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

Why don't we go ahead and get started. Again, thank you for everyone joining us this morning here at the -- of day 2 of the Wolfe FinTech Forum here in New York City. Really happy to have everybody here with us. Look, really happy to have you with us, Josh, CFO of Global Payments, and Winnie and team. Thank you guys for joining us. It's really great to have you back with us again.

Yes. Thanks, Darrin. It's great to be here and great to be at the conference again this year, and look forward to talking about the opportunities ahead for Global Payments.

Just maybe we kick in and start off over the year-to-date trends you're seeing in the business. A lot going on at the company, a lot going on in the market broadly, but I mean really just thinking about some of the recent trends first. And then we'll go a little bit further into 2025 and medium term and macro assumptions you're contemplating as well.

Yes. Sure. No, absolutely. Yes. So look, to answer your question, I'm pleased to say that we're seeing a lot of the same trends that we saw exiting 2024 in the months of January and February. And it relates to our guidance at a very, very high level. Our 2024 guidance on a constant currency adjusted net revenue basis is in that 5% to 6% range. And I think it's important to note, Darrin, that this is consistent to slightly better than what we had communicated at our investor conference. And on the fourth quarter call, I did say that we expected to see some acceleration in the back half of the year relative to the first half of the year as we start to see some of those transformation initiatives ramp, and then we lap some of those issuer contract renewals that we talked about, and then as we also start to see the increased benefit of the conversion activity through the balance of the year. But as it relates to just the overall general like macro environment, we expect to see a relatively stable macro through the balance of the year. But with that said, we never guide to perfection. And with any outlook, we make a number of assumptions. We build in contingency and -- which we feel allows us to absorb for different outcomes as long as there's not a significant disruption to the overall macro environment. But Darrin, sitting here today, we feel pretty good about what we communicated on our Q4 call. We're still wrapping up February. But right now, we feel like we're currently trending in line with what we said on our Q4 call.

That's great to hear, especially in the backdrop of all these headlines on the macro, it's good to hear that things are trending in line with what you hoped.

Yes. Absolutely.

I mean on that note, you exited the year roughly 6% growth. And we definitely had some investors wondering just given the magnitude, given the transformation you're going through, if the 5% to 6% guide you gave really does conservatively incorporate the potential headwinds around that transformation you're undertaking. I know there's sales realignment, branding changes, enterprise merchants being shifted or exited in some cases. So maybe just reiterate and revisit that again for one more moment. I mean the back half-weighted nature of the guide, what just -- what does drive the reacceleration exit growth rate back to the 6%-plus range first?

Yes. So great question. So our guidance for the year assumes that we see a slight decel from where we exited 2024 in the first half of the year. And then that builds in the potential for there to be some disruption to the business as we ramp some of these transformation initiatives. However, we expect, as we ramp more of the transformation initiatives, to go ahead and see some acceleration in the back half of the year. As it relates to merchant, on our earnings call, we provide a lot of details around the timing and the milestone of several initiatives. And I think it's important to note, Darrin, we have over 600 initiatives that we're currently working on across the company. And this touches every part of the organization. And some of our bigger initiatives is obviously the release of our Genius POS system, which we expect to go ahead and release in the U.S. for retail and restaurant in the second quarter of the year. We'll follow that by the release of Genius Enterprise in the September time frame, and then we'll release Genius to the international markets in the back half of the year. Another big initiative that we have, Darrin, is the Sales Force of the Future program. We talked a lot about that on our fourth quarter earnings call, and that's retooling and retraining our sales force. In addition to that, we've also rolled out a new sales compensation plan for our sales force. We started rolling that out in the back half of 2024. We're going to continue to roll that out into 2025. And in fact, we've rolled that out to more than 50% of our overall sales force. So as we execute on these initiatives, we do expect there to be some potential disruption. But a lot of that work is happening in the first half of the year, and then we'd expect to see some of those benefits materialize in the back half of the year. If we were to put some numbers around it, our merchant outlook for the year is for 6% constant currency adjusted net revenue growth ex disposition. In the first half of the year, we expect to be a little bit below that. In the second half of the year, we expect to be a little bit above that. But we expect to exit the year at our strongest quarter of growth going into 2026, which is very consistent to what we commented on at our investor conference. As it relates to issuer, we talked a little bit about this on our Q4 call, we have a very strong conversion pipeline currently, right now. Over 70 million accounts that extends into 2026. And as we execute on this pipeline, we lap some of these renewals. We expect to see growth accelerate through the balance of the year. Our outlook for our issuer business is roughly 4% on a constant currency basis. We exited Q4, approximately 3% constant currency. We expect to see some modest acceleration in Q1 and then steady improvement through the balance of the year, again, with Q4 being our strongest quarter of growth for the year and solidly exiting the year in that mid-single-digit range and positioning us well for 2026, especially, Darrin, on the heels of our commercial launch of our modern platform that we've been talking about in issuer.

So -- all right. I mean, clearly, the market needs to see some of these results because the multiple certainly doesn't reflect that growth. I mean 5%, 6% growth is a lot better than 8, 9x earnings. So it's good to hear your conviction around it. I mean you still have the same confidence, it sounds like, you had -- when you first gave it a few months ago, right? Or not even a few months ago, a month ago, I guess.

Yes. Absolutely. Look, I mean, look, we know more today than we did in September. And we've made a lot of progress with the transformation. We have over 600 initiatives that we're currently working on. And look, sitting here today, we've accomplished a lot so far. We have a lot more to do, but we feel good about everything that we've done and the outlook for the business.

Okay. Great to hear. Maybe we could just quickly clarify, just to level set from an organic standpoint. I know the guide excludes currency and dispositions. Take payments closed mid-summer, along with the small orchestration platform you bought. So just to clarify for us, the organic assumption relative to the 5% to 6%, is it closer to 5% for a moment?

Yes. Look, the guidance we gave -- we provided was on a constant currency ex disposition basis. However, the contribution we expect from MA executed in 2024 is relatively immaterial. So the organic growth is consistent with that overall range. Specifically, as it relates to takepayments, we closed that acquisition in the second quarter of 2024. For 2025, it's going to contribute a little bit less than 25 basis points. Takepayments in the first quarter will be fully offset by the headwinds from lapping leap year. And then in the second quarter, we would expect takepayments to contribute a little bit less than 50 basis points given that we closed that in the second quarter. As it relates to the orchestration platform that you talked about, look, that was a very, very small technology acquisition. We're really excited about it. It gives us the opportunity to go ahead and distribute our products across multiple platforms and multiple geographies more easily, but that's not going to contribute anything to the overall top line growth. And again, so our organic growth is in that 5% to 6% range, which we outlined on our call.

Very helpful. Just very quickly on the EPS guide. Just remind us how we should think about the actual dollar-based EPS guide given the absorption of stock comp now, which you're introducing in Q1. I think all of us are just happy to see across any company that does that from a quality standpoint.

Yes. No, I hear what you're saying. So look, on our -- at our investor conference, we did say that we were evaluating how we're going to handle our reporting structure going forward. Stock-based compensation, we will treat that as an expense in our adjusted earnings going forward. If you think about 2024, we had about $164 million of stock-based compensation expense. That's about $0.50. So our adjusted EPS for 2024 would be a little bit over $11 a share. Again, that's not going to impact our growth outlook for the full year that we guided to on the Q4 call. So that math would imply that we're somewhere in the $12 range at the midpoint of the overall guidance range for our adjusted EPS for 2025.

Okay. I mean, frankly, I think investors like us and analysts have hopefully been looking at stock comp expense anyway, but it's good formally that, I think, to introduce it to...

Sure. I think it better aligns with our peers.

Correct. Yes. Let's go to the medium-term outlooks of accelerating from what you basically talked about for '25 being mid-single digit growth to the mid- to high single-digit growth by '26 and '27. And just help us understand if you could walk through the transformation efforts, their impacts to '25 and the drivers that are going to really enable that reacceleration to '26 -- into '26 and beyond.

Yes. So great question. So Darrin, as I mentioned, we have over 600 initiatives right now that we're executing across the company. And then I said that touches every part of the company, but let me give you a little bit more detail on a few of the things that I touched on before. Look, our first major initiative is harmonizing all of our best products and capabilities across the company globally. And that really starts with aligning all of our POS solutions under one common brand, Genius, which we're super excited about. And we've completed the full branding effort around Genius, and we're going to be rolling that out, as I mentioned, in the second quarter in the U.S. for retail and restaurant will -- followed by Genius Enterprise in September and then we will roll it out internationally as we go through the year. And then we're also making progress converging a lot of our technology capabilities across our POS platforms, which will create significant upsell and cross-sell opportunities. And then the second major initiative that we've talked about is our Sales Force of the Future program. And that's repositioning and modernizing our overall sales force. That includes upskilling and retooling our sales organization, aligning incentives to accelerate cross-selling and improving our lead-gen capabilities. And as part of that, we've also rolled out the modernized sales compensation plan, which we talked about. Other initiatives that we have underway is going to be -- we're going to exit certain markets, and we're not going to renew certain contracts or we're going to stop working on doing things that doesn't align to our overall strategy. So there's a lot of things that we're doing. And these things could have a modest impact on growth in the first half. And so that's why as we thought about the guide for 2025, we said that we expected to see a modest decel in the first half. So in that first half of the year, we'd expect to be on the lower end of the 5 to 6. And on the back half of the year, we start to see some of those transformation initiatives materialize and we start to see the benefit from that. And so we would expect to be on the higher side, closer to that 6%. But as I mentioned earlier, we expect to exit the year across both our merchant and our issuer business at the strongest level of growth, which we feel really positions us well for 2026 and is consistent with what we discussed at our Investor Day.

That's helpful. With Gaming and AMD now both divested, I mean, how should we think about the strategy going forward in terms of where you're investing behind in merchant? And just broadly, what your thought process is around any other divestitures or anything along the lines?

Yes. So look, as we talked about at Investor Day, we feel that we've built a market-leading portfolio of vertical software businesses. And although we don't see any significant gaps in those businesses, markets evolve over time. So with that said, we'll certainly look to continue to build beyond our existing assets. And we may target some additional verticals and some geographies that are aligned with our strategy. And in fact, Darrin, we do have some smaller tuck-in M&A built in the model over the next 3 years for strategic tuck-in acquisitions, but they have to meet a very, very strict criteria. And that's they have to align with our strategy. They have to be easy to integrate. They have to exceed our ROIC hurdle, and they have to be competitive with the alternative uses of capital. As it relates to AdvancedMD and Gaming, a lot of the revenue figures that we gave you with AdvancedMD and Gaming, those didn't exclude some of the commercial partnerships that we talked about. Look, AdvancedMD and Gaming, as we think about streamlining and simplifying the business, we just didn't feel like those businesses were the best fit for us longer term. But we were pleased that we were able to maintain that strategic partnership with both of those businesses to be able to provide integrated payments and commerce enablement solutions for those businesses going forward.

And then in terms of the potential for anything else on the horizon on that front, are we in a good place now in terms of the merchant segment beyond M&A, just divestitures?

Well, look, at our Investor Day, we said we were divesting up to $500 million to $600 million. At this point, we're -- we've divested over $300 million. We obviously have AdvancedMD in some of those markets in Asia Pacific. But -- so look, there's things that we have in the market now. I don't want to go ahead and get into the specific details. But again, we'll continue to look. We'll continue to consider those assets there, depending upon the price and the value and all that stuff and returns.

Can you just talk about the joint venture strategy for a minute? I mean it's definitely an area that we've seen you excel in. And so should we expect more of these? Can you remind us the moving parts with winding down Asia and the strategy there and the investors with the inverse happening also?

Yes. Sure. So joint ventures, Darrin, we've had a very proven track record of being able to generate substantial returns with our bank-based joint ventures. And I think it's important to note that with our JV in Spain with CaixaBank, we established that over 15 years ago. Our JV with Erste Bank in Central and Eastern Europe, we launched that over a decade ago. And these are just 2 examples of long-standing partnerships that we have. And I think if you ask any one of our bank partners, they would tell us that we've been an incredibly effective partner for these banks and driven meaningful growth for their businesses and significantly transformed their merchant acquiring business. And Darrin, when we go into a market or a new geography, we need distribution. It's very difficult to go into these new geographies greenfield. And banks have provided a very good way to go ahead and do that. And in the short term, we benefit from the secular trends in those markets. And then as the markets mature over time, we'll bring product and we'll bring innovation and new technology. And that will support very, very long run rates of growth.

Can we shift and just talk about from a geographic standpoint? Remind us, if you can, on where your biggest markets are outside the United States, obviously and really, where you see it going after the moves you've been making and the realignment of the business, going out a couple of years from now. What kind of geographic positioning and mix is it going to look like? And maybe also while we're at it, just talk about the model, the go-to-market model you have in different markets, whether it's ISOs or it's independent, it's your own sales or other partners?

Yes. So look, for our merchant business, the U.S. is our largest geography and our largest market and will continue to be a significant driver of growth going forward. And the U.S. is also where we generate the most -- the vast majority of our software and POS revenue and our integrated and payments revenue. And as we discussed at our Investor Day, we're going to leverage all of our distribution channels to extend our reach to sell more software and technology. And additionally, Darrin, we've built a significant presence outside the U.S. in international markets. And those markets are still in the early stages of adopting software and technology. And we see these markets as a great opportunity to not only sell Genius, which, again, we're going to be releasing into selected international markets in the second half of the year. But all of our other software and integrated payments -- and look, I think, a great use case of this is the success that we've had in taking our U.S.-born education businesses outside into international markets. We've had tremendous amount of success in bringing our international businesses to the U.K., Ireland and Canada. And again, as I mentioned, excited about launching Genius in the second half. As it relates to our Europe business, just overall, our Europe business is about 20% of our overall merchant business. We have leading market positions in the U.K., Spain and Central Europe. And we also added attractive new geographies through our acquisition of EVO, Poland, Greece and Germany. And so look, Europe will continue to be a very strong market for us. And then if we think about our LatAm market, in Mexico, it's less than 5% of our overall revenue. Through our acquisition of EVO, we've added significant scale to that market. In an effort to combine things and simplify our model, we announced on the fourth quarter call that we plan to go ahead and buy HSBC stake in our Mexico business. And that will allow us to go and harmonize our go-to-market strategy and just create better scale in the overall market.

Okay. That's really helpful. One of the most important takeaways from your Investor Day, I think, was definitely consolidation of the point-of-sale assets you have around the Genius brand, which we've known for some time as a brand, but we haven't seen it really wrap around much of the company beyond what it was when you first took it on, I think, under Cayan originally, if I remember correctly.

That's right, yes.

But if we could just take a step back, I think this is an important point for investors to understand. There's Heartland retail, Heartland for restaurants; there's Vital; there's a few others, more on SMB and a little more upmarket. If you could just bring to life the end-state vision or the point-of-sale offering, how much is Genius a revamp of underlying tech you already have, rebranding of existing tech or maybe both in some cases? And just what is this really going to do for the business relative from a competitive standpoint?

Yes. Another good question. So look, our POS, I think, is our best example of the opportunity to consolidate platforms across the organization. We've been running 16 POS businesses that were highly fragmented from a product and capability perspective. And some of these are legacy platforms, and some of these are more modern cloud solutions that were all spread across the business and not centrally managed. And we now have created one channel associated with POS and software that's responsible for the go-to-market strategy. We've centralized it under one leader. And we've also completed the rebranding. So it's very distinctive to Global Payments. So we don't have multiple offerings out there in the marketplace that are competing with one another. And then finally, we're replatforming our core offering, which will include the best features and functionality across restaurant and retail that will be ubiquitously available in the market. So when we launch Genius beginning in the mid-May time frame, we'll have all the best solutions across our platform.

Okay. And so when we think about what that could mean for your customers to have to rebrand, I mean, is -- a common question we get is whether there's disruption around that or anything along the lines of transition risk. How do you make that transformation in as seamless of a way as possible from what somebody is using currently today to the Genius offering?

Yes. Look, some of this will be able to update just through APIs and then the technology. And we have a very specific road map on how we're going to roll that out. And that will start looking at the back book in 2026, but our focus initially is going to be going after net new customers.

Okay. And so again, you said this goes into effect basically second quarter, I think, right?

That's correct. Yes, second quarter in the U.S. for retail and restaurant, and then enterprise will be in the September time frame and then selected international markets in the back half of the year.

Okay. It's probably one of the most important things we -- I think, we're going to want to watch for, I think, as the year progresses.

Yes.

Moving on to the core side. I mean it's just one of the more traditional portions of the business. You laid it out at your Investor Day, the segment was guided to mid-single-digit revenue growth once we get into the '26 and '27 time frame. So maybe just revisit that again and talk a little more about the competitive positioning in core payments in that segment. If you could talk a bit more again about the mix between international and U.S. and the bank channel mix versus direct as well will be helpful.

Yes. Look, so our core payments channel remains foundational to our overall business. It provides a stable source of revenue and cash flow to the business and also provides future opportunities of growth. And our U.S. business is comprised of our U.S. direct business and our wholesale business. And that's about 50% of our adjusted net revenue in the core payments business. And then the other half is our international business. And historically, our U.S. direct business has grown in that mid-single-digit range. And our wholesale business has grown a little bit slower than that, and that's in the kind of the low single-digit range. And then our international business, we have a balance of mature markets and faster-growth geographies. And the mature -- more mature category includes markets like the U.K. and Canada, which are somewhat slower growth overall. And then the faster-growth geographies include markets like Spain, Central Europe and several -- the other markets that we acquired through EVO, which would include Poland, Greece as well as Mexico. And these markets typically grow at different rates of growth, but they all generally grow in that double-digit range. And then, Darrin, I view core payments as really a feeder channel for us going forward for our software businesses. And I think eventually, the customers in our core payments channel will make the move to more integrated software solutions, and they'll move from this channel to 1 of our other 2 channels that we commented on.

Okay. Very helpful. Look, so putting it all together, I mean, what are you most excited about in terms of growth within the merchant segment post the transformation, so I guess, going into '26 and '27 and coming out of this year?

Well, look, I think it's many of the things we talked about today. I think consolidation of platforms, I think that's something that we needed to do, one go-to-market strategy around POS. And I think we have a tremendous value proposition. And I think the opportunity is immense, not only in the U.S. but globally. And I think that's the other thing that really excites me. You go outside the U.S. into those markets where we have leading market positions, strong secular trends across each of those markets. Think of Poland, think of Germany, think of Spain. And to take this product in there, I think that's really exciting. And I think we'll see very, very strong tailwinds there. And then finally, I think it's the Sales Force of the Future program. Any time that you can go ahead and reinvest in your people to make your people stronger to go ahead and improve your overall sales force, that's key. And look, you can have all the great and the best product in the world, but if you don't have distribution and you can't get it to market, that's a real problem. And that's something over the last 55 years that we've developed with the type of distribution that we have and the geographic footprint that we have. And I would say the good news, Darrin, is that all these things that we have currently are underway. And so as we get further in the year, we're going to start to see that acceleration, start to see all these things transform and really position us for 2026 and beyond that we talked about at our Investor Day.

Okay. Just going to the issuer side for a moment. I know you said you exited the year around 3%. You're talking about 4% or so over the year, but maybe just revisit the -- a little more granularity of that segment given how important it is for the, I think, the valuation of the overall company. You mentioned in recent quarters, some items like consumer volume being a little slower on some of these cards, delays from products and service investments in the banking partner, but that happened late in the quarter. You -- also, as you talked about earlier, have, I think you said 70 million, right, in terms of accounts on file. It's a pretty big number on a base. What's the base again now, 500 million, 600 million or so in terms of the core AOF?

Accounts on file?

Yes.

Yes, 850 million.

Right. But for all of it, commercial and consumer...

Yes. That's right, yes.

I mean it's still -- it's a very large number coming on, 70 over 800 in terms of the year. So when we think of the add-ons versus the lapping of pricing, just help us -- remind us of the trajectory of the segment and what the dynamics are there.

Yes. Look, we saw a nice acceleration from Q3 to Q4, and that was largely driven from our consumer card transactions. We saw strength there, and that aligns with what you heard from a lot of the FIs that they highlighted on the Q4 call. Commercial card, we continue to see the same trends that we saw coming out of Q3, and corporates continue to take a very cautious approach to spending. So that was -- that trend has continued. But then separately, I think, a bright spot was -- in Q3, we said we did see some weakness around bank investment and products and services. We saw that pick up and return back to normal in Q4. And we have a healthy pipeline of these banks and the investments that they're going to make in 2025. But what I would say, Darrin, as we think about the business in 2025, it really goes to the pipeline that we have, 70 million accounts on file and lapping these customer renewals. And as we think about the outlook for 2025, that first half of the year, we expect to be in that 3%, 3.5% range. And look, in the back half of the year, we expect to be in that like 4.5% range. So that gets you kind of that roughly 4% constant currency, which we talked about. But again, look, I think coming out of 2025, that fourth quarter, we expect to be solidly in that mid-single-digit range, which we really feel positions us well, as I mentioned earlier, for '26. And then also with -- on the heels of launching our modern platform, so it's -- we feel like issuer is pretty well positioned for the balance of the year.

You guys, from a capital return standpoint, guided to pretty big numbers. I mean $7.5 billion of capital return over 3 years, $2 billion-plus per year of buyback. I mean, I think, it's over 30% of the market cap, right, in terms of buyback and -- or capital return in total, I should say, over the next few years. So when we think about that just a brief comment on concern from you and updated thoughts on that as well as just a reminder on debt paydown, pace and goals.

Yes. Sure. So over the next 3 years, we're going to generate somewhere between $8.5 billion and $9 billion of free cash flow, which is about a 90% conversion rate. And to your point, Darrin, we expect to return $7.5 billion. And if you kind of just think of the role over the years, in '25, we expect to return $2 billion in capital to shareholders. $1.8 billion of that approximately will be share repo. The balance will be in dividends. And then in '26 and '27, we expect to return in excess of $2 billion in share repos, and that doesn't -- in addition to a dividend. So again, focused on returning capital to shareholders. We do have some M&A built in the model for some small tuck-in stuff. And look, if it doesn't obviously fit our strategy or if that doesn't materialize, we'll look to go ahead and return that capital back to shareholders. And then obviously, we talked about this earlier, that we plan to divest between $500 million and $600 million of revenue through the transformation, we've only done $300 million. So if we divest some other assets, we'll look to go ahead and return that capital to shareholders, retain -- continue to be leverage-neutral. And as it relates to just overall leverage ratio, we are targeting that 3x leverage ratio. We're pretty well there now. And so we'll continue to keep that leverage point generally in that vicinity.

All right. Just last one for me is just on the margin side and the savings side. I mean you had guided to $600 million plus of run rate savings by the first half of '27 and delivering around 50 to 100 bps of annualized margin expansion. If you could just talk about the time line and the drivers of that going forward one more time.

Yes. Sure. Absolutely. So look, we're pleased that we're able to go ahead and raise that from 500 to 600, as I said earlier. We have a better line of sight now than we did back in the September time frame. And look, in 2025, we expect to realize about 30% of that OI benefit that we talked about. And we'll invest the majority of that back into the business. And then in '26 and '27, we expect to -- in '26, we expect a little over $200 million of that OI benefit to flow down to the bottom line; and then in '27, a little bit -- a little over $400 million. And look, I think, it's important to note that these are not only cost efficiencies, but these are also revenue initiatives as well. And so that comes in at a lower margin. So that's kind of how we see the shaping of these OI benefits over the next 2 or 3 years.

Okay. Very helpful. Josh, that was a great update. Thank you. Guys, any questions from the audience? I'm happy to take. This one, third row.

Can you just touch on new business wins in issuer processing and what's really allowing for share gains there?

Yes. Absolutely. Well, I think if you think about our issuer business, a lot of the new sales are coming as it relates to our cloud-based platform, which we'll be rolling out at the end of this year, beginning next year. So there's a pipeline -- I mean there's a lag in the pipeline as it relates to any kind of issuer processing. These banks tee these up years in advance. And so that's where we see a lot of the growth coming in the overall issuer business.

Any other questions, guys? All right. Why don't we stop there then, guys. Thank you so much, Josh. Thank you for joining us. Thanks, guys, for team, Global Payments.