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

The Global Payments team with us here today for one of our keynotes. It's a company that I think many of you know. We've been strongly recommending for -- really, for a while. But especially going into this year, we just thought the valuation made no sense for the opportunity. And we've been seeing the results speak for themselves. But hope to see a lot more of that over the next couple of quarters. So Jeff, thank you so much for joining us. Really great to have you, as always.

Thanks, Darrin. It's a pleasure to be here again.

I want to mention, we also have Josh and Winnie and her team here as well from Global Payments, CFO and Investor Relations, as well.

And with that, look, why don't we just kick off? I mean kind of get the elephant out of the way and talk about what you're seeing in the market before we go into Global specifically around the banks, some of the craziness we've seen with SVB. Does it have any impact on Global? Any good or bad? And what are you seeing in your customers?

Yes. Sure, Darrin. Obviously, it's a great question. So to start with the Merchant business, which is 3/4 of our company, we really have no exposure in North America to financial institutions, in particular regional financial institutions. But really any -- in North America, we have no JVs with banks, regional or otherwise. Outside the United States, our JVs are principally with SIFIs or the equivalent outside the United States. Great examples would be Caixa in Spain, which is the JPM of Spain. Obviously HSBC and the like. But really nothing of any significance on the regional side. As it relates to our Issuer business, which is 25% of our revenue, of the top 10 customers in Issuer, the top 10 customers are 40% of the revenue in issuer, 8 of the top 10 customers in our issuer business are money center SIFI banks, 4 of which are here in the United States, BofA and the like, Cap One, et cetera. The other 4 are overseas. Examples would be RBC, RBS, Citi, Chase here in U.S., that kind of thing. So we really don't have any exposure. And none of the regional banks that have been in the news on an extended basis, none of those are our customers at all. The top 30 Issuer customers represent 3/4 of our revenue, and there's no one that list that's in that top 30 at all. So I think we're in a reasonably good place. Now I think it's obviously not good news for the economy. Globally, that we're seeing the stress that we're seeing in financial institutions. But we did announce last month in February that we just re-signed one of our largest partners, Bank of America to a new 5-year term for consumer, card as well as commercial. And I think I read this morning, Darrin, that BofA picked up $15 billion in deposits like yesterday or Monday or whatever it is. So obviously, while we're focused on the health of our worldwide economies, to have one of your largest customers add $15 billion in deposits in 1 day or 2 days is obviously a good thing. So I think we're in a really good place as it relates to our business. And we're very excited about the opportunities going forward.

Yes. I mean, I think it's pretty clear that you're seeing some of the money center banks gain deposit share. And so to your point, a lot of the bank relationships you do have generally are the larger issuers, right?

Yes, that's exactly right. That's been our strategy all along. In fact, I think we have like a 50-year relationship with HSBC going all the way back to Marine Midland. TSYS, of course, has 30- to 40-year relationships with people like Bank of America and Capital One. So I think we're in a really good position.

So Jeff, just to go into a little bit more on the strategy and your vision of Global Payments today and what you're excited about over the next year or beyond. Maybe just start high level there, and we'll go into the weeds of the business.

Right. So there are 4 elements to our strategy, which we really highlighted, Darrin, in our 18-month-ago investor conference. The first one is really software ownership as well as partnership. We think we're a top quartile software company today in the United States. I'd also say, as an aside, this isn't why we did it, we think it's the moat of competition. But that provides a lot of insulation to our business. So for example, in our Merchant business, we sell $1 billion a year of owned software not tied specifically to transactions. In our partnered software business we sell another $1 billion with payments into those software entities. So there's obviously a lot of software exposure in Merchant and then also into our Issuer business. I'd also say some of our larger vertical markets like enterprise quick service restaurant. Again, I'm not trying to say that bad news is good news, but the dollar meal is a better thing when things are difficult, and that's actually half our restaurant business today, is enterprise quick service restaurant, and kind of more to come. We've got a lot of wins there that we'll be talking about in the next number of months. The second piece, of course, is our e-com, omni business. That business has done fantastically well, including through and post the pandemic. As we said, that's $1.6 billion of revenue. It's about 30% of our Merchant revenue day. That grew 15.7% last quarter, 14.3% the quarter before. Well in excess of the Visa, MasterCard, even PayPal, numbers in terms of volume growth really over those periods. And I think the secret sauce in that business, Darrin, for us, is the seamless integration of our virtual as well as our physical environment. so the $1.6 billion is really all-virtual. But the reason we win share there is because we're physically present in 38 countries. that took us half a century to develop, and I do think that distinguishes us very much versus some of the newer entrants who are really virtual-only. And I think that's why they've seen growth slow. And ours has really accelerated that 15.7% is up. Before where it was pre-pandemic, it was like low-double digits. And now we're sustainably into the mid -- like $1.6 billion is not a small number to grow organically at 15%. the third piece of what we do is obviously exposure to attractive, faster-growth markets. Mexico is a great example. Coming with EVO, we're very small in Mexico today. Like $25 million in revenue. EVO is the 800-pound gorilla in Mexico with Banamex. So we're super excited there. Poland, where we're partnered. It's a JV with the largest bank in Poland that's owned by the government in Poland. Back to the point about SIFIs and everything else. By getting into Germany, we're starting to just cross-border into Germany through Austria. Getting to Germany domestically is obviously a big deal for us. Face to face Ireland. Today, we're card-not-present e-comm in Ireland. Face-to-face with Bank of Ireland, 1 of the 3 top banks in Ireland. Also a big deal for us. So exposure to faster-growth geographies is important. Of course, Spain's been great for us with Caixa for many years. And then lastly, of course, B2B, which we announced the acquisition of MineralTree 18 months ago. That business grew 30% and in the fourth quarter of '22. Our expectations for 30% growth in revenue this year with Issuer in that business. Our goal for that business, it added about 50, 60 bps to the Issuer revenue growth on a normalized basis. Our hope that business is just to make it bigger. At $100 million-ish, on $1 billion, $2 billion, 5% is great. But even teens growth is only going to have 50 bps, 60 bps kind of incrementally to the rate of revenue growth. So our goal there is to make that business much bigger. And I do think it's probably the single best secular growth trend that we should latch on to for the next 5 and 10 years in our business.

You haven't mentioned issuer processing and all that. And that seems to have 70-plus million accounts on file coming on, right?

Yes. I think that business is in a great place. So we're coming out of a market, Darrin, where the fourth quarter was the best quarter we've reported. It was 5% core constant currency organic growth. The best quarter we've reported since the merger in 2019. December was the best month. That was the quarter -- it really accelerated throughout the quarter. We had multiple peak days in the fourth quarter. And listen, our expectation for the first quarter is an acceleration versus that, even versus the 5% core reported in the fourth quarter. So that business is really firing on all cylinders. So we're super excited about what that is. As it relates to our 4-pronged strategy, that's really own software.

Okay. So you put that into the software side.

So when we talk about being a top quartile software company, a lot of that, probably 60%, 70%, of TSYS issuer is sold really on a software basis tied to just number of accounts on file at places like Bank of America, Chase, Citi, HSBC, Barclays, et cetera. So it goes into the software. But I would say that we do think sitting here today, as we said on our call in February, January exceeded our expectations. And I had said on our call in February that February to date, through mid-February, the KPIs look good. I'm pleased to say today that February also exceeded our expectations. So I do think we're set up for a nice first quarter. Sitting here day in the 15th, the quarter's kind of over. So I'm really excited about where the business is.

And that's across businesses.

That's across Merchant and Issuer both, and both have done very well. And Issuer, in particular, I expect to see records.

You know what? Since you're on the topic, let's just jump to recent trends then, anyway. I mean, if you could just recap us on some of the things you were proud of from last quarter. I can tell you, we were very impressed by the 9% Merchant growth, both volume and revenue. Relative to anyone else we've seen in the industry, that's stronger than most. And it was also nice to see that match, right? The revenue and the volume side. And Issuer, as you said, accelerated. But maybe you can give us a little more context to the trends last quarter, what you're seeing more recently again.

So we really had a good year in 2022, Darrin. So we grew revenue in Merchant 13%, that was almost all-organic in 2022. And we grew Issuer 5%, both FX neutral for the year. So on a blended basis, we had 10% almost all organic revenue growth, constant currency ex-dispositions, things that we sold or are selling. And that's right in line with our cycle guide. Same thing on a margin point of view. We added 190 basis points of margin last year, and earnings constant currency grew 17%. So if you go back to the cycle guide that we raised in September of '21, despite all the black swan events around the world in 2022, we actually met our cycle guide. And our expectation, really, Darrin, for this year is the same. So it's 9% to 10% kind of core organic ex-dispositions, merchant growth, 9% to 10%. Of course, EVO comes in, that will get us to 15% to 16% reported. Issuer, we're expecting 4.5% to 5.5% is what we guided to. I wish B2B was bigger or we'd be solidly in the high -- the mid- to high single digits, which is our goal longer term. But that sustains the 5% growth rate we saw coming out of core Issuer in the fourth quarter. As I said, my expectation for the first quarter is more than that. So hopefully, that will lift us permanently throughout the rest of the year. We'll see. Obviously, time will tell as we get to the first quarter earnings announcement. So look, we're really pleased with where we are relative to the networks. Our numbers are in line to slightly ahead. Our e-comm numbers are well ahead. Our integrated business, which I'm super excited about, grew 17% organic revenue each of the last 2 quarters, which is really an acceleration from the low double digits we saw pre-pandemic. And we've now owned -- I'm just going to date myself, Darrin, a little bit. We've now owned that business for 10 years. I don't know if you can remember 2012, I guess, '11, when we -- 11 years when we bought it. But that business was $100 million of revenue. This year, we'll do $1 billion. So it's up 10x, yet the revenue growth has accelerated from low double digits to mid- to high teens organically. So we couldn't be more excited about that. And of course, our B2B business, as I mentioned a minute ago, MineralTree grew 30% in the fourth quarter. Our Expectation's for 30% this year, double digits across all of B2B and additive by 50 to 60 bps relative to the Issuer business this year. So I think, look, we're in a fundamentally very healthy place. We're right on the cusp. We said in our February call that the closing of EVO, the acquisition, the sale of gaming, the sale of NetSpend were all imminent. Well, here we are March 15, and they're really imminent. So we certainly expect, again, by the end of this quarter, to close all 3 of those, which really sets us up, I think, for a terrific...

All 3 of them?

Yes, all 3 of them by the third quarter.

That's great.

So right, it sets up for a really good 3 quarters of 2023 in terms of our business. And look, business is good.

So even before we go into further detail around guidance, I mean, you talked last quarter about wins in hospitality and stadiums. What is actually differentiating and driving those wins more recently?

So it's really the vertical market software...

And again, timing to materialize the revenue also...

Yes, sure. So it's really vertical -- well, the nice thing about stadiums is you can turn them on quick. Like well, I won't name the stadium, but like a lot of people want to be live before Taylor Swift comes in. That's one -- listen, I'm not trying to date myself there, either. The other direction -- not being familiar with Taylor Swift. But that apparently is the driver of a lot of stuff to get turned on live, but -- in stadiums. But I would say more generally, it's the vertical market software ownership. So we embarked on this, really Heartland started, Darrin, like in 2015, with TouchNet, which is our university product. But as you know, our vertical market software across the portfolio grew low double digits last year. Our expectation is for the same. This year, we obviously had a big snapback in businesses that were pandemic-influenced. So K-12, I think it was like 65% up or some other crazy number. But bookings and revenue in Xenial were all-time records in enterprise QSR in the fourth quarter. More to come, more wins to come that we'll be announcing over the next quarter or 2. So I think to answer your question, look, if you want to compete in those markets and compete against Adyen, compete against Toast and all these other guys, I think, in certain markets like restaurant, retail, e-comm, you need to own the end-to-end value proposition to the customer. And I think if you don't own the software and don't control the products that you're selling, I think you can find yourself disintermediated, commoditized and all those things. And I'm really proud of the investments we've made in software ownership and partnership over many years. As I say to our sales guys, and I know I'm overstating this because their jobs are hard. But as I tell them like, "Look, cloud nativity and cloud POS sells," right? Our cloud POS business grew double digits again last quarter. There were quarters last year we grew 30% to 50%. That's 9 figures of revenue. Our e-comm business is $1.6 billion that I think is growing mid-teens organic revenue. So this stuff sells, let's just go out and sell more of it. And I think you're seeing that pull through the results.

Right. In terms of your guidance, going back there again for a minute, I mean, is there anything different about how you gave guide or how you provided your guide or built it up versus what you did in '21 or '22? First. And then when thinking about the assumptions that you put into it, macro assumptions or areas of potential upside or conservatism, maybe you could just comment on that as well.

So we never guide as a management team to assume perfection in all of our markets. Look, we're physically present in 38 before EVO. We do business cross-border in a couple of hundred. Something is going to go wrong all the time. And even pre-COVID, that was our expectation and the reality. So that really hasn't changed in terms of our philosophy. And we're diverse, we're diverse by design. So we're not focused on any one geography, any one vertical market. So that's built into our guidance. As it relates to what we said last month, the way we looked at our guidance for this year, Darrin, is we took the fourth quarter, which had some puts and takes in it. So I think as Cameron said on the call, our non-U.S. markets were 100 basis point Merchant tailwind in the third quarter. They were a 100 basis point headwind in the fourth quarter. Now why is that? Because the U.K. got worse in the fourth quarter of 2022. And Asia Pacific went through various -- China in particular, but Asia Pacific went through various stages of closing and then reopening, right, prior to Christmas. Now the good news is that flipped. As we entered into the first quarter of '23, I don't think the U.K. will substantially change. But certainly, Asia ahs changed as China has really reopened. So the point I'm trying to make is we kind of run rate how we're doing coming out of the fourth quarter, and in particular December. So that had puts and takes. The U.S. was strong, Issuer had a record. As we mentioned a minute ago, that's obviously going to accelerate is our expectation into the first quarter. But certainly, the U.K. was lagging, elements of Asia Pacific...

In other words, you already had elements of your business that were...

Yes, that's exactly right. So we're not assuming it's better or worse. Like I'm not an economist. I mean, at the end of the day, I think we were able to show during the pandemic, when the worst happened, we took out in 2 weeks, $400 million incrementally of annualized expense. In the pandemic in 2 weeks, of which $200 million was permanent, the other $200 million was temporary, like salaries and comp and bonus and the like, and T&E. So I think we've shown the ability to pivot relatively quickly to do this, and we have a lot of levers to make a number. So for example, the EVO closing is imminent. We've talked about $125 million of expense takeouts in that business, of which, call it $30 million, $35 million given the timing, will be actually realized and reported this year. We have flexibility when we can realize those things. So we have the ability to pull a variety of levers to make the numbers that we need to make. As I mentioned a minute ago, our core customer base, SIFIs and global kind of large FIs, if anything, as sad as it is to see, if anything, are more healthy today and are market share gainers in the current environment. And I felt the investments we've made in our Merchant business are showing more of the same. And I would tell you sitting here today, we've had more pipeline opportunities across our 2 markets, in stadiums and restaurants and the like, and large retailers in Merchant, in cloud-based RFPs on the issuer side than we've ever had. So sitting here today, I feel like bookings in the business are in a very healthy place.

So I think you help clarify something because I know a lot of investors were asking about your Merchant guide specifically. You guided to about, what, 9-ish percent, right? Was it 8% or 9% or 9% or 10%?

9% to 10%.

N9% to 10% for the year, and you grew 9%. So you brought about the question of conservatism in the outlook, depending on the uncertain macro. Now what sounds like you're saying is Q4 already had a bunch of variables that were headwinds in it, some of which are abating. And frankly, it sounds like from what you're saying in the first quarter trends already are showing, that, that's the case.

Yes, we're running ahead, right? So for the first quarter, obviously, let's look at the recent events last week and see what implications that had. But sitting here today, the first quarter is in a very healthy place. And we feel really good about Merchant and Issuer.

Right. I guess it underscores there was some conservatism in that.

Yes. I mean, well, you just don't know. But I feel like we're in a really good place heading into the balance of the year. Time will tell. But to be honest, Darrin, this is the best start we've had in our first quarter. This isn't a happy thing to say because of what the world has been through. But this is the best start we've had in our first quarter since 2019. So I feel like we're in a really good place.

That's great to hear. Shifting on some of the things you're really -- EVO and you mentioned the 3 different things potentially closing. But let's go back to that in a minute and just remind us of the strategy of it again. And if you don't mind, remind us of what it could mean for the company when you close.

Yes. So the most important thing to think about EVO is it's always good to expand our target addressable market. That's really one of the core tenets on the model. I mentioned upfront in response to one of your questions that emerging growth and faster growth markets are an important part of what we do. I think Jim and EVO have done a terrific job in markets like Poland and markets like face-to-face Ireland and card-not-present Ireland, and face-to-face Ireland. Certainly in markets like Mexico, which grew kind of right through the pandemic. Those are markets that we've coveted at Global Payments for a long time. And I give EVO and Jim a lot of credit for entering those and executing very well. So that's kind of point number one. Point number two, B2B, 1 of the 4 legs to the stool that we added 18 months ago. So we're really pleased with the revenue that we have from NetSpend B2C, from our MineralTree acquisition, but those are all payables-related assets. It's important for us also to be in the receivables side of the balance sheet. Look, we're in the business of collecting money. That's what our Merchant business does. But what Jim has been able to assemble in its B2B assets through a variety of acquisitions dating back 5 years on the receivable side is something that's very important. So integrations into ERPs is something that Jim's very, very focused on. That's a core part of our strategy and I think will serve us very well as we go on building a B2B business over the next 5 or 10 years.

Something I want to focus on next is something I'm kind of excited about because I still think it's underappreciated by the market. And frankly, your multiple on your stock would agree with that statement, which is that I think you guys have -- you've acquired a number of software assets over the years. They seem to be all growing very well. And frankly, they seem to be sustainably growing to this year as well at the same rates, or similar rates. I'd love you to go into detail a little bit more on the underlying tech that you have in your merchant business, the differentiation of these areas and what their growth profiles are. Just to reinforce what you actually have as differentiating.

So we think about software 2 ways, one is owned, which is what you're referring to; and the other is partner. So combined, owned and partnered are probably $2 billion of revenue annually for our company. And I think we realized early on that if we didn't own certain of the elements of software, it was going to make it very difficult to compete with some of the new entrants. And look, when we said it, people thought we were crazy and then you saw Lightspeed come along and you saw Adyen come along and Marketo and everybody else. And I think what we've all realized is, look, we're a technology company, so we need to own and build and develop, where it makes sense, our own technology. So sitting here today, we're in 9 vertical markets where we actually own and control the entirety of the software spectrum. The way we think about that at the company is that represents about 50% of U.S. GDP. So that's a really good place to be. So markets like health care with AdvancedMD. In many of our software businesses, we're actually operating to a Rule of 50, or in some cases a Rule of 60, and not a Rule of 40. So I'm very pleased with how those businesses have developed. I would say AdvancedMD, again, for reasons which we can debate are good or bad, grew right through the pandemic. Some of that was because of COVID and people doing remote tele-doc business. I think we've facilitated something like 500,000 tele-doc visits during the pandemic, up from de minimis before. Our restaurant business with Xenial, where we own all the software as well through our SICOM acquisition. That went from remote delivery, which is ordering under phone and having Uber, Uber Eats deliver it, well, DoorDash or whoever. That went from something like, I don't know, 20 million deliveries pre-pandemic to like 300 million, right? So exponential growth. We would never have been in that position to do that kind of service had we not controlled and owned every element of software production in what we're doing. As I mentioned a minute ago, our vertical market software companies grew low double digits. For calendar 2022, our expectation is the same -- or for 2023. And look, that's stuff sells. So retention is very high, attrition is very low. And I think leapfrogs very nicely into our partnership that we announced a couple of years ago with Google and Google Cloud as our cloud provider for our merchant business. So we're selling more software, more products and services with Google into our merchant portal. Google is now obviously a customer as we have announced in North America and Asia Pacific. And over the next year or so, Europe will be added, too. Although North America is the big enchilada, which we started boarding already. But the ability to sell, Gmail, calendaring, remote ordering a la OpenTable, remote shopping a la Shopify with Google, who's got obviously a significant presence in the search environment, the ability to do that exclusively and uniquely with Google in our cloud environment, in our merchant portal, is part of the reason that we won accounts that we've announced over the last couple of quarters. So part of the reason we won Genuine Parts, which is the Napco stores, that's a Google Cloud partner. So Google referred that to us as an enterprise matter. There's another one that we didn't give the name of. We'll give the name of it, obviously, on our May call, same thing. A bunch of pet stores. The reason we won that is they're a Google partner and they referred it over to us. So the idea of owning and controlling and selling more software, more value-added services, better yield, all those other things, I think is the secret to us maintaining effective pricing and control over value-added services, and I think you're seeing reflected on our calls.

But the organic growth of these vertical software areas has been double digits.

Yes, that's correct.

Right, which obviously has to underscore that there's investments being made in these businesses to hold them up versus other software being developed.

Yes, it's exactly right. Yes.

Because again, I still think that may be underappreciated given that your multiple doesn't imply someone that can grow double digits, or at least close to double digits.

Well, listen, one day, someone will do some math and we'll get out of the macro dilemma and conundrum that the world is in today. But I think our job is to deliver sustainable revenue growth, margin enhancement, earnings per share growth, free cash flow compounding and a favorable balance sheet and risk profile and everything else. And that's what all these things do, that you're describing. The fact that a company that grows at 17% is valued the same as that grows 0 is just preposterous. But that's the market that we're in. At some point, people will wake up and actually do some work.

Yes, the numbers will speak for themselves.

But I think at the end of the day, the business is in a very good place. Look, we're on track this year, our guide for this year reported is about $8.667 billion of revenue. We did the merger with TSYS, it was like $7 billion. And our goal over the next number of years is well into the double digits of billions. I think that's how we measure success, and at some point, that will be rewarded.

One area that we do get a lot of questions on is the competitive landscape, especially around PayFac enablement and what you kind of alluded to earlier, why you bought software, right? But what are you seeing in the market around that? Are any of the ISVs you do partner with showing you signs of that? And I guess a follow-up would be Worldpay and some of the disruption we're seeing in the friction -- in some of your competitors. Is that at all an opportunity for you guys?

Yes. So on the first thing, what you mentioned, Darrin. So our integrated business grew 17% in each of the last 2 quarters. That's very favorable compared to the 9% that we reported, also very payable compared to Visa, MasterCard stats and the growth of the market and, also very favorable compared to any of the public competitors that are reporting results, too. So we're really pleased with the business. That was the idea that you'd have a VAR ISO and the like, the idea that you had PayFac kind of taking share was a concern. We bought APT back in the old golden era of 2012, which to my point, about 10 or 11 years ago. That just hasn't happened or materialized at the end of the day. And in fact, our growth even though the business today is 10x the size of what it was in 2012, our growth is accelerated notwithstanding that. So I would say, look, we have a very robust PayFac business. PayPal is a customer of ours. And we announced 18 months ago, we just re-signed them for another 5 years. So look, we're rooting, right, at the end of the day for these PayFacs because their growth is better for us. But I would say, to your point, partnering with the right software companies has been very rewarding with us.

Yes. And the verticals matter.

Yes, verticals matter, hence the 17% growth. But also ownership on software has also been very rewarding for us with low double digits kind of organic growth, too, it was great margin. So I would say we're in exactly the right place. As it relates to other peers, look, those are just excuses. When someone doesn't make a number, they come up with something, and good for them. But I think at the end the day, we're in the business of reporting results, whether it's inflation or competition, that's our job, right? So that's what we get paid for. That's what we're focused on. The market will evaluate however it values it over time. But I think people saying the market is competitive, I mean, might as well say the earth is round. I mean, that's just the way life is.

I mean, it's pretty clear that your ISV, your partnership business is doing something right. I mean, we're seeing double-digit growth, mid-teens or higher than mid-teens growth. So I think a lot of it probably is the ISVs you partner with, but it must be also the investment in the relationships, I imagine.

Yes, I would say that's exactly right. So most of these larger partners in ISV land run RFPs, just like the stadiums. It's not like the Braves, the Hawks, Mercedes Benz, and you can throw anyone in -- the Carolina Panthers. Like go through the list. The Winnipeg Jets, which we announced, et cetera. It's not only these large customers -- Genuine Parts. It's not these large customers don't know how to run RFPs. Or do know how to price effectively or are not intelligent. So I think at the end of the day, what you're really seeing is what they're focused on is the scope of services. And I think by owning and developing and selling more software, these guys get paid as a referral manner on things that we're selling as it relates to revenue. The more revenue we can generate for them, the higher their share in terms of the dollar of payout. So look, we need to be competitive. They're running RFPs to do it. But I think you see, in our results, the acceleration of growth, the acceleration of market share. And I would tell you, Darrin, most of the things that we do, we're not the low-cost provider as a third-party partner to a lot of these counterparties. Rather, we're competitive, but we try to lead with technology and service. And I think the results -- a slightly smaller percentage of a much bigger pie ends up being a better thing for these guys than just recutting a static pie.

Just before we -- we're starting to run out of time pretty soon. But Issuer -- I mean, I need to just understand here. What are the most important things you want us to take away from what you're seeing in the Issuer segment for you guys lately, and then going into '23?

Listen, on a fantastic growth trajectory. We just posted the best quarter in Issuer in just the month of December, the best single month we've posted since the completion of the merger in the third quarter of 2019. And here we are in the first quarter, and I just told you, January and February we're ahead in Issuer as well as Merchant. But certainly in Issuer, ahead of what we expected. So we're going to post a very good number is my expectation in the Issuer business and also in Merchant for the first quarter. So I think the investments we've made with AWS, our preferred cloud services partner, are really bearing fruit. When I go into meetings -- like when I went into meetings 3 years ago, right before the pandemic, when we're debating what to do as a technology matter, what I used to hear from large financial institutions, "Like we're not sure about the security of the cloud. We don't really know what the process is." 18 months later, you go in, "How fast can you get to the cloud?" So I did this roadshow last summer, when the travel market reopened, we went to probably half a dozen countries to see most of the SIFI banks and kind of pitch the Issuer modernization we're doing with AWS, and we were worried that we'd have to convince them the benefits of the cloud. 15 minutes in, what they were asking was, "How fast can you get us there?" And I think the pipeline addition to the 75 million cards in implementation pipeline. And by the way, we successfully converted a large bank this weekend. So obviously, we continue to make progress in the pipeline. But as we think about where that business is going, Darrin, we have more RFPs today for cloud centricity among large financial institutions globally than we ever have. So our issue now is one of how fast, I think, can we actually implement what we're doing? So we've got a lot of nice tailwinds in terms of the actual performance, which is great of the business, which we're also augmenting with B2B. But the pipeline of demand, I think, has never been higher.

That's great. Just in interest of time, maybe we'll shift to capital allocation, given you've done deals. But just broadly speaking, maybe remind us your rank-order of capital allocation from here on out. Just -- obviously, you're still about to close some of these deals, but I'd be curious to hear your latest thoughts.

Well, nothing has really changed. So I think we balanced return of capital to shareholders with investments in our business. So for example, last year, we bought back 8% of our float, about $3 billion last year. Right now, to your point, we're focused on closing EVO, which obviously is very shortly, and of course, selling NetSpend and selling our gaming assets, which should provide some capital back to the business. So we're levered right around 3.2 is kind of where we closed the quarter. We expect to be back, will peak at about 3.75. Post these acquisitions and dispositions, we expect to be back at 3.2 toward the end of this calendar year, which is what we've committed to the agencies. And publicly, we're generating a tremendous amount of free cash flow. We expect this year, about $2.5 billion of adjusted free cash flow generation. It's also important to note that we're 100% fixed rate to any of the markets all over the place, but we're 100% fixed rate today. Post-EVO, we'll be 93% fixed rate. So we really have no exposure to rates in the immediate term. And obviously, generating a ton of cash. So whatever that 7% is, we'll just pay it off during the period. So I would say we continue to make substantial investments in the business. We'll be emphasizing debt paydown in the immediate term to we're back to the low 3s in terms of ratios, get us toward the back half of the year. And until then, relatively minimal kind of share repurchases. But we did 8% last year. Our usual number is 2% to 3%. So given where the stock was in the market, 2 to 3x that we typically do, so that will carry us well through this year.

That's great. guys, I want to leave at least 3 minutes because it's all we have for questions, if anyone has. While we're putting the seat out there, I just want to ask one more about B2B for a minute, just because I know, for me, it was an area that I was excited about with the -- not only MineralTree but now with EVO. What is that going to look like for you guys?

Well, so today, we have a really big B2B footprint. We have about $700 million of revenue if you include -- which is what we talked about in the investor conference. If you include commercial card, you include payroll, which has been growing like a weed. That's a mid-teens organic grower, it's Now well into the mid-9 figures of revenue over at the Heartland business. Of course, we include virtual card, where we do $55 million plus a year. And we think we're one of the largest virtual card issuers in the world, and of course includes MineralTree and now NetSpend on B2B as a whole. But the truth is we only have like 30 people selling this stuff. I was asking our guys the other day, "Well, how many people are quota-carrying sales reps in B2B?" And it's like 30 people. I think that needs to be like 300 people at the end of the day. So I think we've got a very good tech, very good product, a very good platform. We announced in the third quarter, we had signed U.S. Bank and Citizens Financial to sell our virtual card products. So I think we're wide open. So my goal for that business is -- and I think it's the single-greatest growth opportunity in our company over the next 5 to 10 years. How do we take what $700 million today and make it $7 billion 10 years from now? How do we take 30 salespeople and make it 300 salespeople over the next period of time? I think that's really our goal, how quickly can we scale while doing it very profitably. Our expectation is for double-digit growth in that business this year, for MineralTree to grow 30%. So we're super excited about where that business is. Virtual cards grew 50% for us last year. So I think the sky is the limit there. We just need to make sure that we scale it in the right way to not miss the opportunity...

Is that an area you want to do more deals? Or for that matter, maybe just talk about beyond EVO, that closes, I'm sure you're always going to look around. What are the areas that you think you might want to acquire and so from here?

Well the first thing I'd say is we think our stock is pretty attractive. So obviously, we bought back 8% of the float last year. I'm not sure it makes a difference in the current capital market environment, but I think it's a good buy, right? So long term, that's absolutely right, I think, thing for us to do. Having said that, though, look, I think we'd like to add more scale in B2B, right? So B2B for us is less about product gap. I think we've got receivables as well as payables with EVO. But how do we take that from $700 million of revenue? How do we take that from $100 million of revenue in MineralTree and Paycard, that's been Paycard B2B. How do we make that 10x the size, right, that it is? So part of it is going to be organic because it's growing well into the double digits. Part of that needs to be additional scale, which necessarily comes through other things. So we're very excited in doing that. But obviously, we look at where the stock is, and we think the right thing to do is to balance return to capital like we just did with investment in the business, and I think we're in a really good place.

Okay. Anybody have any questions they want to ask? The mic in the front.

Can you just add color to the dynamics between owning the software and also partnering with all these ISVs? Some people might say that there's kind of like a channel conflict. Like your thoughts about that and how you get around that.

Sure. So when we bought Heartland in 2016, we got the question that you just asked, which is, "Well, you own some software and now you're partnering with some software, what's the conflict?" And I think the answer, at the end of the day, my experience is there's relatively de minimis overlap. But where there's overlap, my experience is the ISV partner will say to us, "Why don't you just come buy me?" In other words, they're less worried about competition, they're more worried about exit and they want you just to kind of buy them. But we haven't really done that at the end of the day. So here we are 7 years later, it really hasn't been an issue. I think the real answer, if you step back is, as we look at various markets, if we need to be in a market that we think is diffuse, meaning not concentrated; in a market where there is one that we think is ahead of the others, but is not 2 or 3 people controlling the vast majority of the market; if we're in a market where there's other acquisition opportunities to add scale, those are markets that we like to own. If we think there are markets that are core to what we do, examples would be restaurant, examples would be retail, which are big businesses for us in our U.S. and Global Payments business, our inclination is to own every element of that because that's core to what we do. E-comm would be kind of another example. So we you don't own the software in those markets and if we're not vertically integrated, we're worried that somebody else is going to capture the lion's share of the economics in those businesses, and we won't be able to control product, quota, pricing, distribution, TAM, all the things that are important to maintain the growth rate in our business. And that's why I think you have not heard from us, "Gee, competitor X is kind of eating our lunch at restaurants." Why haven't we said that? Well, the first thing I'd say is because we've been investing in our business for the last 5 years. Well, what does that mean? So we bought SICOM. And our Xenial restaurant business, what did that bring us? Point-of-sale cloud. That brought us hardware capability. That brought us additional relationships with enterprise quick service restaurants. If we hadn't done that, yes, I think we'd look back and say, "Boy, that was a mistake, that we didn't buy every end-to-end element in our restaurant business." I would say the same thing about retail. If we didn't own the point of sale, we didn't have the software that goes in the point of sale, if we didn't have the omnichannel experience, where you can order online and return it to the store, well, how on earth would we win all these deals with multinational retailers in markets in Europe, in Asia Pacific? How, in the e-comm omni business, if we didn't have unified commerce, which other people have come out later and kind of cloned, but if we didn't release that 5 years ago, how on earth will we compete with Adyen and some of the other guys in that business? So in those markets that we think are fragmented, where there's no one clear winner, where we think there's opportunities to scale, that are a [ quota-run ] business like e-comm, like restaurant, like retail, we think it's really important to own end-to-end production. Conversely, in markets like, for example, the auto dealer market, where is one of our larger partner markets, there's like 3 guys who control the market. Buying 1 of the 3 guys and knocking our brains in competing against the other 2 guys when the market share is relatively static is a very difficult place to be. There's not consolidation opportunities. We already have a good partnership. Why will we buy more of that? In markets like dentistry, where there's 2 people who control really the majority of dentists from an ISV point of view, that's a good partnership. And I want to be in a business where I'm Burger King and you're McDonald's, I'm Coke and you're Pepsi, right? At the end of the day, you're only going to grow as quickly there as the market grows. You're not going to gain share, right, in those businesses. You're not going to have consolidation opportunities in those businesses. That's how we think about it.

Okay. We're going to leave it there, Jeff. Thank you so much, guys. And thank you to the whole Global team for being with us. That was very, very informative.

Thanks for having us.