, and leading us to raise our full-year guidance to reflect this outperformance. On a reported basis, net revenue grew 81% to $851 million, adjusted net income grew 76% to $237 million, and adjusted net income per share grew 19% to $0.81. These exceptional growth rates include our Worldpay acquisition, which closed on January 16th, 2018.

When looking at the numbers on a pro forma basis, as if our transaction with Worldpay had closed on January 1st of last year, the results are similarly impressive. Net revenue grew 12% on a pro forma basis this quarter, including 300 basis points of currency benefit. This exceeded our expectations both before and after currency. All of our segments did better than expectations, but growth in Technology Solutions was particularly strong at 29% on a pro forma basis, including 400 basis points' benefit from currency. This strength spanned both e-commerce and integrated payments, giving us continued confidence in our forecast for Technology Solutions to grow mid-to-high teens for the remainder of the year.

Merchant Solutions' net revenue grew 5% on a pro forma basis to $466 million. Net revenue of the Merchant Solutions segment benefited by 4 basis points from currency. As Charles mentioned, our Merchant Solutions growth reflects strong consumer spending in the U.S., partially offset by weaker economic conditions in the U.K. We expect these underlying trends to continue and forecast low single-digit rates of growth in Merchant Solutions for the remainder of the year. Issuer Solutions declined by 4% on a pro forma basis. Underlying trends remained healthy, and we continue to expect this segment to return to low single-digit rates of growth in the second half of this year once we lap the deconversion of CapitalOne.

Adjusted net income expanded by 26% on a pro forma basis, growing faster than revenue as we benefited from a combination of $10 million in cost synergies as well as lower-than-expected interest expense. We were able to achieve this cost synergy primarily through the elimination of duplicate public company costs and other overlapping corporate overhead expenses during the quarter.

Interest expense came in slightly better than anticipated as we finalized our financing for the Worldpay transaction during the quarter. As a result, we now expect to incur approximately $340 million to $350 million in interest expense for 2018, or approximately $85 million to $96 million per quarter for the final three quarters of the year.

Rounding out my discussion of expenses, depreciation and amortization expense excluding the amortization of intangibles was $34 million, consistent with our expectations. We continue to expect to incur approximately $155 million to $175 million in depreciation and amortization expense excluding intangibles amortization for the full year of 2018.

Our adjusted tax rate was 10% as we benefited from seasonality. Please recall that our tax adjustments -- including those related to TRAs -- typically remain consistent on a dollar basis each quarter, creating seasonality as pre-tax income climbs throughout the year. We continue to expect to generate an adjusted tax rate of 13% on a full-year basis.

Turning to Slide 15, based on the current business and transaction trends, we now expect to generate 2018 net revenue of $3.81 billion to $3.90 billion. Please also note that these expectations exclude net revenue related to the period from January 1st through January 15th, 2018 prior to the transaction closed on January 16th, 2018.

We continue to be focused on execution and disciplined expense management. As I mentioned, we realized cost synergies of approximately $10 million during the first quarter and we remain confident in our ability to deliver $45 million of cost synergies this year. We are therefore also increasing our guidance for adjusted net income per share to a range of $3.71 to $3.81 for the full year of 2018. This $0.05 increase primarily reflects our outperformance in the first quarter as well as lower interest expense expectations for the remainder of this year. We laid out the rest of our guidance assumptions on the bottom of the slide.

Turning to our guidance for the second quarter, we expect to generate net revenue of $960 million to $980 million, representing growth of 6% to 8% on a pro forma basis. In terms of adjusted net income per share, we expect to earn approximately $0.93 to $0.96, representing growth of 12% to 16% over 2017. With that, I'll pass the call back over to Charles for his concluding remarks before we open the call up to Q&A. Charles?

Charles Drucker -- Executive Chairman and Co-Chief Executive Officer

Thanks, Stephanie. I'd like to conclude with several key points. First, our Technology Solutions segment is performing extremely well. 29% growth is exceptional. I'm excited to see a strong business momentum across our segments and geographies. The many new wins and renewals are gratifying. We're pleased that our clients chose us, and I know that we will do everything -- whatever it takes -- to earn their business each and every day. Our integration is progressing very well and I'm highly confident in our ability to continue to achieve our projected synergies.

As I mentioned earlier, it is encouraging to see how quickly our companies are coming together and how well our colleagues are working together. All these factors keep me excited about the future. The products and solutions that we're bringing to the market together will enable us to really move the needle and to generate revenue synergies next year, as Philip mentioned. Finally, for all of you on the line, thank you for taking the time this morning to listen to our earnings call, and with that, operator, we'd like to open up the call for questions.

Questions and Answers:

Operator

Thank you. If you would like to ask a question, please signal by pressing *1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, it is *1 if you would like to ask a question, and we will take our first question from Dan Perlin with RBC. Please go ahead.

Dan Perlin -- RBC Capital Markets -- Managing Director

Thanks, guys. Good quarter right out of the bat. I wanted to just drill down a little bit on what you guys are seeing in the market from a competitive perspective. United together, you're obviously having more in-depth conversations with multinational clients and there's clearly some competitors out there that are making some noise as well. So, I just wanted to get a sense of what you are -- what those conversations are like, and when we could expect maybe some announcements that would be really the connective tissue between both the legacy Vantiv and the Worldpay combined.

Charles Drucker -- Executive Chairman and Co-Chief Executive Officer

I think our focus has been initially on the global e-commerce side, and we're getting very good traction with our clients. I think clients looking to have someone who has the reach and the solution that we can bring is extraordinarily positive. Obviously, we have some other competitors out there, but we feel we're very strongly positioned and clients are looking for someone that has that geographical reach. As far as -- Philip?

Philip Jansen -- Co-Chief Executive Officer

The only thing I'd add is the combination of the two companies has given us a unique opportunity to go and talk to our customers and really understand as deeply as we possibly can what their aims might be for the next few years. So, I think it'll allow us to get a deeper understanding of what they might want over future years, and we are making sure we're developing against that. So, it's been very helpful to us to almost have a reset with our large customer, saying, "Where do you think the market might be better from your perspective, what are you looking for, and how does the competitive dynamics work from your perspective?" And, that's all fed into our integration work and our technology roadmap to make sure that what we're delivering over the course of the next few years is on the money for these key customers. So, it's actually been very helpful.

Charles Drucker -- Executive Chairman and Co-Chief Executive Officer

And, I would say that the dialogue has started. We're out there talking to clients, so the back half of the year, I think you can expect to see wins to set us up for next year.

Dan Perlin -- RBC Capital Markets -- Managing Director

Just a quick-follow-up -- the cost synergies -- certainly encouraging to see them already happening at $10 million. Charles, I thought I heard you say something about your expectation for the U.S. platform to be consolidated by the first or the second quarter of 2019, and I just wanted to confirm that.

Charles Drucker -- Executive Chairman and Co-Chief Executive Officer

Yeah, first quarter '19.

Dan Perlin -- RBC Capital Markets -- Managing Director

Okay. How much of that is part of the U.S. harmonization strategy that you had talked about, which I think was about 63%?

Charles Drucker -- Executive Chairman and Co-Chief Executive Officer

That's complete. So, we've moved clients, and we're going to do that in waves, and in the first half of '19, we'll have it completely -- our expectation is to have it completely done and have the platform shut down everything on our platform. We have a lot of good people that have done this before driving very well.

Dan Perlin -- RBC Capital Markets -- Managing Director

That's great. Thank you, guys.

Operator

Our next question comes from Tien-Tsin Huang with JPMorgan. Please go ahead.

Tien-Tsin Huang -- JPMorgan Chase -- Analyst

Thank you. Good morning. Very stable growth here. Just on the Technology side, still 20%-plus. I think you said, Stephanie, mid-to-high teens for the year. Anything specific there that might drive that deceleration? It sounds like there's some backlog of wins. Wondering how retention is going.

Stephanie Ferris -- Chief Financial Officer

Yeah, that's Tien-Tsin. So, the segment continues to do really well for us, a combination of both wins and secular growth in e-commerce, where we're positioned really well. Nothing specific in terms of the guidance, being very consistent with our expectations around this segment being mid-to-upper teens in terms of our expectations for outlook. So, nothing specific there.

Tien-Tsin Huang -- JPMorgan Chase -- Analyst

And then, on the Integrated side, are you -- I'm curious [inaudible] win, for example. Are you winning more exclusive deals, or do you find that you're getting added as an alternative provider in some of the wins and prospective conversations that you're having?

Charles Drucker -- Executive Chairman and Co-Chief Executive Officer

I would take it -- most of the deals aren't per se exclusive, but when the provider chooses someone, they're choosing them -- so, the choices aren't necessarily just for backup. They believe that we're the destination, but typically, they want to have a multiple choice when they're offering their software. So, when we talk about wins, we expect to get a substantial share of the clients. We don't expect just the secondary backup. So, when we talk about the wins, that's our expectation. But, they're typically non-exclusive, but our products -- the way we take care of our clients actually stands us apart.

Tien-Tsin Huang -- JPMorgan Chase -- Analyst

Okay, great. Forgive the third, last, quick question. Second current -- what's the implied constant currency pro forma growth that you have for 2Q? I just want to make sure I get the constant currency right and if there's anything unusual in 2Q to consider on revenue. Thank you.

Stephanie Ferris -- Chief Financial Officer

No problem. So, we haven't changed our expectations around constant currency. We've kept them exactly consistent with what we guided for the fourth quarter, which was about a 1.35 exchange rate with respect to the pound and the dollar, so, no change from how we guided in the fourth quarter. Thank you.

Operator

Our next question comes from Dave Koning with Baird. Please go ahead.

David Koning -- Robert W. Baird and Company -- Analyst

Yeah. Hey, guys. Thanks. Nice job on the first quarter. First of all, with what Tien-Tsin was asking, Q1 last year was about $909 million, and you still have a little bit of pay metric and a little bit of FX, so it looks like Q2 growth is only 3% to 5% organic constant currency. Is that just conservatism, or is there something that's slowing a little bit in Q2?

Stephanie Ferris -- Chief Financial Officer

No, I don't think anything's slowing. Are you talking about net revenue?

David Koning -- Robert W. Baird and Company -- Analyst

Yeah.

Stephanie Ferris -- Chief Financial Officer

We would see the guide as a 6% to 8% net revenue growth guide. Nothing specific there. Again, I think it's by virtue of Technology Solutions posting really strong outpaced growth in the first quarter, above 20%, and then, keeping our guidance within expectations for that segment of mid-to-upper teens. So, again, nothing specific driving that guide there, but just being very consistent around our expectations for the segment.

David Koning -- Robert W. Baird and Company -- Analyst

Okay, great. Secondly, the cash flow statement -- I know a ton of moving parts in the first quarter of an acquisition. Free cash flow looked a little below earnings, but is that just minutiae of the first quarter and do you expect it to be reasonably close on an adjusted basis for the year?

Stephanie Ferris -- Chief Financial Officer

Yeah, we do. We did see slightly lower free cash flow in the first quarter because of all the expenses associated with the acquisition. We would expect it to continue to expand throughout the year.

David Koning -- Robert W. Baird and Company -- Analyst

Got it, great. Well, thanks. Good job.

Operator

Our next question comes from George Mihalos with Cowen and Company. Please go ahead.

George Mihalos -- Cowen and Company -- Managing Director

Great. Good morning, guys, and let me add my congrats on the strong revenue growth. Is it possible, maybe, to take a bit of a deeper look at the Technology Solutions piece and what drove that upside? Maybe any commentary you could provide around acceleration in e-commerce versus the integrated payments?

Stephanie Ferris -- Chief Financial Officer

I'll start with the numbers, and then if Charles and Philip want to add any qualitatively. Look, both of segments -- as you guys know -- benefit from the strong secular growth as well as our ability to continue to win. Both of them experienced very strong growth. One is not outpacing the other in terms of either new business wins or organic secular card growth. So, really strong growth coming out of both of them. As you know, this segment is about half and half, so we were really pleased with the results of both channels there.

Charles Drucker -- Executive Chairman and Co-Chief Executive Officer

I would just echo that we're pleased, and I think the credit goes to the strong groups that we have -- the leadership -- over the course of even through the distractions that have come through, they've been able to focus on their clients, bring product and revenue that they implement on clients, and I think we're just proud of our leadership team through all the noise that happens when a merger occurs.

Philip Jansen -- Co-Chief Executive Officer

The only thing I'd add is from a global e-commerce point of view, as we've always said, there are some ups and downs in the way the volume occurs, so, within individual clients and clusters of clients around certain segments. There are clients who have high-volume events, and those only in certain -- so, they're spread across the year. They land in certain quarters by definition. So, we're very pleased at the strong first quarter, and looking forward, we feel good about the growth rates in e-commerce and integrated payments.

George Mihalos -- Cowen and Company -- Managing Director

Okay, that's great. It sounds like it's pretty broad-based. And then, two quick ones if I can sneak them in. 1). Just the performance in the U.K. -- I think there was some commentary around that still being weak, but if we can get a sense of how it performed relative to your expectations in maybe the prior quarter. And then, the revenue upside in 1Q -- it didn't seem to flow through down on the EBITDA side. The sales and marketing expenses were elevated. Any commentary around that would be helpful. Thank you.

Stephanie Ferris -- Chief Financial Officer

Yeah, happy to. So, in terms of the U.K., as you know, our expectations for the U.K. coming out of the fourth quarter decel there continue to be pretty modest from a growth rate perspective -- so, the U.K. on a constant currency basis declined 3% in the fourth quarter. We're seeing same type of low single-digit declines in the first quarter and are expecting that to continue throughout the rest of the year given the macroeconomic conditions in the U.K. So, we don't see a recovery there. Our expectations for the rest of the year continue to be in line with how we set the guide. I apologize -- can you repeat the sales and marketing question?

George Mihalos -- Cowen and Company -- Managing Director

Oh, just the -- if we look at the big revenue outperformance, it didn't seem to flow through on the EBITDA side. It looked like sales and marketing expenses relative to what we were expecting were a little higher. Maybe any sort of color around that.

Stephanie Ferris -- Chief Financial Officer

Interestingly, we felt like it did flow through. In terms of margins, we're seeing 120 basis points of margin expansion being driven by both the outside performance in the Technology Solutions segment as well as the $10 million of synergy. So, I'm not exactly sure how you modeled that, but I didn't see sales and marketing expanding beyond our expectations.

Charles Drucker -- Executive Chairman and Co-Chief Executive Officer

Just to be clear, we're looking at adjusted EBITDA margins. We're comparing it to the pro forma combined company of last year. Obviously, there is a margin differential between the two heritage companies, and together on a pro forma combined basis, to Stephanie's point, we drove about 120 basis points of margin expansion for adjusted EBITDA, consistent with the strong cost synergies that the team laid out.

George Mihalos -- Cowen and Company -- Managing Director

Great, thank you.

Operator

Our next question comes from Gerardus Vos with Barclays. Please go ahead.

Gerardus Vos -- Barclays Capital -- Analyst

Hi, thanks for taking my question. Two, if I may. First of all, just coming back on the U.K., would you expect any kind of benefit from the schemed repricing I think you have announced for the second half of the year? And then, just also wanted to come back to the operational performance. If I look at the guidance, I think you guide now to 2.5% less share count for the full year and around $10 million to $20 million less interest cost. I get to around $0.14 to $0.15 in my net EPS. Obviously, the guidance was only raised by $0.05. It looks like an operational downgrade to the numbers, and I'm just trying to understand where that's coming from or if my math is somewhere wrong. Thanks.

Stephanie Ferris -- Chief Financial Officer

Happy to help. So, in terms of the U.K., the scheme repricing has been in our plan in terms of how we thought about the year coming into the fourth quarter and continue on into the first quarter, so don't expect uplift from expectations for that, but the teams continue to execute upon that and don't believe that to be a risk in any way for our 2018 expectations.

In terms of EPS, the way we thought about it, Gerardus, is -- I'm happy to go offline if you want to get more specific -- delivered outperformance in the first quarter of about $0.02 to our expectations, primarily related to a bit of business outperformance, but also, benefits in interest expense. We continue to expect those benefits of interest expense to roll forward about $0.01 a quarter, so we took the $0.02 outperformance in the first quarter plus the $0.01 each quarter for interest expense and thought about a raise of $0.05. We didn't necessarily downgrade any operating performance per se in our expectations around that.

Gerardus Vos -- Barclays Capital -- Analyst

Okay. And, maybe just a follow-up. What is the increase related to the lower share count in the guidance? Thanks.

Stephanie Ferris -- Chief Financial Officer

I'd have to come back to you on that. I've got to look at specifically what you're talking about with the share count.

Gerardus Vos -- Barclays Capital -- Analyst

Sure, thank you.

Charles Drucker -- Executive Chairman and Co-Chief Executive Officer

I think we view that as rounding around the edges, but we can follow up.

Operator

Our next question comes from David Togut with Evercore ISI. Please go ahead.

David Togut -- Evercore ISI -- Managing Director

Thanks. Good morning. Historically, you've provided some breakout, at least in heritage U.S. and heritage Vantiv, on transaction growth and revenue per transaction, which was 6% trans growth and 11% rev per trans in 4Q. I realize you're breaking things out differently now, but if you could give us some insight into what you're seeing in terms of revenue per transaction in the U.S. business and transaction growth, that would be helpful.

Stephanie Ferris -- Chief Financial Officer

We don't specifically break out transactions. I could give you a qualitative view toward it. So, in the U.S., we continue to see mid-single-digit transaction growth. Remember, we have a lion's share of large merchants there, and we continue to see revenue per transaction expand in the U.S. as we continue to see the march down in terms of continuing to take share in the SMB. So, didn't see those trends change from where heritage Vantiv has been historically. I continue to drive revenue increases as we march down and take more share in the SMB space.

David Togut -- Evercore ISI -- Managing Director

Understood. And then, Philip, if I could ask you a question on how you see the European payments markets changing ahead of PSD2. It seems like there's a lot of consolidation occurring now, with the leading PSP, Trustly, recently being acquired. How do you feel that Worldpay is positioned ahead of PSD2, and are there any additional steps you need to take to prepare the company for consumer ACH payments for e-commerce?

Philip Jansen -- Co-Chief Executive Officer

As you rightly say, the European market continues to see the trends that we've experienced over the last few years, where pay providers coming out of banks, consolidation, and new payment methods beginning to come across different parts of the region. I think PSD2 will only accelerate that even further, particularly on the last point, in that we're going to get more payment methods coming out as a result of PSD2, and specifically, the ACH direct payments approach will definitely begin to fly a bit more than it has historically. So, we see that from a Worldpay point of view ideally placed, and actually, using some of the intelligence from old Vantiv to help us understand how we might attack the market has been very useful. So, we're getting ready to make sure in a post-PSD2 world, we can deliver new things to our clients that they simply -- at the moment -- can't do.

David Togut -- Evercore ISI -- Managing Director

Understood. Thank you very much.

Operator

Our next question comes from Jim Schneider with Goldman Sachs. Please go ahead.

Jim Schneider -- Goldman Sachs -- Analyst

Good morning. Thanks for taking my questions. I was wondering if you could maybe address -- you talked a lot about the e-commerce cross-sell opportunity and revenue synergies, but can you maybe address the potential for cross-selling the integrated payments capability into Europe, what your plans there are, and over what time frame you think that will play out?

Philip Jansen -- Co-Chief Executive Officer

Yeah. Again, you're doing it in the right way. The No. 1 priority is global e-commerce for large corporates. The combination of the two companies gives us a proposition to die for. So, that is the No. 1 priority. All the technology efforts are trying to connect the two platforms in a way that makes sense for the large customers. That's the No. 1 priority. Probably the second big revenue synergy bucket is integrated payments, but it's going to take much longer. Having said that, we've already seen some really positive feedback from existing partners who are in the U.S. for old Vantiv, new Worldpay, who expand across the world. We're doing that right now.

So, we're not proactively going out, selling it to new partners around the world, but there are plenty of partners who are already integrated who have connected the two, who have aspirations in the U.K., in other parts of Europe, and in other parts of the world, who we can relatively easily help them grow there even faster. So, that's what we're doing, and it's a form of testing and understanding how the markets might develop in other parts of the world. I see that as a two-to-five-year view, not a one-to-two-year view.

Charles Drucker -- Executive Chairman and Co-Chief Executive Officer

Matt Taylor has had very good conversations. So, the ones that are on our books, we're going to lean forward quicker, and then take a little bit more time for some of the other ones in the market. But, we see that in addition to the e-commerce, as a tremendous opportunity to help us achieve our revenue synergies in the future.

Philip Jansen -- Co-Chief Executive Officer

I'm sure you know, by the way, that the actual integrated payments proposition in parts of Europe, for example, is significantly behind where the U.S. is, so we see a huge opportunity to grow that market and be the pioneer in it in parts of Europe and other places.

Jim Schneider -- Goldman Sachs -- Analyst

That's helpful, thanks. And then, maybe as a follow-up, now that you've been integrated for less than a quarter, I'm sure you've had a lot more time to examine what the cost synergy opportunities might be beyond what you identified in terms of the Worldpay U.S. legacy platform transition. Can you maybe talk about some of the other programs you are thinking about that could drive potential cost synergies over time?

Stephanie Ferris -- Chief Financial Officer

I think about synergies specifically -- I'll start with just the numbers, then I'll let Charles and Philip talk about it. But, as you know, U.S. harmonization is a really big one. We'll start to see that come through at the end of this year and into 2019. Expect that to complete in the first half of 2019. That continues to progress really well for us. You're obviously seeing the benefit of the $10 million integration start to come through in terms of overlapping corporate G&A.

I think the pieces that we are starting to look at and don't necessarily have specificity around in terms of the actual dollar amount coming through and when -- and, I've always talked about it being more in the back half, thinking about more 2019, 2020 -- is how do we start to put the global technology and operations groups together, are there opportunities there as we start to become, obviously, a much larger company, in terms of what kind of leverage we have with our vendors given the size and scale. So, those are the types of things that we thought about and continue to focus on with respect to things beyond U.S. harmonization and corporate G&A.

Charles Drucker -- Executive Chairman and Co-Chief Executive Officer

Clearly, the progress we've started and made in getting the U.S. platform moving -- like Stephanie said, how we go out to vendors and leverage at our scale, and then, also, looking at duplicate type of associations, whether it's VCR, which is a chargeback system today, happened to do it in multiple spots -- how do we narrow that down? So, we think there's -- it gives us very high confidence in our $200 million, and as the month -- there's still only a couple of months in the quarter. We focus on how we accelerate and make that U.S. happen. Actually, we're just thrilled with the progress that Mark Heimbouch and the team have really moved forward with the U.S.

Jim Schneider -- Goldman Sachs -- Analyst

Thank you.

Operator

Our next question comes from Ashwin Shirvaikar with Citi. Please go ahead.

Ashwin Shirvaikar -- Citibank Research -- Managing Director

Thank you. Congratulations, guys. Things seem to be on track here. My first question is on corporate allocation priority. The reason I'm asking is because in the presentation, there's this comment that you can get to 4x leverage or below in three to six quarters, which could be end of this year, could be end of next year. It seems almost like you're more comfortable staying at about 4x leverage range. Can you comment on that? Are there attractive deals or new functionality that you found that you need? And also, perhaps in that context, comment on the interest rate sensitivity of what you have.

Stephanie Ferris -- Chief Financial Officer

I'm happy to start, and again, I'll let Charles and Philip follow on. So, you're exactly right, Ashwin. Our focus right now with respect to cash flow is to delever down to below a growth leverage ratio of 4x. We have expectations to do that as quickly as possible. We've given ourselves the leeway and leverage to be able to do that, like you said, into mid-next year, 2019. Given the actual expectations of the company, though, could we get there sooner? We're absolutely focused on it and it's our commitment to delever there quickly.

In terms of interest rate sensitive -- and, I'll let Charles talk about where we might be interested in terms of using leverage once we get below [inaudible]. In terms of interest rate sensitivity, we're currently about 50% fixed to floating. I think we've been fairly conservative in terms of expectations around interest rate hikes. We continue to look at that fixed-to-floating-rate percentage and look at whether we should be increasing it, but I do think anything we would do there is adequately based in the interest expense forecast at this point. Still feel pretty good about -- even within the expectations around interest rates increasing -- it not impacting our revised guidance here. So, with that, I'll turn it over to Charles and Philip to talk about capabilities.

Charles Drucker -- Executive Chairman and Co-Chief Executive Officer

I would say we feel good about all the capabilities with the markets that we're currently going after, especially with metrics in the B2B side. We talked about going into the SMB for card map presence, and in that space, where we have capabilities, we can look at accelerating capabilities in the future once we start to pay down debt as we described to help accelerate us into the card-map present SMB market would be an area that we'd look at, and then, we'd look in new verticals down the line. But, right now, the features and functions we have -- and, it's about -- if there's an opportunity to accelerate into small card map presence.

Ashwin Shirvaikar -- Citibank Research -- Managing Director

What percent of e-commerce for you guys currently is cross-border, and can you either keep pace with the indicated market trends in the presentation to double it in three years? Can you talk about cross-border? That obviously has implications on relative profitability.

Stephanie Ferris -- Chief Financial Officer

I'm happy to give numbers and let Philip jump in in terms of our ability to keep pace, et cetera. Obviously, the ability to do cross-border is a huge value proposition for us in the global e-commerce segment. The majority of our revenue does come from the ability to do cross-border transactions. And, we continue to see a lot of secular growth there, so, very strong secular growth transactions and the revenue accordingly.

Philip Jansen -- Co-Chief Executive Officer

The only thing I'll add is the proposition to be able to offer cross-border payments for large global clients from an e-commerce perspective is our core proposition, and as Stephanie said, the majority of stuff comes from that kind of activity. The challenge is -- and, I think we've got no problem keeping up with the growth rate. That's not a challenge. The challenge is to make sure that we're growing at the rate and delivering the returns that we want.

So, what we target is profit pools, so when we're looking at the segmentation of that marketplace geographically cross-border for e-commerce, we're targeting the most complex, the most challenging, the most difficult payment problems for our customers, solving them to get them better outcomes, and delivering a decent margin return for us. That's the challenge for us, is to make sure that we maintain the growth at the margins we want, and therefore, you get the message, which is invest in technology, invest in propositions, get better outcomes -- the golden triangle of better authorization rates, lower cost, better fraud, and therefore charge the right prices for the value that we're driving. That's our challenge.

Ashwin Shirvaikar -- Citibank Research -- Managing Director

Understood. Thank you.

Operator

Our next question comes from Bryan Keane with Deutsche Bank. Please go ahead.

Bryan Keane -- Deutsche Bank -- Managing Director

Hi, guys. Congrats. I wanted to ask about Merchant Solutions. It was better than we anticipated. I believe Moneris' anniversary -- so, you didn't get any help there -- in the U.K. was soft, so just maybe thinking U.S. direct was a bit stronger. Just trying to figure out the moving pieces inside of Merchant.

Stephanie Ferris -- Chief Financial Officer

Happy to help there. Consistent with probably what you've read everywhere, the U.S. consumer is very strong, continues to do very well, inflation across the board and price increases across our entire merchant portfolio -- we're obviously benefiting from that. You're right, the direct business did beat our expectations modestly, not necessarily seeing a huge amount there, but the organic and secular trends were strong for the quarter.

Bryan Keane -- Deutsche Bank -- Managing Director

Okay, super. And then, on tax rate, it was a little bit lower in the quarter. It sounds like it's going to come back in the back half of the year. Can you just talk about the moving pieces and what's moving that tax rate around? Thanks.

Stephanie Ferris -- Chief Financial Officer

As I said in the script, the tax rate -- we do expect 13% effective tax rate for the year. That being said, our tax rate adjustments don't move seasonally, so the numbers stay static. So, as you think about our pre-tax earnings being a bit lower in the first quarter and then accelerating in the back half of the year, you're going to see the effective tax rate move back up so that for the full year, it's a 13% effective tax rate.

Bryan Keane -- Deutsche Bank -- Managing Director

Okay, but, at the end of the day, we're still at 13% for the year, even though it moves up in the back half?

Stephanie Ferris -- Chief Financial Officer

We are. Correct.

Bryan Keane -- Deutsche Bank -- Managing Director

All right. Thanks, guys.

Operator

And, we will take our last question from Vasu Govil with Morgan Stanley. Please go ahead.

Vasundhara Govil -- Morgan Stanley -- Analyst

Hi. Thanks for taking my question. Just on integrated payments, I know you guys have already maintained that the partnership model is what works best for you, but many of your competitors are increasingly moving toward ownership of software, at least in some of the verticals. Is that something you guys may consider at some point, or perhaps as you push into payments in the U.K. market, or are you pretty much married to the partnership model?

Charles Drucker -- Executive Chairman and Co-Chief Executive Officer

I would say when we bought Mercury, they created a great model about servicing and working with their clients, and in big verticals like the restaurant, the retail verticals, we have the leading share. For other players to get in, they probably needed to buy in those segments. So, in certain segments, this model is working tremendously well for us, as you can see in our results. But, we're always open in the future -- if there are other types of verticals that are more consolidated and there's not as many players, where serving many is not the right strategy, we could consider it in other verticals, but in the core verticals that we're in today, we're very committed to our clients, and providing the best service, and being in that Switzerland role so they can depend on us not to compete directly against them.

Vasundhara Govil -- Morgan Stanley -- Analyst

Got it. Thanks very much. And then, as a quick follow-up, there have been some headlines about Amazon Pay trying to get aggressive pushing its digital wallet service to SMBs. Any reaction to that? And, in a scenario where Amazon Pay does gain traction, is that a competitive risk to a merchant acquirer like Worldpay, or is that a transaction where you would still play a role in processing?

Charles Drucker -- Executive Chairman and Co-Chief Executive Officer

We saw the same thing with the Amazon Button. Amazon is an extraordinarily great business in the world. Visa -- as we do, we work with Visa and Mastercard as they develop that aggregate button with tokenization and the card, so we think there's potentially a competitive product. We think this is something that's out there brand new that, over time, will take a while and can develop, but we think we'll be well-positioned to be able to compete and continue to grow.

Vasundhara Govil -- Morgan Stanley -- Analyst

Thank you very much.

Nathan Rozof -- Head of Investor Relations

All right. With that, that was our last question. If you guys have any additional follow-up questions, please reach out to Ignatius, or myself, or anyone on our team, and we'll be happy to help you. Thank you, guys, for joining the call today. Goodbye.

Operator

Ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.

Duration: 56 minutes

Call participants:

Nathan Rozof -- Head of Investor Relations

Charles Drucker -- Executive Chairman and Co-Chief Executive Officer

Philip Jansen -- Co-Chief Executive Officer

Stephanie Ferris -- Chief Financial Officer

Dan Perlin -- RBC Capital Markets -- Managing Director

Tien-Tsin Huang -- JPMorgan Chase -- Analyst

David Koning -- Robert W. Baird and Company -- Analyst

George Mihalos -- Cowen and Company -- Managing Director

Gerardus Vos -- Barclays Capital -- Analyst

David Togut -- Evercore ISI -- Managing Director

Jim Schneider -- Goldman Sachs -- Analyst

Ashwin Shirvaikar -- Citibank Research -- Managing Director

Bryan Keane -- Deutsche Bank -- Managing Director

Vasundhara Govil -- Morgan Stanley -- Analyst

More WP analysis

This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability.