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

Welcome. Thanks, everyone, for joining our 11 a.m. session, part of our payments track of the day, the best part of MoffettNathanson's conference. Now for our next fireside chat, I am delighted to be joined by Jeff Sloan, the CEO of Global Payments. Jeff, thanks for being here with us. So before we dive in, just any opening comments that you'd like to make?

Sure. Well, thanks, Lisa, for having us. I took your reference to most exciting part be in Global Payments. And so pleased to be here with you today in New York. Yes, I would say we're just coming off of one of the best quarters we've delivered certainly since prior to the pandemic in the last 4 years. And also our first beat and raise really in 18 months. So we're really pleased with where the business is. The other thing I would say is -- we've been working on those 3 strategic transactions, as you noted in your note after the call, probably for the last 18 months. So they took an extended time to close. One of them we actually had to go to all 50 states plus the federal government plus one of the states twice whatever bizarre, I think it just took too long. So 52 approvals there. And then, obviously, a bunch of foreign countries in the case of EVO. So we're pleased to have turned the page on those strategic transactions. And I think the business is in a very healthy place financially, operationally and really strategically. So it's great to be here today, and it's great to see the momentum coming out of the first quarter.

All right. Well, in news that saddened many of us, you recently announced that you're going to be transitioning out of the CEO role, transitioning it over to Cameron Bready, who has been your partner in crime for many years. So -- but you have led Global Payments for the last decade. So why now? Why did you and the Board decide that now was the time to do this transition?

So first of all, I want to thank Cameron for putting up with me for 9 years. I'm sure it's probably too late from his point of view. But some of it ties to what we started out with this morning, which is to say the business has been very healthy financial, operating and strategic place. I'd also say client retention is at a very high level, certainly even higher than prepandemic and employee retention as well is at a 5-year -- a 5-year high. So I think having completed these transactions, having delivered a really good first quarter, having raised our guide for the rest of the year. I think this is the best time in the last 3.5 years, really going back to the completion of the merger with TSYS in the fall of '19 for us to consider something like this to be candid. We meet with the Board every July and October on succession. I met with the Board again in January to talk about the same thing. Cameron has been my recommended by me successor for the last 18 months. I'm really pleased that it worked out for him and that the Board took my recommendation. And I think it's important, I certainly thought about this over the last number of years, but I felt like if you go back to kind of '22 and '21, COVID was still substantially impacting both our people as well as our customers in our business. And I really feel like the right thing to do was to ride it out, get through this first quarter, deliver the results we did, get these deals done that were really in the hopper since November of '21 and put the business in the best position going forward. So I'm really pleased that it worked out the way it did and that the business is in as good a position as it is in today.

Good. [Operator Instructions] I'd like to start out. This is a strategic conference. And so sort of frame the discussion with a bigger picture question, strategic question. As you look out for Global Payments, now, as you said, kind of things are settling down post pandemic. Given where you are with Global Payments portfolio of businesses, where the industry is, what do you see as the most significant growth opportunities for Global over the next several years?

It's a great question. So we tried to lay out in our investor conference about 18 months ago, what we thought the drivers of growth would be for the next 3 to 5 years. And to be honest, I think a lot of those have come to pass. So the first thing that we think is important for future growth is our software businesses, and there we partner as well as own. So in the partner business, our integrated business is about $1.1 billion, $1.2 billion of revenue. That just grew organically mid-teens. Again, interestingly, I'm going to date myself a little bit here, just on the way out. But we've owned that business for 11 years now. And when we bought that business in 2012, it was $100 million of revenue probably compounding at mid-teens. We'll tell you it's $1.2 billion of revenue, compounding the mid-teens organic. So I couldn't be more pleased with how that business has trended over time. That's actually one of the businesses that's accelerated coming out of the pandemic as people very pivoted to more omnichannel type solutions. The second thing, of course, on software is our own software businesses, and I'm really excited to be able to report that those businesses grew low double digits in the first quarter of '23. Our expectation for this year, and this excludes gaming, which of course, sold in April. Our expectation for this year is 12% or 13% growth across all of our vertical markets, software businesses. And again, that's like another $1.1 billion of revenue, and that 12% to 13% is itself an acceleration off the low double digits, call it, 10% that we had last year. So 2 of our biggest growth drivers in software, our integrated business at mid-teens in our own software business at 12% to 13% are both the same or better really than they were last year. The second piece of our business that we talked about at the Investor Day was our omnichannel. It used to be like e-comm omni, as you know, coming out of pandemic, the distinction between the virtual and the physical world, I know you have written about this, has really blurred. Today, that's 30% of our merchant revenue. So call it this year, about $1.8 billion run rate. I'm most excited, that's like $2 billion next year run rate, which really was one of my goals, to be honest, to kind of get the thing to $2 billion. That just grew last quarter at 17% organic. So we're super pleased about that performance. And of course, lastly, in addition to our faster growth markets is our B2B. So I think where B2B is today is where e-commerce in our industry was at least in the late '90s. So I think B2B is a seminal opportunity for logarithmic growth for the next 5 to 10 years in our business. Post-EVO, that's call it $125 million, $150 million of revenue growing organically double digits. There are parts of that business, like our MineralTree, cloud SaaS on payables that we said grew 20% in the first quarter, and our budget for this year for MineralTree is near 30%. So those are the pieces. But I think if you had to just kind of pick one that I'm most excited about. I think the pivot toward B2B, I think, really is a kind of career-defining opportunity in our business.

All right. Let's jump into the merchant business in more detail. The merchant business is post the transactions. As you said, you just closed, is now about 70% of revenues, a little over 70% of Global Payments revenue. So let's start just to frame on the competitive side, right? There's a lot of discussion and debate about the merchant acquiring market. It's a very dynamic and competitive industry. How is Global Payments very uniquely positioned competitively?

Well, I think the key thing to understand about us, Lisa, is that we really lead with technology. That means software ownership and partnership. That means dominance in our omnichannel, our e-comm and omnichannel business and that means investing in things like B2B and faster growth markets that we got into with EVO, like Poland, like being bigger in Mexico, like face-to-face in Ireland. So we think are growth levers for the next number of years. So let's kind of just take those in pieces. So what we said about our software business and in particular, our own software business is that the drivers of growth in the first quarter were our Xenial restaurant business, which is really enterprise quick service restaurant. I think we have something like 20 of the top 25 brands in North America using some element of our hardware software payments, point-of-sale, cloud point-of-sale capacity and enterprise QSR. The other thing we pointed out -- pointed out was our Zego real estate business. So this is something we bought almost 2 years ago now, I think it was May of '21. To the day, that business is growing well into the double digits. And if you think about the trends coming out of the pandemic, both in restaurants as well as in real estate, these things were probably going to happen anyway, but people want their food delivered the way they want it, order with your phone, pay with your face or your thumb, have Uber Eats or DoorDash delivered, and we facilitate all those things, both in the physical location as well as remotely. The same thing is true kind of in the real estate market. So if you think about the -- I'm going to [indiscernible] myself a little bit by saying the old days, but no one wants to write a check anymore and kind of show up at the landlord's office when you're applying to rent some place, they don't want to fill out the paperwork. When there's a problem with their air conditioning, no one wants to actually go down to the superintendent's office and like fill out a slip. When you go to get your car, no one actually wants to wait in the valet line. All those things actually play to our advantages because every one of those things I described is something that we do digitally. So we do the payments, we do the software, we do the services for something like 11 million or 12 million residential real estate locations, condos here in the United States. So that's kind of the second avenue that we called out. The last thing I'll say and it's a derivative on software of our Xenial enterprise restaurant businesses, our sports and entertainment business, these kind of stadiums that we've been announcing. So one of my -- one of the things I was really waiting for in terms of me kind of moving on was I'm proud to say that we now have 100% market share of all the professional sports teams in Georgia, just kind of where I live. So we've got the Mercedes-Benz Stadium with the Falcons and the United. We just announced that we went live on opening day, April 6, with the Truist Park with the Braves, and we also announced the signing of the Atlanta Hawks at State Farm Marina. So -- but what we're selling in there and the purpose of this is really our enterprise software that we use in our Xenial environment. And that's a decision we made probably 3 or 4 years ago as to what to go with. And -- so the existing teams are really ripping out the existing infrastructure and putting our stuff in. And I would just say that what's driving that is fan expectations around digital engagement. We're always changing but have completely changed in light of COVID and the pandemic. So think about it, who wants a paper ticket today to go to a game that's not on your phone? Who wants to pay for a parking pass that's not a QR code that's also not in your phone? Who wants to wait in line to get the food versus have it delivered or pick it up at a kiosk? We also manage all the internal workings, all the sports environments like we know in french fries, like our running light or Diet Coke. So I'm from Georgia, it has to be Coke, I might have to go with that Pepsi reference, but we know that Coke is kind of running light in one of the areas. All of our systems, our data analytics for these purposes, generally resident in the AWS cloud. All that stuff is that we provide as 1 vendor or 1 throat to choke as it relates to our sports and entertainment business. And those are the kinds of things -- to answer your question, that I think are really propelling our business forward in terms of market share and in terms of sustainability of our merchant business. If we add on top of that, our physical as well as our virtual footprint. So you see a lot of the guys who were kind of e-comm-only. And by the way, PayPal is a terrific partner of ours. But you see folks who are mostly e-comm trying to come in, PayPal, being example, trying to come into kind of the physical world environment, we've been in both the virtual and the physical worlds for 50 years. So it's taken half a century for us to build up a physical presence in the 40 countries that we're in, which means that we're local with people on the ground. It means that we speak the language. It means that we have customer service. It generally means that we're a direct member of Visa and MasterCard. We don't need a clearing bank to do what we're doing so we can make our own decisions on credit and underwriting, for example, it means we're regulated by the regulator in those -- most of those 40 markets. So it's an enormous competitive advantage. We've said publicly, that's how we took Uber and Uber Eats from Adient in Asia and some of these other markets. And I think that really differentiates how we go to market, selling the technology that we're selling, but coupling that with the physical footprint in pretty much every geography that you would really care about from a payment flows point of view.

You've highlighted a couple of times the vertical-specific strategy that you have both owned software as well as partnered and interestingly, looking across the world of payments, many providers are more horizontal in nature, and you've been very successful at Global Payments with this vertical strategy. One, how do you make that successful? And then also just looking forward, what are the next verticals that you're eyeing?

Yes. So I think my thesis on life, and I was in banking for 20 years before and Global was one my clients before I came into Global Payments 13 years ago is it's kind of like when you're banking like everyone said, do an IPO, right? So in the case of payments, it won't really know us how to take credit card payments. So there's not a lot that's distinctive other than competing on price, if those are the things that you do, which is not where we want to be, right? We want to add more value-added services and drive differentiated technologies, but also differentiated distribution. And if you want to do that and like if you're a doctor, it's fine to have internist, but you really want the cardiovascular surgeon, right, if there's something that's wrong with you. And our philosophy, I think, is the same. So at the end of the day, providing value for value-added services is really where we want to be. So I think that's a successful strategy in medicine. I think it's been successful in banking, although it was a long time ago for me. But when I was there, and it's been very successful at our company. So having the vertical fluency, so having the software, having the salespeople, having the support that speaks to an auto dealer for auto services, which is one of our big markets or speaks to a restaurant, including the most complicated and worldwide quick-service restaurant brands is critically important to us winning that business rather than just competing on price, for example. So we're very pleased with where we are. I think we said in our investor conference, we're in markets in owned and partnered software that represents something like 50% of U.S. GDP. We'd obviously like to be bigger than some of them. We're most proud of all of our businesses, but for these purposes, in particular, our AdvancedMD health care business, Winnie will have to correct me because I always get the math wrong, but like prepandemic, I think we did something like 20,000 -- she is saying 25,000, 20,000 Teladoc visits where you kind of went to see a therapist or whatever in your phone. And last year, I think we did, what, a couple of hundred thousand or something like that. And -- the same thing is true in our enterprise quick service restaurant business, prepandemic, we probably did something like 50,000 remote orders and deliveries, and I think we did millions, I want to say, last year. So I think consumer expectations, whether it's in the medical world, whether it's in real estate, whether it's an enterprise quick service, whether it's in sports entertainment, consumer expectations have changed, and digitization is the tailwind that's changing them. So I think playing it to that theme is really where we want to be. In terms of additional verticals, I think we're very happy with what we have currently. Certainly, in the past, we've talked about government. So government services is something that we think makes a lot of sense. A lot of that has gone digital. The other area we talk about beyond government is skilled services. Now we do field services a little bit today. By that, I mean landscaping, plumbing, like people painting, people coming in your house. The reason I think that's such an attractive area on the payment side is it dovetails really nicely with our B2B strategy. So when you think about paying the payables and then setting out bills after EVO on the receivable side, field services is an area that's absolutely ripe for you to send out your invoices. I'm not sure here in New York. I live -- I used to work here for a long time, but I live in Georgia. And I can tell you, like my landscape people, yes, they e-mail me the bill, right? That's kind of how I get the bill and I pay it and it's integrated in the case of my landscaper into their Intuit Quickbooks stuff. And I think that really plays to our competitive advantage being both on the payable side as well as the receivable side. So field services is kind of an obvious one and so is government. But I would say, sitting here today, we're very pleased with where we are in the vertical markets that we're in and representing half of U.S. GDP that way of exposure is a good place to be.

All right. I'm going to give you an opportunity to address one of the questions that we get asked and many investors ask a lot about Global Payments, which is you compete in the U.S. SMB market. You're one of the leaders in that space, in particular, where we have seen other players that own their own sort of hardware systems, right, like a Square or Clover in that system. And you have always had solutions at Global Payments, industry-specific solutions, but have opted not to necessarily own that own hardware. So how do you just address that question for folks, right? The question of strategically how do you position yourself relative to those horizontal more hardware-led platforms?

So we own the hardware where it's an important part of the means of distribution. So as I said a minute ago, like in the enterprise quick service restaurant space, in the sports entertainment arena, that Xenial cloud point of sale is our actual physical point of sale as well as the software and as well as the payments and everything else. So in those markets where we think it makes a difference, we actually own the hardware as well. But we don't think at the end of the day, the point of differentiation is really the device. A really good example of this is the tap on glass and the stuff you see coming out of Apple and everybody else, which we do globally almost by definition, that piece is kind of a commodity. Obviously, the margins are lower in hardware than they are in software and in our payments business. And there's plenty of providers who provide that type of hardware in all of our markets. One of the things that we've been able to do very successfully, for example, coming out of the TSYS merger is take their Vital product. So Vital is kind of a slim down product that we sell into our ISOs and we sell, I think, in half a dozen countries now, which is our own proprietary branded point of sale. But we don't think at the end of the day, to your point, that the piece of hardware is really the point of distinction, except in markets like restaurants and in sports entertainment, where it's super important to the ecosystem, rather, we think it's the software, which is what we call commerce enablement. So we think we're really delivering a solution. As a result of that today, we think we're a top quartile public software-as-a-service company. We'll sell $3 billion for example, of software this year, both in our merchant as well as our issuing business. And we think that builds a nice moat around -- competitively around what we've done. And we also think that provides some kind of resilience in the context of choppier economic environment. So if you look at how our software businesses have grown, both partnered as well as owned, the mid-teens kind of compounding that we've seen for more than a decade now, 11 years in the case of our integrated businesses and probably back to 2016, so 7 years in the case of our own software businesses, I think that's telling us that, that's really working and where it's important like in Xenial and like at Vital, we have our own proprietary solutions. If you back up further and you say, well, how do you really compete against Square and kind of Clover in that area. My own view of that stuff is those are really Verifone replacements, right? So that could be good or bad. But at the end of the day, that's really what they're selling. What we're really selling is a complete ecosystem. I think Toast, for example, does a really good job with their hardware and software and making an ecosystem. But our restaurant business is slightly different than Toast's, half of that is the enterprise stuff that I've been describing. The other half is what we call Heartland restaurant, and there we do have our own hardware because that's the mode of competition relative to Toast. So where it matters, we actually have it. In the vast majority of cases for us, where it doesn't matter, we leave with software in an ecosystem. And if the question to us is, do you want to own a Verifone or a pack like or in Geneco like kind of just replacement that's not tied into your own particular software offering generally, the answer has been no. And yet our results, like I think relative to last quarter, our results are at least -- at least in line with the growth of Visa and MasterCard and certainly over the last 13 quarters well in excess of many of our peers.

You mentioned your unified commerce platform, UCP, as we'll refer to it as UCP as being one of the key growth areas, and that's from our perspective as well, one of the key growth areas going forward. Can you help us position UCP in the market, meaning what customers, in particular, and what regions, what size of merchant exactly is UCP particularly winning in?

So we started investing in our unified commerce platform, which is really for everybody in the room, which is our e-comm omnichannel offering multinationally. We started investing in that probably 7 years ago, 8 years ago, organically. Here's a real good example. I mean I don't have the exact numbers, Lisa, but we put tens of millions of dollars of capital over the last 7 or 8 years organically into that business. As I mentioned at the top of our discussion this morning, I expect that business to do near $1.8 billion of revenue this year. As I've gotten older, I kind of forgot what it did like last decade. But if I had to go back, pre-TSYS, it was probably, what, $600 million, $700 million, whatever the math was and it just grew 17% organic in the most recent quarter. And actually, that's a business that has accelerated coming out of the pandemic. I think it was like low to mid-teens in 2019 and since the pandemic, it's been mid- to high teens every quarter. And I think the last 5 years, we've been disclosing the numbers by quarter, and it's up to 30% of our merchant business. By the way, according to the -- I think it's a census bureau, not that commerce department, but as a percentage of retail sales in the United States, E-comm is like 22%. So we're at 30%. So we view ourselves generally as overweighted toward e-comm, omni relative to the rest of the market. So I think there's 2 elements in terms of how we target -- segment the markets that you asked about. The first thing is multinationals, particularly in a difficult to serve market. A great example, and these are actually our customers. A great example is like Louis Vuitton, Cartier, Mandarin, Four Seasons, Shangri-la, like those types of multinational customers, generally RFPs that come in on 8 to 10 countries in Europe or half a dozen countries in Asia, and I would tell you, in my experience, Lisa, I can't think of a time that we didn't end up in the final 1 or 2 kind of the group because very few people can seamlessly match the virtual as well as the physical world. So for example, if you want to buy a handbag online, you get it delivered, you don't like the color, you bring it back to the store, you change it, all that stuff has to be seamless and integrated to the consumer. There are a lot of people in the planet who can do that in all those markets that we're in today. So the first segment of the market is the multinationals and hard-to-serve markets. That's also how we took Uber and Uber Eats from Adient in markets in Asia. The second part is enabling, and this is more true post pandemic, enabling the small to midsized business to go online in its market, it's going to sound pretty pedantic to say this, but like the pizza parlor, right? So pre-pandemic, like the pizza guy, like maybe he had a menu, he has 1 or 2 stores, maybe he put a menu online, maybe he can order there and go pick up. But as part of the pandemic, that became table stakes. Like you have to be able to have complete omnichannel access. The same thing was true for Burger King, one of our big customers Popeyes, Taco Bell kind of go through Whataburger, Bojangles, all of our customers here in North America. So the idea of being able to take a small and midsized merchant, putting that person online, put the menu online, the ability to order remotely, get that thing delivered with Uber Eats or DoorDash. And I always get the P1. What's the -- what is it? Anyway, There's another delivery service in the summer. But I think the end to be able to facilitate that stuff seamlessly is super important to our business, and that's the second piece. So the SMB going online in that small businesses, home market or cross-border like into Canada. But the first piece and the majority is the enterprise customer, and that's what's driving the growth in that business. And as people have returned to physical environments and now there's no distinction between virtual and physical, that really plays to our benefit and has provided an enormous tailwind for that business.

So Global Payments has been a leader in the integration of payments with software, as you highlighted, for many years, that's been a big part of your strategy at Global Payments. And now in payments, the hot topic is embedded finance. So embedding additional financial products besides simply payments into that same technology environment, this might be things like bank accounts or lending products, et cetera. How -- what's your strategy around embedded finance at Global?

So we're doing that today. So we white labeled digital wallets around the world. A really good example of this is the deal we announced with Virgin Money in the U.K., the U.K. bank that's actually going live this year. We announced it at our investor conference. So building the digital wallet on a white label basis. So it's Virgin Money's digital wallet, but it's our technology powering it. By the way, as an aside, it's less sexy than the financial services products, but we do that for Burger King. We do it for Taco Bell, we do it for Whataburger. Those are generally our digital wallets that they're white labeling. But for purposes of embedded finance, we're doing that for Virgin Money. Now what does that mean? That means we have the ability to take Virgin Money and essentially make it into Apple Pay or Amazon Pay. So you can now go to -- if you're a Virgin Money digital wallet holder or app holder, you can now go to a Virgin Money merchant, scan the QR code, and there's no reason to route that through the networks. Instead, that stays within the 4 walls of Virgin Money. And it's no different in that context than an Alipay or WeChat Pay in Asia just ported over to Europe for purposes examples. That also means that we have BNPL in that wallet to answer your question on financial services. We also have loyalty points. We have better data and analytics. You can cross-sell into the other $30 million Virgin companies, so if you want to do on a cruise or a virgin cruise or on the airlines and everything else. And it's all tied into the linchpin, which is the smartphone and the digital wallet, which in the case of the wall we're actually providing. So I think our ability to match the issuing side through the TSYS relationship with the acquiring side in our merchant business, I think, uniquely positions us to actually offer products and services like you're referring to in embedded finance in a way that makes people much more competitive relative to the Ali's and the WeChats [indiscernible] relative to the networks and provides additional avenues for growth. So we see a lot of demand for that business here in the United States, you're seeing a bunch of the big banks talk about that in the context of Zelle and some of the things that they're doing. So I think there's a lot of demand for those products, and I think we'll continue to see that grow going forward.

All right. You mentioned earlier, you recently closed the acquisition of EVO Payments, a smaller publicly listed payments player. Just can you highlight, especially now that the transaction is closed, where do you see the most significant revenue synergy opportunities with EVO?