First Data Corporation (FDC) Q2 2018 Earnings Conference Call Transcript

First Data Corporation (NYSE: FDC)
Q2 2018 Earnings Conference Call
July 30, 2018, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning. And welcome to the First Data second quarter 2018 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal the conference specialist by pressing the * key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press * then 1 on your telephone keypad. To withdraw your question, please press * then 2. Please note this event is being recorded. And now I'd like to turn the conference over to Peter Poillon. Please go ahead.

Peter Poillon -- Senior Vice President, Investor Relations

Thank you. Welcome, everyone to First Data's second quarter 2018 earnings conference call. Our call today is being hosted by Frank Bisignano, Chairman and Chief Executive Officer of First Data. Joining Frank on the call is Himanshu Patel, Chief Financial Officer. Frank and Himanshu will be referencing the slide presentation during their prepared remarks. A copy of the slide presentation, as well as our earnings press release and supplemental schedules, are available on our website at investor.firstdata.com. Throughout this call, segment revenue and EBITDA growth rates referenced by Frank and Himanshu will be on an organic constant currency basis and exclude the impacts from currency and acquisitions and divestitures and measure growth on a comparable accounting basis. After Frank's and Himanshu's prepared remarks, we'll open the call up to Q&A. And our standard ground rules apply. We request that you limit your questions to one question and one follow-up in order to be fair to as many participants as possible.

Now I'd like to remind you that any forward-looking statements made during today's call are subject to risks and uncertainty. Factors that could materially change our current forward-looking assumptions or actual results are described in today's presentation and in our SEC filings. We'll also discuss items that do not conform to generally accepted accounting principles. We've reconciled those measures to GAAP measures in the appendix of the slide presentation and in the supplemental schedules to the earnings release. With that, I'll hand the call over to Frank.

Frank Bisignano -- Chairman and Chief Executive Officer

Thank you, Peter. Good morning, everyone. It's a pleasure to be on the call today. I'll start with a quick review of our second quarter which built on the momentum from our first quarter performance. Our segment revenue grew 6% on an organic constant currency basis led by strong performance once again in GBS. Total GBS grew 8% in the quarter with GBS North American contributing 6% growth during the quarter. Segment EBITDA grew 8% on an organic constant currency basis driven by the good growth across all of our business segments. Free cash flow was very healthy once again, totaling $378 million in the quarter. Finally, we continued to execute against our capital allocation strategy as we paid down more than $360 million of debt in Q2 and further reduced our leverage ratio to 5.6 times at the end of the quarter. Let me now briefly touch on some of the important initiatives that demonstrate our commitment to innovation and growth before turning it over to Himanshu to discuss the financials in more detail.

I'll start with Clover which is well positioned to win in the market with a compelling value proposition for merchants, developers, and our distribution partners. Clover continued its strong performance in the second quarter. We're now processing in excess of $65 billion of annualized volume globally on Clover. Once again, that's up more than 50% year-over-year. We're expanding Clover's addressable market. Our distribution partners will offer the Clover platform through the digital signup solutions that are now starting to go live on partner websites. We're leveraging our global presence to launch Clover in key international markets as we successfully did in Germany and Austria earlier this year and are planning to launch in Argentina and Canada later this year. And we're integrating Clover into CardConnect and BluePay's ISV solution sets to further differentiate our offering in the integrated channel. So, there's a great runway in front of us for further Clover growth as we enhance this position as a leading integrated POS solution.

Let me take a few minutes to discuss our ISV strategy. As we've said, our offering in the integrated space is differentiated from the competition. A differentiated solution continued to gain market share as our ISV business once again generated robust revenue growth in excess of 50%. And we signed up 94 new ISVs in the quarter. We are clearly realizing top-line synergies from our recent acquisitions as CardConnect and BluePay benefited from the size, scale, and resources of First Data. We have great momentum to date in this business and have a roadmap to drive further growth in the near-term, including building on our already best in class experience for ISVs and merchants by integrating Bolt and CardPointe with Clover and providing US-based ISVs with international capabilities to serve markets outside of the US. Let me just provide two examples of recent ISV partnerships that are indicative of our continued progress on building our presence in the ISV channel.

Revention, a leading developer of complete customizable restaurant and entertainment management tools that includes point of sale and integrated online ordering solutions will integrate their POS platform with our Bolt technology and mobile SDK offering. This was a comparative takeaway in the ISV space. DESERTMICRO, a leading provider of waste industry software will integrate their solution with our gateway and our mobile SDK offering. On past calls, we talked about the benefits of our global footprint and the excellent growth opportunities we've seen in the international regions. The second quarter was another fabulous quarter of performance for our international operations. We generated $500 million of total revenue outside of the US in the quarter, up 15% year-over-year with GBS growing 18% and GFS growing 10%. Both Latin America and Asia/Pac sustained the strong performances that they displayed for several quarters, generating constant currency growth of 35% and 18% respectively.

I'd like to point out that the EMEA region also put up solid mid-single-digit growth in the quarter, as we continue to gain share in the more developed payment markets outside the US. Let's spend a few minutes now discussing our digital solution. If you attended or listened to our investor day in June, you had the opportunity to hear about or even see a few of the solutions up close. Bank of America Merchant Services and Wells Fargo Merchant Services have rolled out our digital signup tools to date. And our third JV partner, P&C Merchant Services is scheduled to go live with their digital solution within the next few weeks. It's very early on this initiative, but we and our partners are confident that an end to end digital experience for signing up merchants will be beneficial for everyone. Merchants will get a significantly improved signup and boarding experience.

First Data and our bank partners will reach a wider addressable market by competing for merchants who want to sign up online. And our bank partners get to leverage one of their most valuable assets: their highly trafficked websites. I'll repeat what I said on the call last quarter. This is just the beginning of the total digitization plan that we'll eventually offer to all distribution partners. And we view it as a start of a fundamental change in how our partners signup and onboard merchants. In NFS, we continue to execute against several key initiatives. For example, after successfully signing up Walmart for our STAR Signature-Debit solution in Q1, it was adopted by a leading national gross for this past quarter. And a number of financial institutions committed to certify signature. Now let me briefly touch on some of the recently closed enterprise deals. In GFS, we closed the previously announced strategic agreements to become the primary provider of student loan technology solutions for Navient in early July.

This agreement expands on First Data and Navient's long-standing partnership to support private student loans and positions First Data as a major player in student loan technology with a market share in excess of 20%. Student loans processing is an important growth initiative, as you heard at our investor conference. We expect to expand our market share in this growing market. This quarter, we also completed the onboarding of key wins we've announced over the course of the last several quarters, including Verizon Print, First Citizen's Bank, [inaudible] and a major financial institution in the UK. There are eight other major global issuer mandates that we've announced since Q2 of last year. So, we have a sizable backlog of business coming on board in GFS. From a client retention perspective, we're happy to announce that we've extended our retail private label processing relationship in North America with our long-standing and valued partner city.

Also in North America, rescinded our relationship with Bank of the West for both credit and debit processing. And internationally, we signed an agreement with HDFC Bank, one of the largest credit card issuers in India for a VisionPLUS 10 license while extending our managed services agreement with the bank. On the merchants side, we've also signed a number of exciting enterprise mandates and partner arrangements. For example, we're excited to share that First Data has signed an agreement with Itaú, one of the largest banks in Brazil, to be their technology partner powering Credicard, Itaú's second acquired brand in the Brazilian market. This is a strong statement about the technology assets that we've built in Brazil. We're working with the Girl Scouts of the USA to allow scouts to accept an electronic form of payment using Clover Go across the US. We're proud to work with and be associated with this wonderful organization.

We've also signed agreements on some notable global e-commerce deals this quarter. For example, we entered into a strategic agreement with AccorHotels, a global leader in travel offering more than 4,200 properties across 95 countries to enable global and cross-channel payments for in-store, online, and mobile transactions. And First Data was selected by MoneyGram, a leading provider of innovative money transfer services to provide global e-commerce payment acceptance. We were selected based on our global reach and our multiple solutions. And finally, the Gyft business signed up two new national quick service restaurant chains, a leading national luxury retailer, and a growing online apparel retailer. These represent either competitive takeaways or conversions from in-house processing. I'll wrap up here by saying that we are very pleased with our performance this quarter and through the first half of 2018.

At investor day, we laid out many factors that underpinned our deep confidence in our ability to drive sustainable solid growth in the future. Those factors include our commitment to investment and technology innovation, our strong history of execution, and momentum from the 40% of our business that is already growing in excess of 10% and supported by our robust free cash flow and disciplined capital allocation strategy. As we look to the second half of 2018, we're in excellent position to build on our first half's success and deliver the raised revenue guidance that Himanshu is going to discuss momentarily. Let me now turn it over to Himanshu for a deeper discussion about the quarter's financial results.

Himanshu Patel -- Chief Financial Officer

Thank you, Frank. Good morning and good afternoon, everyone. I'm gonna start on slide four, the summary of our Q2 results. And as a reminder, the organic constant currency growth rates that I'll be discussing are just the reported growth rates for the impacts of currency translation, acquisitions, and divestitures. Additionally, these growth rates compare the current year amount to the prior year as if the new reporting standards that we adopted as of January 31st of this year were adopted retrospectively. Please refer to our 8K that we filed in April for a full disclosure of the changes associated with the new reporting standards, including the impacts of those changes on our 2017 revenue and EBITDA as if the changes were adopted retrospectively. Now let me discuss our results for the quarter. Overall, we had another solid quarter, characterized by continued revenue momentum in all of our key businesses including GBS North America and measurable progress toward deleveraging. Segment revenue was $2.23 billion in the quarter.

This was up 6% on an organic constant currency basis. Q2 adjusted net income per diluted share came in at $0.39, down a penny year-over-year as our improved operating performance was offset by the application of a normalized tax rate in the current period. Our adjusted pre-tax income increased 18% year-over-year which is a good indication of our actual performance, excluding the impact from the changes in tax rates. Segment EBITDA of $864 million was up 8% on an organic constant currency basis. And on that basis, our segment EBITDA margin improved by nearly 80 basis points. We had another strong cash flow quarter, generating $378 million of free cash flow. And our net debt declined $344 million this quarter. Slide five and six are informational slides that summarize financial performance for the quarter and year-to-date respectively, including a breakout of results by segment.

I'd like to draw your attention to the column that shows reported constant currency growth rate because this is the basis on which we provided our full-year guidance for revenue and EBITDA growth. You see on slide six that reported constant currency segment revenue and segment EBITDA grew 9% and 12% respectively, year-to-date. Let me discuss the segments in more detail beginning with GBS on slides seven and eight. GBS Q2 segment revenue of $1.45 billion was up 8% on an organic constant currency basis building on the very good results we saw in this segment in the first quarter. GBS segment EBITDA of $544 million grew 105 on an organic constant currency basis. And on that basis, its margin improved by 70 basis points. I'd like to discuss GBS revenue results by region, starting with North America. GBS North America grew 6% on an organic constant currency basis. GBS North American revenue included about $7 million associated with the acceleration of previously deferred revenue that will not recur.

Let me provide a little color on the three distribution channels within GBS North America. Our Partner Solutions channels was once again the fastest growing channel, paced by strong growth in both the ISV and the agent space. As you heard from Frank, our ISV business is benefiting from synergies associated with being part of a scaled global organization. This business is firmly on track to be a multi-hundred million dollar revenue business for First Data in the medium-term. Our direct channel grew this quarter, including in SMB Direct. The JV channel saw a slight year-over-year decline in Q2, in line with its performance over the past two quarters. We continue to expect this channel to gradually improve, supported by our digital SMB signup solutions that we believe will be transformational to the client acquisition process in this channel and others over time. This is the second quarter in a row that GBS North America has achieved a mid-single-digit level of growth.

And we believe that this growth rate is firmly sustainable as the strong contribution from Partner Solutions and the improvement in the direct channel outweigh the modest softness in our JV channel which itself is expected to improve. Now let's discuss our GBS regions outside of North America. Our international merchant acquiring business continues to grow robustly, up 18% on an organic constant currency basis for the quarter. GBS EMEA revenue grew 5% on an organic constant currency basis, driven by good growth in our direct business across most regions and solid growth from our European JVs. GBS Latin America revenue continues to grow at a rapid clip, up 47% on an organic constant currency basis driven by robust growth in Brazil and Argentina. GBS APAC grew 19% on an organic constant currency basis, driven by strong results throughout the region. So, to summarize, another strong growth quarter in GBS with contributions from our key growth drivers and each of the geographic regions.

Let's turn to GFS, covered on slide nine and ten. GFS Q2 segment revenue of $414 million was up 4% on an organic constant currency basis. GFS segment EBITDA of $176 million was up 7% on an organic constant currency basis. And on that basis, its margins improved by 111 basis points. Let's take a look at GFS by region. GFS North American revenue declined 1% on an organic constant currency basis in the quarter, primarily driven by long-term contract renewals that we've previously discussed. Moving to the international regions which is roughly one half of our GFS revenue, collectively, they grew 10% on an organic constant currency basis. GFS EMEA revenue grew 7% on an organic constant currency basis in Q2, driven primarily by growth in the UK. GFS Latin American revenue grew 13% on an organic constant currency basis in the second quarter, primarily driven by growth in Argentina.

GFS APAC revenue grew 25% on an organic constant currency basis in the quarter, driven by broad-based growth across the region. As previously stated, we expect GFS's segment revenue growth rates will improve in the second half of 2018 as new mandates start to show up in our results, including the Navient student loan processing deal that closed in early July. One point worth noting is that we are ramping our investment in the student loan processing business including integration of the platform and key people from Navient which will initially weigh on GFS's EBITDA margins. Please turn to slide 11 to cover NSS. NSS Q2 segment revenue of $371 million was up 3% on an organic constant currency basis. NSS Q2 segment EBITDA of $193 million was up 7% on an organic constant currency basis. And on that basis, its margin improved by 202 basis points. Let me break up the results by NSS's three main business lines.

Stored value network revenues were up mid-single digits, driven by strong growth in our money network payroll card business and moderate growth in our Closed Loop Gyft Solutions business. EFT Network Solutions was up mid-single-digit year-over-year, driven by strong transaction growth. Security and fraud revenue growth was flat in the quarter, reflecting high-single-digit growth in our core security and fraud business, offset by the decline in TeleCheck revenue. One final point on NSS segment. We did not renew a large, exceptionally low-margin plastics contract in our stored value business. This will affect revenue growth rates in stored value and total NSS over the next few quarters but will be immaterial to profitability Over the medium-term, we continue to view this segment as a mid-single-digit grower. Moving to free cash flow shown on slide 12, we think of free cash flow largely as cash flow from operations less CapEx and distributions to minority interests.

We provide the reconciliation of cash flow from operations to free cash flow in the appendix of our slide deck. This table on slide 12 walks you from total segment EBITDA to free cash flow. We had another good cash flow quarter in Q2 with free cash flow coming in at $378 million. The year-over-year decline primarily reflects the non-recurrence of a favorable $90 million cross-currency swap settlement in the prior-year period, partially offset by improvements in operating results. Year-to-date, we've generated robust free cash flow of $746 million and are confident about achieving our guidance of $1.4 billion plus for the full-year of 2018. Now let's discuss our balance sheet. Slide 13 lays out our debt balance at the end of 2017, Q1 2018, and Q2 2018. Our net debt decreased $344 million in Q2 and $583 million since the end of last year, as we've been primarily utilizing our free cash flow to pay down debt this year. Our leverage ratio, defined as net debt to segment EBITDA was 5.6 times at June 30th, down from 5.8 times at the end of Q1.

Proforma for the announced divestitures of our businesses in Greece and Central and Eastern Europe net leverage at the end of Q2 would have been 5.5X. Given all of this, combined with anticipated second half cash generation, we remain highly confident that our net leverage will approach the low fives by the end of 2018 and the low fours by the end of 2019, consistent with what we said at investor day. Finally, let's turn to guidance on slide 14. Given the strong revenue growth results achieved through the first half of 2018 and our expectations for the remainder of the year, we are once again raising our full-year 2018 revenue guidance. We now expect to achieve full-year reported constant currency revenue growth of 7% to 8%. Similar to our previous guidance, this range includes about two percentage points of net growth attributable to the full-year impact of closed acquisitions and dispositions. Our previous guidance for reported constant currency revenue growth was 6% to 7%.

We are reiterating our full-year EBITDA growth, adjusted EPS, and free cash flow guidance with even more confidence. In closing, we feel great about our business and financial outlook. Our GBS business is seeing solid, sustainable growth across all of our geographic regions. And we fully expect the momentum in this critical business to continue. Our digital merchant signup initiatives are being rolled out across our JV partners and other bank partners. We believe this solution will revolutionize the SMB merchant signup and onboarding experience and expect it to broaden First Data's addressable market. Our Partner Solutions business is rapidly taking share in the ISV and agent channels. GFS is winning new mandates, and we will see the benefits of ramping these wins in our top-line in the second half. And our sizable international business continues to deliver double-digit growth. In short, at investor day, we highlighted that roughly 40% of our business is growing in excess of 10%.

The size and momentum of these businesses continues to underpin our deep confidence in First Data's future growth. In addition, we continued to rapidly delever, as you saw in this quarter. We have a clear path to achieving our low-four-times leverage ratio target by the end of 2019, after which, we will deploy a more multifaceted capital allocation strategy to further enhance shareholder value. With that, let me hand it back to the operator to open it up for Q&A.

Questions and Answers:

Operator

Yes. Thank you. We will now begin the question and answer session. To ask a question, you may press * then 1 on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press * then w. At this time, we will pause momentarily to assemble the roster. And this morning's first question comes from Darrin Peller with Wolfe Research.

Darrin Peller -- Wolfe Research -- Analyst

Thanks, guys. Congrats on the good quarter. Let me just start off. The GBS North America obviously looks like it's been trending well. First of all, just wanna make sure there's nothing non-recurring. I know you mentioned I think something like $7 million. But outside of that, is there anything nonrecurring around that trend? And then secondly, it doesn't seem like you're really incorporating anything around Clover or the real acceleration from the digital rollout yet. So, can you talk to us about the timing around that, what the opportunity is there? It seems like you said it already went live.

Frank Bisignano -- Chairman and Chief Executive Officer

Yeah. Maybe I'll take it. I think your read on the numbers is exactly accurate. Second, we look at our business and have seen it obviously turn. We talked a lot about it for a long time. It's good to talk to you again, Darrin, by the way. And we still have a bunch of things that are in process of ramping. We just started the actual rollout of the digital websites with our JV partners. As I had always said, this would take us through all of this year and through next year. But we see that as a powerful channel. We also see the rolling out of Clover to the ISV channel as another powerful initiative. So, when you look at those, we feel very, very good about our sustainability and our momentum. Our ISV business, which is in the early innings, is definitely winning in the market. And we got the best agent solution in the industry. So, I know it took us a while to get here, but we definitely have crossed the path that we had talked to you about. And we got more coming.

Darrin Peller -- Wolfe Research -- Analyst

All right. That's great to hear. Thanks, Frank. Just one quick follow-up on the GFS side, it does sound like that's an area where you have a lot of confidence around, whether it's the student loan side but even internationally. What exactly is happening that's giving you the edge and the confidence that that's gonna keep growing as well or accelerate, essentially? Is it something on the Vision side? If you could give us more color, that'd be great. Thanks again.

Frank Bisignano -- Chairman and Chief Executive Officer

Yeah. So, I think the Vision platform is the No. 1 platform in the industry. And we made a pivot a while ago on how we would approach that as that we would really be a processor versus just a pure license seller. And I think that's taken hold. We had said we'd get in the loan business, and that's taken hold. And obviously, we're making a investment in student loans, but we feel very good about it. And we think that the bringing on the Navient platform, which obviously is an investment, will allow us to have another engine. That's a very big market to compete in. So, you got loans, you got Vision, you got the mandates that we've won that haven't onboarded yet. And when you put that all together, the work that we've done over the past few years has a good trajectory going forward.

Darrin Peller -- Wolfe Research -- Analyst

All right. That's great to hear, guys. Thank you.

Operator

Thank you. And the next question comes from Sanjay Sakhrani with KBW.

Sanjay Sakhrani -- KBW -- Analyst

Thanks. Good morning. Quick question on the guidance. Obviously, good quarter. Appreciate the revenue increase. Could you just talk about some of the lack of flow through on EPS and where some of those investments are going?

Himanshu Patel -- Chief Financial Officer

Yeah, Sanjay. Most of that is just foreign exchange related. Our EPS guidance is really predicated on the forward curves on currencies. So, I think most people know the dollar has seen a pretty significant amount of strengthening in the last few months. And that's flowing through down to EPS.

Sanjay Sakhrani -- KBW -- Analyst

Okay. Got it. And then on GFS, you mentioned the sizable backlog. And obviously, the previous question asked about the momentum there. Could you just talk about the second half expected growth rates and what you're expecting going forward? Thanks.

Himanshu Patel -- Chief Financial Officer

Yeah. The enterprise backlog business that we've talked about before, a lot of that is GFS-centric, as you alluded. And that's one of the reasons we mentioned at the end of the first quarter that we anticipate GFS revenue growth globally to recover from the Q1 level into the second half of the year. I think you saw progress toward that this quarter with GFS putting up 4%. And we'd expect that rate of growth to improve into the second half of the year.

Sanjay Sakhrani -- KBW -- Analyst

Thank you.

Operator

Thank you. And our next question comes from Craig Maurer with Autonomous Research.

Craig Maurer -- Autonomous Research -- Analyst

Yeah. Hi. Thanks for taking the questions. The growth or acceleration that I see is obviously a big driver. Could you discuss who you might be taking share from and what segments you see the most opportunity? And secondly, could you discuss the reasons why Itaú might have picked First Data to back Credicard when they already had their own in-house acquiring already? Thanks.

Frank Bisignano -- Chairman and Chief Executive Officer

Yeah. So, we're not gonna go into who, what, where. But obviously, if you go into the market and look at our ISV solution, it is deemed as the best technical solution in the industry. We are investing in that to make it better. And that's that Clover combo. And we think that's very powerful for both Clover and our ISV business. So, in a place that we were not competing -- if you look back a year ago, we definitely have a great field force. We're building resources in that business. And we're winning mandates. So, technically strong. It still is a very, very large, untapped population also. So, not only are we winning competitively, but there is ISVs that are monetizing payments that didn't monetize payments before. So, we see it as a very, very big pond to fish in.

And we feel great about our BluePay CardConnect combo. We feel great about the integration of those two into the company and the path forward they give us. And then secondly, to us, what we built in Brazil has been completely validated by the mandate with Itaú I think they like our technology. They like how we handle service. They like our operating environment. And it's the beginning of a very good relationship. We had talked with them. We had visited with them for a while. This was a very, very, very senior set of decisions that got us to where we are today. And I think it's a mandate that you have to look at. And if you're wondering why we're winning in Brazil, it's about technology and service.

Craig Maurer -- Autonomous Research -- Analyst

Thank you.

Operator

Thank you. And the next question comes from David Togut with Evercore ISI.

David Togut -- Evercore ISI -- Analyst

Thanks. Good morning. Good to see the acceleration. Can you talk a little bit about the bank JV channel? Clearly some opportunity there to improve the growth. When will the traction on digital enrollment really start to bear fruit there?

Frank Bisignano -- Chairman and Chief Executive Officer

Well, the way I think about it is, first of all, we just started. We had talked about building it out probably over the past nine months. We've built it out. We've integrated it. We're testing it. We're optimizing it. But I think you gotta think about it as next year really seeing benefit, not necessarily this year, as it's a new way to do business. Our partners love it. We love it. We're continuing to work. We're investing heavily in that technical buildout. But I really think it's in next year's set of numbers.

Himanshu Patel -- Chief Financial Officer

Yeah. And I would also add to that, David, I wouldn't lose sight of the fact that I don't think that all of our JV partners and many of our non-JV bank partners are effectively simultaneously rolling this technology out which should tell you something about just how much confidence the industry has in this. I don't think that was a coincidence. I think we obviously had to build the technology first. But as soon as it became available, I think you're clearly seeing a very strong reception from our key bank partners to integrate this. And so, our view on this is this is a journey. It's not an overnight sprint. But getting the strong support and buy-in of our key bank partners to put this through their highly trafficked websites we think is transformative for our business. So, we're not counting months and quarters on this, but we absolutely think it's a transformational step in our enrollment process for the SMB business across GBS North America. And it's gonna start mainly on the JVs.

David Togut -- Evercore ISI -- Analyst

Understood. And then with the Clover TPV up more than 50% year-over-year, can you talk about how you're positioning that in terms of merchant size? Can you go after mid- to large-sized merchants now with Clover?

Himanshu Patel -- Chief Financial Officer

Yeah. Clover, I think it's fair to say, started as a SMB solution. Still is primarily an SMB solution. We have been actually pulled into the midmarket to our somewhat surprise and delight. You see that in places like stadiums and entertainment venues where Clover operates. Clover was never really designed for very large enterprise merchants. We may have a couple of one-off cases where we do some stuff there. But think of the core market that we target on Clover as SMB and midmarket.

David Togut -- Evercore ISI -- Analyst

Understood. Thanks so much.

Operator

Thank you. And the next question comes from Andrew Jeffrey with SunTrust.

Andrew Jeffrey -- SunTrust -- Analyst

Hey. Good morning, guys. Appreciate you taking the question. You called out large merchant momentum in the quarter. I assume that's US. And I'm wondering is that macro, or do you think that's share shift?

Himanshu Patel -- Chief Financial Officer

Probably a little bit of both. I think it's fair to say consumer retail spending's been doing good across the US for a while. But I think we definitely haven't been silent on our strength in the enterprise business. And that flows through our merchant business as well as our issuing business. So, I think it's hard to dissect between the two, but I think it's probably both of those are variables.

Andrew Jeffrey -- SunTrust -- Analyst

Okay. And with regard to Clover, it's great to see the growth and the momentum. I think one of the critiques in the market is that Clover, at least to date, has been used as a dumb terminal substitute, for lack of a better description. How do you gauge merchant engagement and use as an SMB, ERP platform? Because that's obviously an area where companies like Square have had a tremendous amount of success.

Frank Bisignano -- Chairman and Chief Executive Officer

I think when you look at Clover, it receives very, very high customer sat grades, top of the industry on it. I think not that this is the end all, be all. But most merchants are using a couple of the apps on there I think. So, I would say it's more than a dumb terminal, for sure. So, I'd like to dispel that right here and now. I would say we're making a heavy investment in Clover 2.0 and what that looks like. I think the ISV channel when you look at ISVs wanting to build and run their software on Clover, it's a statement about not the hardware but about the software and the applicability. So, I would just say it's still early. We've ramped up that development crowd from where we started a few years ago to where we are today. And we're in full development to make it better every day. So, we spend a lot of time working on clients that, on application usage, on what more we could do, and on the roadmap for that product. So, I think it's more than a dumb terminal, but it's not where it can be. And you should watch over the next year and a half mature.

Himanshu Patel -- Chief Financial Officer

I would also add to Frank's comment, it is absolutely a product where, as Frank mentioned, we see a ton of software activity and usage by clients. But on top of that, I don't think you can overlook the fact that there are hundreds and hundreds of third-party developers coding to Clover. And the list keeps growing every quarter. They wouldn't do that unless they thought their software was actually being used. And we're four years into this journey at this stage. So, I think the development community's clearly made up its mind that this is a go-to platform for a central use that they wanna be tied up with. And I think a lot of that is because they do believe it's a great platform for software usage.

Andrew Jeffrey -- SunTrust -- Analyst

Terrific. Thank you.

Operator

Thank you. And the next question comes from George Mihalos with Cowen.

George Mihalos -- Cowen -- Analyst

Hey. Good morning, Frank and Himanshu. Wanted to ask on the strength in GBS. I think it was last quarter where SMB Direct turned positive. I think it grew mid-single-digits. Just wondering if that has accelerated at all going into 2Q. And then as it relates to the JVs, just directionally, has internally, your thoughts around the timing of when the JVs turned positive changed, either elongated or shortened?

Himanshu Patel -- Chief Financial Officer

I'd say the JVs -- I think Frank's answer was spot on. We're definitely seeing stabilization in their recent rate of growth. We anticipate them to improve mainly from digital. We don't think that's a tomorrow event, but we also don't think that's two years away. We think the digital enrollment investments that our bank partners and we have made take a little bit of time to perfect. But we will see the benefit of that in the not too distant future. And the SMB Direct business grew this quarter as well, modestly, similar to last quarter.

George Mihalos -- Cowen -- Analyst

Okay. Thanks. Very helpful. And then Himanshu, can you just help us think about GFS margins, back half of the year, given the investments that you're making?

Himanshu Patel -- Chief Financial Officer

You'll probably see a slight decline. And as we mentioned, we're ramping up our Navient business. And that does come with a decent amount of investment opposed to the P&L more than CapEx, initially. But that's a transitory item from our perspective and obviously a very big win from a revenue perspective itself and also a platform for us to win significant additional new student loan processing business.

George Mihalos -- Cowen -- Analyst

Great. Thanks, guys. Congrats on the quarter.

Operator

Thank you. And the next question comes from Brad Berning with Craig-Hallum.

Brad Berning -- Craig-Hallum -- Analyst

Hey. Good morning. Again, congrats. I wanna follow up. I don't believe you guys spent a lot of time talking about STAR. And it looked like there was some good momentum and acceleration in that business segment. Can you talk a little bit about the progress that you're making there, the initiatives? Talk about STAR's Signature-Debit and the progress that you're making there as well.

Frank Bisignano -- Chairman and Chief Executive Officer

Yeah. Thank you for that because we've stayed consistent that STAR was going to be a grower and is a grower. You watched us go from doing penless to now signature. You saw us signing up Walmart. Now you hear us talking about other wins. And then underlying that, you hear us talking about banks that we're signing up and certifying it. So, I think this drumbeat will continue through next year. I think the investments we made are beginning to pay off. And we see it growing. So, I think it has good market applicability. Both banks have adopted it and merchants enjoy it. So, in pretty good shape right now.

Brad Berning -- Craig-Hallum -- Analyst

And a quick follow-up on Clover. Can you talk a little bit about the timing of the Bolt and CardConnect and BluePay timing for -- I think you guys have used obviously one of the other big international players for that point of sale terminal. So, to move into Clover, when does that timing start to take effect to roll that out?

Frank Bisignano -- Chairman and Chief Executive Officer

Yeah. I'd think of it in the next few quarters is how I think about it. Somewhere Q4 to Q1. All the development work's been done. We're going through the product backend. We're making sure that the client impact is high and good. We're adding functionality to it to actually make it better than the Bolt solution was. So, clear roadmap. Clear commitment. Team's on the ground and executing, and you should expect to see it somewhere between Q4 and Q1.

Himanshu Patel -- Chief Financial Officer

To one of the earlier questions, Frank just mentioned Q4, Q1 for Bolt and Clover coming together. That's one of the reasons we feel so good that we do have the best technical solution already in the ISV space and relative to the competition. But we think that gap is gonna even widen after that.

Brad Berning -- Craig-Hallum -- Analyst

Good to hear. Thank you.

Operator

Thank you. And the next question comes from Jim Schneider with Goldman Sachs.

James Schneider -- Goldman Sachs -- Analyst

Good morning. Thanks for taking my question. Related to the earlier questions about GBS transaction growth and the acceleration you saw from large merchants, is that something that you see continuing so far into Q3? And then can you maybe comment a little bit about the RPT trends? It seems like those have stabilized. Is there anything else going on there except for that being lifted by the ISV mix and the agent mix and being depressed a little bit by the large merchant mix netting out to a neutral impact?

Himanshu Patel -- Chief Financial Officer

On the first question, the impact on our total transaction growth from the activity of large merchants in GBS is significant, just given the sheer amount of transactions they contribute. So, we're definitely benefiting from that right now. It's hard to call that quarter by quarter because a lot of these merchants have more than one processor. So, they're moving volume between two processors sometimes. We're clearly benefiting that. We feel good about all of our relationships there. We don't see anything structurally changing there. We've had I think consistently strong transaction growth in GBS North America for a while. We expect that to continue. On the question of RPT, you asked the question two or three different ways. There's endless ways to cut that number. Our macro point on RPT for First Data is that it is really a spreadsheet output metric. It's not a metric that we manage the business to.

Because of the sheer diversity of our business between large merchants, small merchants, ISOs, Direct -- there's many ways that we acquire revenue, but they all count as one transaction. The mix impacts on RPT for us are just too significant that we don't really think about it as a metric that we forecast. So, I recognize the metric has been trending favorably recently. And a lot of that is because we are seeing good growth in our SMB type of businesses which are coming through our partner solutions as well as our FD Direct business. But as I've mentioned before, just because that metric is potentially not growing does not mean the underlying business is not doing good. That could entirely be explained by a negative mix item in a given quarter.

James Schneider -- Goldman Sachs -- Analyst

That's helpful. Thanks. And then maybe as a follow-up, with respect to M&A, you've done a very good job over the last year and a half with respect to portfolio management, both the acquisitions of CardConnect and BluePay and also the divestitures of some of the European businesses. Maybe Frank, as you look across your portfolio, are there additional opportunities that you see for maybe underperforming businesses that you might divest to command additional cash to pay down the debt further?

Frank Bisignano -- Chairman and Chief Executive Officer

Yeah. We've been fairly consistent on this. Our portfolio itself, once we added alliance V assets really felt strong and good. We thought the business mix supported each other and even our product supported our distribution channels. And then you've seen us peel off some smaller assets that -- if you look at the Greece easy conversation we just had, it's a delivering transaction. So, you should think about anything we would do that would behave like that. Lower growth profile. Can't really say it's really scaling in the enterprise. And maybe helping a little bit on leverage. But you would see nothing very large scale happening in the company.

James Schneider -- Goldman Sachs -- Analyst

Thank you.

Operator

Thank you. And the next question comes from Lisa Ellis with MoffettNathanson.

Lisa Ellis -- MoffettNathanson, LLC -- Analyst

Hi. Good morning, guys. A more strategic question I guess on the bank's JV channel. As you look across the businesses, clearly, the ISV channels are secular winners right now. Volume is shifting in that direction and has been for many years. Wholesale ISOs are in structural decline. The bank JV channel though is still a little bit like a tossup. And it obviously has had the impact of the Wells Fargo scandal over the last couple of years. So, do you view that channel as a long-term secular winner? Do you expect volumes to reaccelerate in that channel back up to at market or better growth? Or is that a channel that's now mature and just over the long-term will be slower growth in the overall market?

Frank Bisignano -- Chairman and Chief Executive Officer

First of all, it's great to hear from you and always good to talk to you. Second, we think it's a mid-single-digit grower. We think it's a mid-single-digit grower. As we renewed PNC, that's a great partnership. And we see the investment. And a lot of this is driven by the bank's commitment. We have a deep commitment with the other two partners to grow these and make structural changes that cause them to grow. I think digitization is part of it. You can't disregard their well-trafficked website and the opportunity to do what it did with other products. And I think there's a regeneration in these fabulous banks that we partner with in driving the business forward. So, I think next year, it's a grower. And ultimately, they're mid-single-digit growers.

Lisa Ellis -- MoffettNathanson, LLC -- Analyst

Terrific. Thank you. And good to be back too. My second one is e-comm related. You called out a couple of important e-comm wins this quarter. I don't know if you gave the overall percentage. If you could, can you give us a sense for where that's trending in the mix of your business? And then also, I believe you're still a bit underweight in e-comm relative to the overall market. I know that card networks now are at over 20% of their mix is e-comm. Can you just give a sense for as you've now fixed the ISV channel or are on the path to doing that, what's the path to increasing mix in e-comm?

Himanshu Patel -- Chief Financial Officer

Yeah. Lisa, think about the growth rate of our e-comm business as mid-teens. It's been fairly consistent for us for a while, fairly healthy business. And in terms of size, I would think about that as a business that's well over half a billion dollars for us which is a percentage of our merchant business, you'll notice, which is roughly a $5 billion business globally. You'll get to something between, call it roughly 10% to 20% of our total revenue depending on which geography you're looking at.

Frank Bisignano -- Chairman and Chief Executive Officer

Yeah. And I would just say to your probably underlying question, that's still in the investment phase. We are building out more technology. We feel good about our roadmap on that and our ability to win share over time.

Lisa Ellis -- MoffettNathanson, LLC -- Analyst

Terrific. Thank you. Congrats, guys.

Frank Bisignano -- Chairman and Chief Executive Officer

Thanks.

Operator

Thank you. And the next question comes from Brett Huff with Stephens.

Brett Huff -- Stephens, Inc -- Analyst

Good morning. Thanks for taking my questions. My first one's on an attrition update. I know that we were fairly high a couple years ago. And it came down nicely. Any update on that and if that's possibly driving some of the acceleration in the North American business?

Himanshu Patel -- Chief Financial Officer

It's definitely a contributor, Brett. Attrition in our SMB Direct business was at a level that was unacceptable to us in the early part of 2016. It has substantially improved since then. And today, you're two years away from that period. And attrition rates are very normal in that business and at a healthy and stable level at this stage.

Brett Huff -- Stephens, Inc -- Analyst

Great. Thanks. And my follow-up is on OGEN as a new entrant, at least from a public markets point of view. I know they've been around for a long time. Any update or commentary on competitive dynamics in that business? I know it's always competitive, but anything meaningful change-wise or maybe even new opportunities you guys might see as a result of that change?

Himanshu Patel -- Chief Financial Officer

I don't think them going public necessarily we've seen anything. But we've always respected them as a handful of global e-comm players that we compete with. And they're definitely in that list.

Brett Huff -- Stephens, Inc -- Analyst

Okay. Thank you.

Operator

Thank you. And the next question comes from Harshita Rawat with Bernstein.

Harshita Rawat -- Bernstein -- Analyst

Good morning. Thank you for taking my question. Himanshu, just following up on earlier questions on revenue versus EBITDA guidance. My question is how do we think about some rev rec and ISO commission's last few dynamics that made bad revenue more than EBITDA this quarter and for the full year?

Himanshu Patel -- Chief Financial Officer

No real impact from that. Most of the reason why we didn't raise EPS guidance is really related to foreign exchange. And then as we talked about in the GFS segment, we're gonna see a little bit of margin pressure in the second half because of the Navient deal. And that's really most of the reason -- that's the impact on the EBITDA line.

Harshita Rawat -- Bernstein -- Analyst

Perfect. Thank you very much.

Operator

Thank you. And the next question comes from Jason Kupferberg with Bank of America Merrill Lynch.

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

Hey. Good morning, guys. So, I know you called out the UK as a source of strength in GBS EMEA. Wanted to get your reaction to the report that came out last week from the payment system regulator, whether or not you think we may be in for any sort of material changes in the merchant acquiring market in the UK. And just as part of those comments, can you help us size that UK GBS business?

Himanshu Patel -- Chief Financial Officer

Sure. The UK's about 2% of First Data's total revenue. Obviously, we're watching everything you guys are watching. We'll see what unfolds. But at this stage, we don't expect it to be material to total company.

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

Okay. Okay. That's helpful. And then just a follow-up on the JVs. Just wanted to see if we can put a little bit of a finer point on things. I know you are forecasting some improvement here over time. Do you still expect the second half in aggregate to be better than the first half from a revenue growth perspective there? And then any color on lead flow from the quarter?

Frank Bisignano -- Chairman and Chief Executive Officer

Yeah. I would say given all the work we've put in, we definitely feel continually better about the JVs. And we've come off of a very difficult place to somewhat of a stabilized place. We like to think about that next year, the JV's are our grower. And that's how we've laid it out. So, to me, that's the JV picture. We got investment. We got great partners. And we have a bunch of engines working there. And it did have a very, very difficult time. But that was in the rearview mirror now. And now it's about stabilization. It's stabilized. And now it's about forward march.

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

Any metrics on the lead flow there in the quarter?

Himanshu Patel -- Chief Financial Officer

Yeah. We mentioned last quarter lead flow in that business, we're gonna stop disclosing that because it's gonna shortly become irrelevant and misleading because in the digital world -- but I think it's fair to say it's still down modestly. But I think as you go forward in the next six months or so, you're gonna see that data become fairly contorted because digital drives a lot of leads, but they have different close rates to it.

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

Okay. Thank you.

Operator

Thank you. And the next question comes from Bryan Keane with Deutsche Bank.

Bryan Keane -- Deutsche Bank -- Analyst

Hi. Good morning. Just a couple clarifications. If you do isolate the GBS North America growth acceleration that went to 6% from 4%-so, it's a 200 basis point improvement -- what would you point to being the main factors for that?

Himanshu Patel -- Chief Financial Officer

I think if you go back to our scripted comments, Bryan, you can see GBS North America is seeing broad-based strength in a lot of business lines. We broadly call it Partner Solutions is one area which includes many businesses within itself. It includes CardConnect. It includes BluePay. It includes the agent business within both of them, the agent business that Heritage First Data had. It includes a retail ISO business. All of these businesses are doing great. Our FD Direct business, which is not in Partner Solutions, is also better. Definitely not growing as fast as the Partner Solutions business but clearly growing which wasn't the case a year ago.

And so, when I think about sequentially, the growth rate, it's probably a little bit more tied to partner. But that could be -- in any given quarter, you got a little bit of back and forth between the two. But I would say the overall narrative is a -- despite the alliances being businesses that are not growing at this stage, we clearly have two other engines of growth between Partner Solutions and FD Direct that more than compensate for that. So, we feel very good that GBS North America is a mid-single-digit grower.

Bryan Keane -- Deutsche Bank -- Analyst

Okay. Helpful. And then GFS margins, we've talked about it being impacted by the Navient contract ramping up. I was just hoping you would quantify that, how much we expect margins to be lower by. And then NSS, same thing. There's a large contract that you didn't renew that was lower-margin. How much would that impact the revenue growth rate by? Thanks.

Himanshu Patel -- Chief Financial Officer

Yeah. Brian, why don't we help you offline on that, just by segment. But it's fair to say that both of those factors are reflected in our total company EBITDA growth rate guidance for the full year. We'll walk you through it segment by segment offline.

Bryan Keane -- Deutsche Bank -- Analyst

Okay. Great. Thanks.

Operator

Thank you. And the next question comes from Ashwin Shirvaikar with Citi.

Ashwin Shirvaikar -- Citi -- Analyst

Thanks. Hey, Frank, Himanshu. Good quarter there. My first question is on pricing and the simplified pricing initiative. Is there a rate to gauge current penetrations and what the incremental opportunity from that is, so what your client feedback is?

Himanshu Patel -- Chief Financial Officer

Yeah. The penetration rate's not 100%, but it's growing. I would say it's probably about half of our new signups, depending on the channel you're looking at. Some channels are higher, some are lower. But it's a great initiative. It's one of our key pillars of competing in the digital world as well. We think simplified pricing, Clover, and digital enrollment hang really well together. And so, I think you'll see more of that coming to our mix going forward, not less.

Ashwin Shirvaikar -- Citi -- Analyst

Okay. And then the second question is with regards to the leverage targets at low-fives and this year low-fours. And the next year -- obviously, Himanshu, you have mentioned a few times before that that pay down is a primary use of cash. I wanted to ask with regards to the announced divestiture of the businesses in Greece and Central, Eastern Europe which should generate -- you guys have mentioned €75 million. Is that included in there just from a clarification standpoint? Or is that a different use of cash from those proceeds?

Himanshu Patel -- Chief Financial Officer

No. So, Ashwin, for sure, the anticipated divestiture proceeds will go toward debt paydown. So, that will help us get to the leverage charges we're talking about. But if you go back to my scripted comments, I mentioned that we've reported a leverage ratio at the end of Q2 of 5.6. If you proformad the impact of that divestiture both on the numerator and the denominator of leverage, we're at 5.5. So, it's roughly a .1 deleveraging transaction. And that will, in reality, flow through at the second half when the deal closes. But proforma, we gave you the number in Q2. And then the bridge from that mid-fives to low-fives between now and year-end is free cash flow to the second half which will further help us pay off debt.

Ashwin Shirvaikar -- Citi -- Analyst

Great. Thank you, guys.

Operator

Thank you. And that's all the time we have this morning for questions, so I would like to return the call to Frank Bisignano for any closing comments.

Frank Bisignano -- Chairman and Chief Executive Officer

Yeah. thank you to everyone for being on the call this morning. We're most grateful for your time and attention. We look forward over the next days and weeks and, as always, being available for you and talking to you as we go forward. I thank you. And have a great day.

Operator

Thank you. This conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines.

Duration: 64 minutes

Call participants:

Peter Poillon -- Senior Vice President, Investor Relations

Frank Bisignano -- Chairman and Chief Executive Officer

Himanshu Patel -- Chief Financial Officer

Darrin Peller -- Wolfe Research -- Analyst

Sanjay Sakhrani -- KBW -- Analyst

Craig Maurer -- Autonomous Research -- Analyst

David Togut -- Evercore ISI -- Analyst

Andrew Jeffrey -- SunTrust -- Analyst

George Mihalos -- Cowen -- Analyst

Brad Berning -- Craig-Hallum -- Analyst

James Schneider -- Goldman Sachs -- Analyst

Lisa Ellis -- MoffettNathanson, LLC -- Analyst

Brett Huff -- Stephens, Inc -- Analyst

Harshita Rawat -- Bernstein -- Analyst

Jason Kupferberg -- Bank of America Merrill Lynch -- Analyst

Bryan Keane -- Deutsche Bank -- Analyst

Ashwin Shirvaikar -- Citi -- Analyst

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