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

Do you need anything else there? Like is M&A a possibility there? Is it a scale game that -- or is it different niche verticals that you can get into? Or do you have what you need?

No, I think it's what you touched on. I think there's a lot of room for organic growth, just to be clear. But if you look at Avid's strategy and the like, it is a world of vertical markets, just like it is in the context of our owned and partnered software business. The world is increasingly specialized and segmented by vertical B2B is no different. So MineralTree, for example, has particular strength vertically in health care, just to pick one. That's also a vertical that are partnered in chiropractic in owned in advance and these software businesses also have. So I think Avid's got it right. I think it's one of the things where you will add additional verticals, either de novo or inorganically through M&A. So I certainly think there's room for more deals there. And I think there's room to add no doubt additional vertical markets because customers want software that's fluent in their vertical market specific areas, which is exactly what we see in the rest of our businesses.

Wanted to ask one more thing on EVO and the combination of assets. I know you guys specifically called out vital point-of-sale software solutions and unified commerce platform as good cross-sell synergies. Can you just highlight those 2 areas and why those stand out?

Yes. I think if you back up and you say, okay, what's the -- what are the areas of opportunity more generally before we go into the detail, what you would say is -- it's combining EVO with our technology, which at Global Payments is predominantly cloud native in the Google Cloud with GCP and merchant, it's combining that with their distribution and our distribution and bringing in more product into the distribution change, which speaks to distribution as well as technology. I think that's the thesis. And if you look at 2 of the better use cases, you touched on them. But on vital specifically, we're already at Global Payments independent of EVO. We're already bringing in our vital point-of-sale solutions to key international markets this year, including the U.K., Spain and Central Europe, and that's now in between now and the end of the year, a number of those markets are where EVO already sits, and EVO is no real equivalent product. So our ability to bring in Vital, I think, at the point of sale is a true add to what EVO is doing. The second thing I'd point out, which we're very excited about is in our e-com omni business, which we call Unified Commerce or UCP, we'll be able to capitalize on the unique capabilities of what we have with EVO's large enterprise customers. What's most exciting about that, Bryan, is that EVO is in certain markets like Mexico with Banamex and Chile with BCI that are under-penetrated generally, but they're really under-penetrated as it relates to e-com. So our ability to bring in our multinational platform for omnichannel acceptance, physical as well as virtual at UCP into markets that EVO has like Mexico where they're the part with Banamex is fantastic. As well as into markets like Chile with BCI, I think, really positions us very well to accelerate organic really revenue growth opportunities as part of the combined company.

I'm just thinking out loud here, Jeff. But how have the conversations gone with a lot of the bank partners that EVO has at Banamex in Mexico. And obviously, a lot of alliances. So now that the deal was announced, I'm sure you've reached out to all those banks and talked to them, how did those conversations go?

Well, really Jim has, in particular, it's still his company until they close. But listen, those conversations have gone fantastically well. I mean I would say one of the key selling points I think for both of us, for both EVO and Global Payments as part of the merger is that not surprisingly, we know real well, and we have a very similar strategy, which is outside the United States, in particular, focused not just on technology enablement and software, but also in FI-centric distribution and kind of better new markets. On Global Payments and TSYS in particular, we assume like 1,300 financial institution partners around the globe, and we're physically present in 38 countries with local licensing support ops, customer service and the like. EVO brings more than it does, I think it's been seen, Bryan, new large financial institution partnerships to the table, think about PKO in Poland, for example, think about Bank of Ireland, is our TSYS customer, but on the merchant side in Ironman, think obviously about Banamex City in Mexico. So listen, I think we all -- Jim and I both take a lot of comfort knowing that we have a very similar strategy. We have decades long, literally decades long. I think HSBC is like 50 years year old partnerships with some of these financial institutions. And I think we -- the banks and we each take comfort in the length and durability, which I think is distinct of those relationships over a long period of time. So the conversations have gone really well. I know Jim feels that way. I certainly feel that way. And much like we've done with Caixa in the context of our issuing business, post the TSYS merger, we announced, as you know, a letter of intent with Caixa for its issuing business. That's our largest win since Bank of America in the United States in 2013. We expect that to go live at the end of next year in Spain when the first example is about large European institution going straight from on-prem to cloud and AWS. I personally think we would never have won that had it not been for the combination of TSYS and Global Payments and certainly the investments we're making in the cloud. I think, Jim and we feel the same way about some of his bank partners. So the best is really yet to come.

I want to ask you about the high level, and I'm sure you know this, Jeff, but everybody is focused on acquiring share and looking at the market share data and it's been a little bit frustrating and the stock has lost a little bit of its multiple and there's all this concern about these new entrants and entering the merchant acquiring sector. Just love to get your thoughts on share gains, share losses and how GPN stands up.

Yes. I mean I think, Bryan, it's important to start by saying there's really no fundamental change in the competitive environment. As we said last September, the market has always been hypercompetitive, and that continues to be the case today. And I believe that will be the case tomorrow. As we said last September, we've been competing against many of these new entrants and they're really not new. They may be new to the public markets, but not new to us for more than a decade. Yet, really through the third quarter of last year, we had the investor conference all the way through to June of 2022. We've enjoyed the best performance in our history over the period of issue, and we just delivered really a record first half of 2022 as well and expect it to be a record third quarter. So the point of view that somehow the landscape has changed is really self-serving for those folks who are trying to sell equities, many of which -- companies of which who try to go public for years, but really couldn't until the SPAC and direct listing boom last year. And look, there's only one Amazon, the graveyard of stacks that we're all looking at today, we'll tell you. So you need me to tell you how those guys are trading, many of them are substantially below their all-time highs and almost all of them are below the IPO prices. So I think the market is kind of voted on that. If you think about how we're doing, we've now reported volume and revenue trends at Global Payments for the last 14 quarters. I think the results are really self-evident. And I think we could probably all stop tilting at windmills as we think about things that maybe that haven't happened. I also think it's worth pointing out that, particularly in the last 2 quarters of 2022 that we have literally doubled. I mean doubled the rate of volume growth of our more traditional peers in the last 2 quarters of '22 to the extent that they actually continue to report them, one isn't in recent quarters. And then most recently, and I think most significantly, including last night Bryan with Visa, that our e-com businesses have grown each of the last 2 quarters of 2022 literally it rates 4x to 5x faster than the networks. And you've now seen kind of the newer entrants have their growth flow pretty dramatically as the world has moved back and you see us from networks. As the world moved from like pure e-com back to Omni but I think most interestingly, those folks have now adopted our strategies as their own, meaning a blending of the physical and virtual environment, validating what we've been saying really for years, and that I think explains why we grew mid-teens constant currency in volume in the second quarter in e-comm omni and the Visa Mastercard numbers were, whatever they were. All these things make us very confident in raising our cycle guide last September. And then lastly, I would say, as we announced on August 1, certainly, Silver Lake Partners, the global leader in technology investing agrees with our view of market share. These guys spend months conducting due diligence on us. And I can tell you, they're certainly not interested in the 1% annual return for the next 7 years on the largest investment by 50% of this types we have ever done in a public company. And I certainly take a lot of confidence in their confidence in us. So I think we're in a really good place there. And I think that seems to have been yesterday's issue when the cost of capital was 0 and now that it's a positive integer, I think people in a different place.

I want to ask specifically about SMB exposure where you guys have significant exposure there, then verticals like education, active retail gaming and obviously, the school stuff, which we talked about through education K-12. That's been on recovery mode. How far are we through recovery? Or does that continue to show growth here in the second half? And then do we get to some kind of a normalized rate here in 2023?

Yes. I mean our merchant customers today are healthy, and they're benefiting from the strong consumer spending we're seeing across our markets. As I mentioned in response to your first question, that's evident in the volume trends we're seeing relative to our own expectations, relative to what Visa said last night and also the ongoing record results we're reporting. I think it's also worth pointing out here how long the general premise on SMBs was heading into the pandemic. and how long it was that it remained for some time, SMBs emerge far healthier than most predicted. And our retention rates in many of our segments are actually higher today at Global Payments than they were pre-pandemic. And I'd also say on that, that Silver Lake in [indiscernible] and their investment in us provides yet another proof point of what I've been describing. In the specific verticals, pretty much all of our verticals at this point, Bryan, have recovered relative to 2019. As we said, on August 1, our vertical market software businesses delivered 20% revenue growth in the second quarter compared to the prior year, and bookings trends remain strong. And it's a tailwind of growth now, just as we predicted would be -- I think we said that in December, it would be. But just as we expected it would be at the end of last year and the beginning of this year, so it'll be talent for this year. In particular, we continue to see really strong performance in Advanced MD and TouchNet, the latter which in our university business produced record new sales for 2022. We've also seen rate wins at Xenial, fantastic bookings momentum there. I think we set up 2 of the top 25 QSR brands. Most recently, we announced wins with the Winnipeg Jets in Ames University and events and Stadium. I think we currently serve 19 of the top 25 QSR brands. On the back-to-school stuff that you referenced, we do expect the return of school launches will play in most states now that the federal overlay is gone, I would be a nice tailwind for our School Solutions business in the back half of this year. And just to give you a bit of an update, Bryan, that's what we've seen to date through August, though obviously when you live in the United States, it's still kind of early, but we've seen very good recovery and good volume growth there. And our active business just produced its seventh consecutive quarter bookings growth, which is another tailwind for our businesses. So I think you put all those things together with our integrated business that really grew right through the pandemic and compounded revenue growth in the mid-teens over the last 2.5 years, which was an acceleration by 20% of kind of where they were in the low double-digit pre-pandemic. And we continue to feel really confident about the tailwinds in our business heading into the balance of the year.

Some of the peers have talked or it feels a little bit that integrated payments has slowed a little bit. How does the outlook look for you guys? It feels like it's more on an accelerated path still or still an elevated growth rate at least?

Yes, we feel great about it. I mean look, we -- the day we just reported another mid-teens growth rate. We've probably been doing that. I don't know the exact number for the vast bulk of the period since March of 2020 kind of started more or less and retention is very high, bookings are very good. We continue to have confidence in signing significant new partners. So we really haven't seen that, Bryan, at the end of the day. I think we've got a terrific ecosystem. We've owned that business for believe it or not, in about a month, it will be like 10 years to the day or sometime in October or something of 2012 when we bought the old APT. So if anything, I would say the growth has accelerated and it seems to be sustained at that mid-teens level. So much like our econ omni business, we really haven't seen any diminution in growth in the budget.

I want to turn to the issuer business. It's now going to -- it's basically the 25% a quarter of the go-forward GPN. As we head to the second half of this year, there was an accelerated growth, and you talked a little bit about that. But just trying to think at our heads around now what the right growth rate is there and some of the contracts in a business that's ramping up, that's pushing accelerated growth in issuer.

Yes. I would say, as you said, starting with the second quarter, our issuer business delivered 6% growth on a constant currency basis, which is consistent with our long-term targets. And importantly, that was 400 basis points sequentially better than the first quarter of 2022, exactly as we predicted it would be. I think the key thing to think about there is a few. Number one, commercial card continues to recover. So obviously, with the pandemic for a while, we had a bunch of headwinds in that business. I think we reported, Bryan, in the second quarter, like 35% volume growth or transactional something like that in commercial card. And I think we're kind of locked at the hip with Visa-Mastercard and what they've been saying about back half recoveries in cross-border travel and the like in the commercial market. So we expect continuing growth in commercial card throughout 2022, with tailwinds really heading into 2023. The second thing I would highlight is we have a record conversion pipeline with a number of marquee wins. Obviously, we've been talking about Caixa Truist in Park goes live in which we announced a few years ago it was live in the first part of 2023. I think we announced Scotiabank in Chile earlier this year. That's another fantastic win that was previously in-sourced. So those marquee wins and the opportunities we have with AWS, which is unique to us in terms of collaboration provides us a lot of confidence in growth. And of course, we're going to augment that now with elements of B2B, MineralTrees already in there, starting with July 1, obviously, NetSpend B2B assets are in there, too, and that's obviously an under-penetrated -- a substantially under-penetrated market. So we feel really good about the tailwinds. That's why we upped our guidance in that segment, Bryan, to mid- to high single digits in the back half of this year, and that's really the 2 pieces of 4% to 6%, kind of mid-single digit plus or minus. I think TSYS has been talking about for a long time. In the core issuer segment and then with B2B name MineralTree, Netspend like, gets us to mid- to high single digits heading into next year. I do expect next year to probably be on the higher end of growth as we start to digest and implement the conversions. We did announce that we had started out with Barclays purchase of the GAAP portfolio, which I think was in May or June of 2022. Those kinds of customer wins are very good news for our business and provide a lot of confidence in the tailwinds that we're seeing.

Maybe as we close here, Jeff, one of the amazing things about GPN is the ability to get operating leverage. And I know you've done an amazing job at that really when -- since you've been in charge there. Can you just talk about a little bit -- I think it's 150 basis points this year and guidance is typically the $50 million to $75 million, which helps get to that high teens to 20% EPS cycle guidance. A lot of focus on profitability and margins, but you guys seem to continue to scale. Can you just talk about some of the levers you have there?

Yes. So we just upped that $250 million from $125 million for this year. So obviously, we have previously up really after the first quarter. So we obviously feel pretty good about the position we're in. I would say the answer is pretty simple, Bryan. And the technology-enabled businesses that are the vast majority of our revenue stream today that we lead with are simply growing more quickly than the overall hole and are inherently higher margin than our average. Let me give you an example. In many of our owned software businesses, we actually operate to the rule of 50 rather than the rule of 40 and as we said last September, the pandemic also had a benign effect of accelerating the growth in our higher-growth payments businesses. So for example, our e-comm omni business previously, it was 15%, now it's 20%. I think this most recent quarter was '16 given the comp. But on a compounded basis versus '19, it's compounding above 20%. That business was 15 free pandemic, now it's 20%. Our integrated business was 10 to 12. Now it's 15 -- so those businesses are growing more quickly, and they're a bigger share of the overall hole. I'd also say that the pending acquisition of EVO and the announced sale of Netspend are tailwinds to our long-term financial targets. And when you think about the impact on revenue growth, it's additive to the model when you think about the impact on margins on the 50 to 75 bps also additive to the model. So it gives us a lot of confidence that we're able to absorb higher expenses in our model and still generate consistent, which we've done on margin expansion. So we feel really good about where we are in the $150 million this year and the 50% to 75% over time. Our other experience, Bryan, is as we consolidate deals like EVO, next year [indiscernible] closes in the first quarter of '23. We tend to see hyper margin and earnings lift coming out of those things as we obviously track the synergies out of those combinations. So it makes us feel really good about where we are for the back half of this year and heading into.

A little different, Jeff, than when you first started and I started looking at GPN and the ISO business was squeezing the market while it was some accounting too, but the margins were going down in GPN and then you've completely reversed that trend since you've been there. So I remember the good old days, looking at the margins going down. Now they always go up. So congratulations on that.

Thank you very much for having me, and thanks, everybody, for your interest in us. Have a great day. All right.