Global Payments Inc. (GPN) Earnings Call Transcript & Summary

Hi, and welcome back, everybody. Our next session of the day is a fireside chat with the CFO of Global Payments, Paul Todd. Paul, thank you very much for being here today. Greatly appreciate it.

Yes. Thanks, Ramsey. It's great being here as well.

Why don't we start off? We're -- we often start off these days with a sort of an update on the recent trends you're seeing in the marketplace or in your business, in particular, or both.

Yes, Ramsey, it's obviously something that we're very attentive to and something we're very pleased with, just like we talked about on our last call. We're very pleased with the positive kind of decoupling that we've seen, particularly in our Merchant business relative to the network, the volumes coming out of the networks. Obviously, we were very pleased with our first quarter results and the positive kind of sequential trends that we saw both inside the quarter month-to-month as the quarter progressed, but also just on an overall year-over-year basis when you kind of had the comparison to having kind of almost a fully affected pandemic quarter 1 that was largely unaffected last quarter. And then as we also said on the call, we're very pleased with what we saw in April relative to the volumes. And so far, that's continued, as we've seen in May. And so we were very -- as we started the year, obviously, we were very curious to kind of see how things were going to play out. We had some weather in the first part of the quarter that kind of impacted. But after that, the momentum that we've seen really across all the businesses, but certainly in our Merchant business, with volume recovery there has been better than we thought, and we like the sustainability of that. And obviously, you saw in our guidance, the way we raised our overall revenue guidance range. We raised the -- our Merchant segment from mid- to high-teens to high-teens growth on the merchant side and then also raised on the Business and Consumer side from kind of mid-single-digit to -- mid- to high single-digit on that side. So that kind of reflected the optimism and the strong kind of underlying volume performance that we saw both in the quarter but also as we look out throughout the year.

That's great. That's terrific. I wanted to ask about some of the commentary from the earnings call. And specifically, you talked about getting to roughly 75% of revenues from check-enabled channels, I think, versus 60% sort of prior. Can you talk about the path to getting there, organic versus M&A and any other color that might be helpful there?

Well, sure, Ramsey. And this obviously has been a very important goal for us. We set this goal back in 2018, and we said that we wanted to achieve that goal by the end of 2020. So the fact that we achieved that goal 6 months prior to the stated kind of time line, also in the middle of the pandemic was something that we're very pleased with from just in a strategic accomplishment standpoint. I would also say that the pandemic showed how important to us tech enablement was with how we performed and those businesses performed during the pandemic, and kind of further validated that this path that we're on of tech enablement is certainly the right path to be on. And I highlight 2 things: our integrated performance both during the pandemic and also what we had in the first quarter; and on the e-com. Our e-com omni kind of volume increases that we've seen throughout the pandemic and also into the first quarter kind of highlight the strength of 2 lines of that tech enablement, and we continue to see the performance of that be reflected on a go forward basis as well. On how we're going to get there, I think there's a couple of paths, just like there has been to get to the point that we're at today. One is that those businesses by their kind of nature are orchestrated to grow in the double-digit range, which is higher than our 9% to 11% or high single-digit, low double-digit kind of range we're expecting for the overall company. So just as a math matter, with those businesses growing at a faster pace than the overall company, it starts becoming a more meaningful percentage of the total. And so we'll have that dynamic play its way through, particularly given even the pandemic and some of the acceleration on the e-com side and also on the integrated side. And so there will be probably even a more meaningful impact of that dynamic going forward, just given the dynamics of the business. And then, yes, M&A will play a role, just like it has over the last several years as we've made tech-enabled acquisitions. We've said all along that our strategic interest is making kind of tech-enabled acquisitions that have the characteristics that we're looking like. And the Zego acquisition we just announced is a perfect example of that. And so as we continue to execute against our M&A pipeline, you will see this kind of tech enablement percentage move up as that becomes a more meaningful percentage of the overall company. Obviously, this is something we're going to talk a lot more about at our upcoming Investor Day. And so we'll get a lot more kind of color around that. And Jeff kind of gave a preview of that in our last earnings call of something that we're very interested in. But that gives you kind of some parameters around how we're thinking about it.

That's very helpful. And I want to touch on M&A a little bit later, the M&A strategy. But how should we think about the kind of P&L implications as you approach this target in terms of the margin -- potentially higher margins with this channel? Or obviously, you touched on a mix shift to higher growth, stickier customer base. How should we think about those qualities?

Yes. Well, and I'd say that those qualities are one of the reasons we're so focused on tech enablement is because it really checks the box across those parameters of a better margin profile, higher organic revenue and stickier relationships with our customers. So if you kind of look at those -- particularly in the merchant side, those tech-enabled businesses today, the organic revenue growth of those businesses -- and once again, I come back to our integrated business and the results that we've talked about there, the e-com omni being another example, and even vertical markets, those businesses are structured around that kind of growth. The pandemic has obviously had some unique impacts in a few of those vertical markets, schools and our ACTIVE business and gaming, to some degree, but they're orchestrated in a normalized environment to grow in that double-digit range. So the organic growth profile of the tech-enabled businesses have that kind of characteristic that we like. They also have a higher margin dynamic to them typically, and that's also a characteristic that is important to us is we have a very strong kind of consistent margin increasing kind of target for our company. And then on the stickiness side, it absolutely kind of accomplishes that goal, particularly in our -- when we look at software and how that software is so important to that small- and medium-sized business or whoever kind of the end customer is. Once you're adding kind of value-added products that's wrapped around software, and also from a payment standpoint, you're providing a much harder service offering to kind of de-link from your operations where payments on a stand-alone basis traditionally has not had that kind of same dynamics to it. So yes, those are all the reasons and more strategically around how we want to have the -- target addressable markets and all the things that are involved in our tech enablement, those are exactly the characteristics we look for, and that's exactly what our tech-enabled businesses have today.

And on the software side, I was wondering if you could talk a little bit about the longer term kind of integration strategy. Do you envisage kind of a broader integration across the enterprise with the software assets that you're acquiring? Or is it more of stable where you have these entities that are sort of run independently underneath the broader kind of Global Payments' umbrella?

Yes, Ramsey, it's a good question. It's one we get a lot given our unique kind of go-to-market strategy and the way we approach the market. What we try to do with our software strategy is to maximize kind of the organic growth characteristics of that business by leaving a lot of the front-facing kind of functions, if you will, independent and then get the synergistic and the efficiency benefits from some of the areas that aren't as strategic, like some of the back office functions of accounting or HR or even on the technology side, to some degree, from an operations standpoint. And so we'd call it core edge that on the edge where the growth occurs, where the innovation occurs, we want to leave that independent to be focused on that the addressable market that, that business is focused on and being able to be nimble enough to compete effectively and continue to grow at the rate and even higher than the rates that those businesses were growing before we bought them, but then we want to kind of maximize the core and make sure that we get the efficiencies that lend themselves to a company of our size of bringing that company and being part of Global Payments. So that's the way we've approached the business. So far, that's our strategy going forward, and it's been one we've been very pleased with and one that we've got a great track record of executing against.

Absolutely. Can you talk about the Google partnership? That's a really interesting move you guys made recently. Give us a little more color on the -- how does the go-to-market work. I think Jeff mentioned on the call some joint innovation efforts. Update us on that relationship and sort of let us know a little bit more how it works.

Yes. Sure. It is one that we're extremely excited about because if you look at our company between that relationship as well as AWS relationship, we partnered with the 2 preeminent kind of technology companies to kind of help us both from a technology standpoint, an efficiency standpoint, but kind of equally as important is on the distribution side. And so kind of going to your question, Ramsey, of how does it work, well, first of all, there's a an additive kind of distribution component day 1 of Google, feet on the street sales force that is now going to be bringing us merchant acquiring payments business that didn't exist before. So leveraging that sales force with kind of meaningful quota relationships is one that we're very excited about, and it's totally additive to everything that we're doing here from a merchant standpoint. And so that's kind of the first leg of it. The second leg, as you kind of mentioned a little bit, is on product, and there's kind of 2 sub-legs, if you will, on that. One are the products that exist today to grow my business kind of products that we're going to be able to bring into our portal and offer to our merchants on a kind of an kind of an exclusive basis is critical to us, going back to the earlier question around stickiness, is us being able to offer that merchant more and more services to allow both our relationship to be more full with them, but also to help them grow their business, which is what we've always been about. And so those kind of installed products that are ready to go today will be brought into our quarter. We talked about that coming out here in the near future. And then there's kind of an innovation element of that of joint development efforts where we're looking to do things on the analytics side and leveraging some of the Google technology to be able to bring new and kind of innovative products that don't exist today, leveraging both the strengths of their company and our company. And so we're excited about the future of what that can bring. And then finally, it's just the relationship of processing them as a merchant customer. And as we talked about, they'll be one of our largest overall relationships, and we're very pleased to now have them as one of our customers going forward as Google is obviously a fantastic kind of marquee customer for us on a go forward basis. So it's got several legs to it, but it's incredibly strategic to us on the growth side. And then there's an efficiency element as well as we move our processing platform fully to the cloud, consolidating kind of some of the legacy data centers and pick it up kind of a cost savings element that once we complete that work, also be meaningful as well. But you've highlighted kind of the growth side and how that's going to work, and it's one that over the coming years, we're going to talk more and more about.

And changing channels here for a second. I wanted to ask about TSYS and the revenue synergies -- and the revenue synergy opportunity that you sort of mentioned, the TSYS deal. What are you most excited about here still? What inning are we in when it comes to those opportunities?

Yes. So we're continuing to be very excited about the dialogue we're having with joint customers. And so that was one of the things we talked about at the start of the merger is the ability for us from a legacy TSYS standpoint to sell into the legacy Global installed base from a financial institution standpoint. So we're very pleased with the dialogue that we're having there. We're also very pleased with the dialogue that we're having around transaction optimization. And so this whole nature of being on both sides of the transaction with a similar customer is something that we continue to have dialogue around and something that, once again, at the start of the merger, we talked about. And then just on an overall synergy standpoint, we're very pleased, if you move beyond just issuer, the success that we've had with taking the Vital product -- point-of-sale product that we had in legacy TSYS and moving that through the Heartland sales channel. Also, our Cayan platform and the capabilities there is another example along with ProPay. And so several of those kind of examples that we had at the start, we've been very pleased with the success that we've had of making kind of those cross-sells. And that's underpinned why we've been able to kind of raise our revenue synergy target that we're very committed against. And so kind of on both sides, and we didn't even hit Business and Consumer. We're executing on several of the synergies there. So overall, I couldn't be more pleased with the overall kind of revenue synergy picture across the various segments and specifically pleased with what we've seen from the issuing side with the dialogue that we've had with our customers there.

Okay. It sounds like plenty of opportunity ahead there. What's your view, Paul, on buy now, pay later in terms of -- are you seeing merchant demand for it? Are you -- is it something you're seeing in the marketplace? What do you make of that industry and the impact it might have on your industry?

Yes. It has gotten more interest lately. And going back to the prior question around being on both the merchant side and the issuing side, we clearly have that capability on the merchant side. We -- this is one of the benefits of our Asia presence because that's been something that's been a bigger kind of influence in that market that's now come to this market. So we've kind of seen kind of a preview of what there is there. I think time will tell a little bit about how big it is in the U.S. We -- also, in some of our South American countries, there's also some dynamics that we see on the issuing side. And speaking of the issuing side, we've got partnerships with both Visa and Mastercard to be the provider of the buy now, pay later on our issuing platform. And so yes, we're kind of seeing this dynamic on both sides. It's still earlier, relatively speaking, in the U.S., but it's something that we're glad we're kind of a technology enabler on both sides of that transaction. And this is an example to some degree of the synergies that we talk about of having a global presence where you see things in one region that then move to another region, and you have the experience in both the technological capability to kind of facilitate that.

Interesting. You mentioned -- in a prior answer to one of the questions, you talked a little bit about the software part of M&A. Can we just take a step -- a little bit of a step back and talk more broadly about the M&A strategy here and what you're seeing out there? What your goals are? And also, if you'd contemplate doing anything that was a little bit of a bigger swing at this point, something a little more transformative.

Sure. I would say maybe to start off, just from an M&A standpoint, I think we commented -- well, we commented, I think, several calls now, nothing's changed on our strategic appetite from an M&A standpoint. Obviously, the Zego transaction that we did was straight down the middle of the fairway strategically for us. It's -- we were obviously looking to do a software/payments-based acquisition and to be able to do it in the kind of vertical market that the real estate vertical had where it kind of checks all the boxes that we're looking for around size, penetration, leverageability to the global base, the characteristics of the business economically. And so Zego is a very good example of kinds of things that we're looking at. And as it relates to on a go forward basis, those characteristics are still in place. Would we be open to doing something bigger? Absolutely. One of the things, Ramsey, that we've been very pleased with is the overall kind of position that we're in from a capital standpoint to allow us to kind of do the strategic and potentially transformational things that we want to do. And so we're very bullish on the ability to kind of do future M&A. The pipeline, we've said for several quarters continues to remain full. And in this last quarter, we were also pleased to being able to do the PAYONE acquisition where we were able to expand our footprint internationally as well. So more to come. We'll obviously talk more about this at our upcoming Investor Day, but we couldn't be more pleased with where we are from an M&A standpoint.

Terrific. Paul, could you talk to us about the competitive environment? And with the sort of the increasing complexity of the payments value chain of these new fintech entrants, I think investors had a little bit of confusion in terms of who's a friend, who's an enemy and who's a frenemy. How do you see the competitive environment having evolved over the last couple few years, especially maybe through the pandemic, and where you guys fit in relative to some of these new entrants who are -- maybe vertical-specific entrants or digital-focused entrants? Or...

Yes. So yes, it's a really good question, Ramsey. It's kind of hard to generalize a little bit there because it kind of depends on which business you're talking about. I would say, overall, and this is exactly -- kind of maybe going to the first question around why we're so focused on this tech-enabled strategy that we are is because of the kind of changing competitive environment. If you are kind of operating like you did 5 years ago, then you're in a challenged position. And like I said, I think the pandemic kind of reflected that. So I would say on the merchant side, we feel very good about the overall competitive environment. What we're doing, the way we're executing, obviously, our financial results show that, our strategic positioning, our new sales and the success that we've had through the pandemic, but also the things we talked about on the first quarter or just the first quarter results continue to show that what we're offering to the marketplace is being received well, but to be able to exceed the kind of sales goals not only just generally, but to succeed in the areas where we wanted the e-com omni integrated. The areas that are the most growth and that we're able to continue to reach and exceed our sales goals shows that what we're doing from a competitive standpoint is resonating with our customers. So on a merchant, kind of as we look at just from a segment standpoint, I think we're in a great spot. On the issuing side, I would say the same thing. Obviously, there's been other entrants that are doing kind of other things than we do from an issuing standpoint. But if you think about our recent wins, we also -- with our AWS partnership and the way we're going to be able to pivot that platform to be able to do more things to a broader group of customers around the world that we've ever been able to do, so we're very excited from that standpoint. And obviously, in that business, there's a big kind of moat and a certain amount of scale that you need to be able to effectively compete -- to compete the way we're wanting to compete in that business. And then on the Business and Consumer side, that's probably had the most kind of new entrants that are playing there. And I think what you see us doing there around our international expansion, around our more kind of B2B kind of pivot that we're making there is expanding kind of the use case of that platform wider than certainly the way we went out to compete several years ago. So yes, it's very dynamic. It's always been somewhat dynamic. But overall, that's why we're focused on the things that we're focused on is trying to stay on that front foot of strategic competitiveness. And I think once again, our results and the things that we're doing is just continuing to keep us in a good spot there.

Okay. I wanted to ask about the TSYS business, and particularly the commercial side of the TSYS business, which I know has been impacted by the pandemic. What are your expectations there as we move through the year? And I guess there's a kind of a numbers question here, too. To what degree is a more or less rapid recovery in that business sort of built into your guidance?

Yes. So we've talked for several quarters about the impact that the commercial business has had on our issuing segment, down 30-plus percent on volume. We have not anticipated or baked into our expectations for this year any kind of robust recovery on the commercial side. And so to the degree, Ramsey, that, that improves and that business travel comes back in a more meaningful sort of way, then that will be additive to our expectations. And we're certainly hopeful for that. I was traveling yesterday for the first time and ran into somebody in an elevator. I was on a business trip. So that's the first time that's happened, at least to me. And so I was hoping that's a green shoot that business travel is coming back. And so to the degree that it does, obviously, that's about 20% of our Issuer segment is -- commercial card is a great business for us. We have a huge market share there. And as soon as commercial travel comes back, that business will come back with that. But we have assumed largely that, that business remains about where it is for the remaining part of the year.

Got it. Okay. And I wanted to ask also about the e-com and omni business and the unified commerce platform. Can you give us a quick overview of what the offering -- the kind of core offering is here, sort of how it's different from a more pure e-com offering? I mean I get omnichannel is different from e-com, but how does the -- how does your merchant customer in this offer sort of differ from that in your relationship-led business?

Yes. I wouldn't say that the customer base as a whole is necessarily different just as a general e-com omni. So obviously, we kind of have really kind of 2 elements to our e-com omni strategy. One is e-com omni solutions for our installed base and for new customers. And so we've been very successful in allowing for our businesses, our small and medium-sized businesses, to pivot their business models during the pandemic. And that's why we've seen the growth in the installed base around the kind of volumes that we've talked about in e-com omni. And so on -- the kind of the secondary element is our unified commerce platform, which is our global kind of e-commerce omni solution that allows for a single API connection that allows for kind of a multinational merchant to be able to move around the globe in a seamless fashion but to -- underpinning that is our physical presence in 38 countries in a physical way in over 100 countries virtually and allows for in-country kind of presence, in-country service, in-country bins, all the things that you need and benefit from an in-country by allowing that kind of seamless integration point from an overall technology standpoint to allow for that merchant to be able to move around the globe in a very efficient sort of way. So we've talked for several quarters about our Citi relationship. That was kind of our first financial institution relationship that we signed there. And so far, we've had good success. I think of the 25 kind of customers we were looking to go after there, we've had success with, I think, 8 of them so far. So that's building. I think we've said as well that the strength of that offering to have Citi choose us as the partner there, I think, kind of speaks to the strength of that offering. And so yes, versus Adyen who's going after kind of a pure-play e-com player, that's not our strategy. And definitely from a capability standpoint, what makes us unique is we're solutioning kind of the marketplace in a different sort of way. We're not going after big box retail. We're not going after a pure play. We're going after customers that have kind of the dynamics we're looking for, that our solutions are unique to them. And that's been the way we've said we're going after the business.

Okay. Probably just have a couple of minutes left here, but I wanted to squeeze one in on a topic that has always sort of fascinated me. And that's that back when the Global-TSYS merger was announced, there was some talk about creating some honest capability in markets where you had an issuer concentration and a merchant concentration. And I'm just curious, I know the pandemic was probably jostled things up quite a bit, but what about that road map? Is that still something you guys are looking at? Or progress report there would be great.

It is, Ramsey. And on the synergy question, I've kind of highlighted that, that we are pleased for the dialogue we continue to have with our customers there. It is something that with the pandemic that is probably -- hasn't been the highest priority necessarily of what everybody has been looking for. But just even recently, the continued dialogue we have there, there are several different kind of use cases when we talk about transactional optimization. One is just a pure cost element, is their ability to have that honest transaction, just reduce the cost, but there's also kind of more of a potentially bigger data element that's being played through around what can you do when you have both sides of that transaction from a data standpoint. And so this will be something we're going to talk more about as we get further along with our dialogue with the customers that we've had. It isn't something, yes, we've highlighted a lot just because we continue kind of that dialogue, but it isn't something that we're abandoning or something that we're not still optimistic about the future use cases there. It's just one really of progression of where we are, where the customer is, what are the use cases. And it's really exciting that you get into some of these dialogues with the customers about what can be done here, but it takes time to move from ideation to actually having it in the commercial marketplace. So more to come there, Ramsey, but it is something that we look forward to talking more about in the future.

That's terrific. Well, Paul, we're out of time, unfortunately, but I really do appreciate you being here today. Thanks so much.

Well, thanks for having us, Ramsey. We appreciate it as well. Take care.