Operator:

Ladies and gentlemen, thank you for standing by and welcome to Global Payments' Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will open the lines for questions-and-answers. [Operator Instructions]. And as a reminder, today's conference will be recorded. At this time, I would like to turn the conference over to your host, Senior Vice President, Investor Relations, Winnie Smith. Please go ahead.

Cameron Bready:

Thanks Winnie and good morning, everyone. Thank you for joining us today. We're pleased with our performance for the second quarter, driven by consistent execution of our strategy focused on being the worldwide partner of choice for commerce solutions. Specifically, we achieved 6% adjusted net revenue growth or 7% excluding the impact of the divestiture of net spends consumer assets, and delivered adjusted earnings per share growth of 12% in the quarter. We also expanded adjusted operating margin of 40 basis points as we continue to drive efficiency in our business, leveraging the scale position we enjoy in our core markets, and realize synergy benefits from the EVO acquisition. There are a number of noteworthy highlights to cover this morning. Starting with merchant solutions, we delivered high single-digit organic growth, largely driven by our differentiated capabilities across our integrated software and point-of-sale businesses as market demand for embedded payments and commerce enablement solutions continues to accelerate. Our integrated business saw double-digit growth in the quarter, aided by continued strong booking trends in business development results, with new ISV partner signings up 30% year-to-date. Our ongoing success in identifying and signing new ISVs in this channel is partly attributable to our progressive payment facilitation solution, or PROFAC, which we launched mid-last year. Active merchants on this solution have increased 40%, and average merchant volumes have improved 60% since the end of 2023. We remain confident in our competitive positioning in this market and are investing in our capabilities to ensure we preserve our leadership position. We continue to focus on differentiating ourselves by one, our ability to meet the specific needs of our partners by leveraging the breadth and depth of our solutions; and two, the expansive additional embedded commerce capabilities we can attach to the underlying payments relationship. With both new and existing integrated partners, we are seeing an improvement in the average annual revenue opportunity with new merchants as we focus on cross-selling commerce enablement solutions. This includes human capital management and payroll, loyalty and marketing, analytics and customer engagement solutions, as well as B2B software. Speaking of B2B, it is worth noting that we continue to see increased demand for our B2B acceptance solutions as we further leverage the PayFabric platform we acquired with EVO. Our proprietary integrations with some of those widely used ERP environments in the market are critical delivering the embedded frictionless automation necessary to improve process efficiencies for our customers. We saw more than a 50% increase in new ISV partnerships leveraging our PayFabric capabilities in the second quarter as more B2B spend shifts to digital channels. In our vertical market businesses we saw double-digit growth in software bookings this quarter with particular strength in education, real estate, and healthcare. Notable wins include a new partnership with the Los Angeles Unified School District, the second largest in the U.S., which will leverage our full suite of capabilities across Point of Sale, MySchoolBucks, Cafeteria Management, as well as our Back-of-House solutions. With this addition we now have partnerships with the three largest school districts in the United States. Our real estate business signed a new partnership with the YES Communities, a leading provider of manufactured housing communities across the United States, and expanded existing relationships with community association solutions company, associated asset management, and commercial and residential real estate service provider Tobin Capital Group. Also this quarter we launched a new residential pay-outs product to streamline and automate the return of security deposits, which we are already successfully cross-selling to customers. We also saw strong growth in our Point of Sale software business this quarter, adding roughly 3,500 new locations. Demand for our Point of Sale and Embedded Commerce Solutions remain strong across the segments of the restaurant and retail verticals we target. Our solutions are designed to grow with the customer's business, leveraging a common technology stack that enables customers to easily add functionality as they expand. This allows us to serve the small end of the SMB market and scale with merchants as they grow, while also addressing the more complex needs of quick service restaurants and sports entertainment venues. To that end we are excited to announce a new partnership with Diamond Baseball Holdings to serve as the official commerce technology partner for its minor league baseball franchises in the United States and Canada. We are currently installed in 13 of these stadiums and we expect to fully roll out our solutions at additional ball parks across Diamond's club portfolio before the 2025 season opens. We also signed new stadium partnerships with multiple UK football clubs, including Newcastle, Birmingham City, and Nottingham Forrest during the quarter. And we are proud to have supported a major professional football championship across multiple stadiums, a Grand Slam tennis tournament, and a major golf tournament with our Point of Sale and payment solutions in Europe this summer. We also went live this quarter with a leading parks and entertainment company and are now providing the food and beverage in retail Point of Sale solutions at its theme park locations in Florida. And we continue to see great momentum in food service management where we are the partner of choice to the three largest players in this space, which serve a 20% improvement in related bookings this quarter. In the restaurant and retail verticals in North America, where our POS software is targeted towards SMB and mid-market customers, in addition to the strong rooftop growth, we achieved a greater than 70% attach rate of our embedded commerce solutions with new customers. It's just one example we are seeing significant demand for loyalty and marketing tools with locations leveraging our customer engagement software, increasing over 100% this quarter compared to the prior year. Additionally, we are pleased with the market reception of our recently released next-generation Point of Sale software, including the improved user interface, our intuitive experience across iOS and Android-based devices, and the mobile first design that drives best in class omnichannel experiences for our merchants and their consumers. While still early days, these new offerings are benefiting our performance and we expect a more meaningful contribution to revenue in 2025 as we gain scale. We also continue to see good momentum expanding our Point of Sale offerings into markets outside of the U.S. It's worth highlighting that we have begun highlighting our Point of Sale offering in Germany and anticipate a full commercial launch next month. We also remain on track to bring our Point of Sale software to key additional international markets, including Mexico, Ireland, Poland, Austria, and Romania, over the next 12 to 15 months. In Germany, our Commerce Bank joint venture, Commerce Global Pay, went live this quarter, and we were off to a fantastic start. While we were just beginning to leverage Commerce Banks' relationships with the roughly 26,000 corporate clients and almost 11 million private and small business customers, we are already seeing strong lead generation and substantial opportunities to further digitize the payment experience while also allowing us to build a scale business in this attractive market. Lastly, we are continuing to see strong demand for our Pan-European solutions. Notably, we are realizing attractive growth in the EV charging sector and recently signed a partnership with a major European energy provider to support the expansion of public charging solutions throughout Central Europe. We also made two small tuck-in acquisitions in Europe this quarter to continue to improve our strategic positioning. The first was the acquisition of Takepayments, a small provider of payment solutions to SMB merchants in the UK. Takepayments serves to meaningfully diversify and expand our direct distribution capability and demand generation solutions as the UK market continues to evolve beyond traditional bank-based referral channels. It also provides attractive opportunities for us to cross-sell our commerce enablement solutions into its customer base. This investment allows us to reorient our distribution approach in the UK market with leading demand-gen capabilities and represents opportune timing as we are starting to see some signs of stability in the UK market more broadly. We have a strong pipeline of new business here with the hospitality and unattended verticals notable bright spots, including our recent win of Virgin's hotel business in the UK. The second acquisition at the end of the quarter was of an early stage technology development company that we were previously partnering with in Europe to drive our terminal on mobile offerings. Given the strong demand we have seen for our terminal on mobile offerings and the expected long-term importance they will play to our point-of-sale plans, it was strategically important for us to bring this technology in-house to unify our offerings globally and to control the entire value stack enabling our solutions. Moving to Issuer Solutions, we continue to see strong execution across our business. We completed two large conversions this quarter, which in combination with existing customer growth, drove a healthy increase in accounts on file sequentially. We also have a near-record implementation pipeline of more than 65 million accounts and seven active LOIs. Further, we are having ongoing success in cross-selling our value-added service solutions and completed 30 product implementations for existing clients this quarter across our fraud, virtual card, and communications platforms. From a macro perspective and similar to what you heard from our FI partners in the networks, we saw a modest deceleration in transaction volumes this quarter, which was largely driven by commercial card activity. We recently renewed our multi-decade issuer relationship with NatWest spanning both its consumer and commercial portfolios, cementing our position with one of the largest and most active clients in Europe. NatWest recently announced its acquisition of Sainsbury Bank further highlighting the importance of our strategy to align ourselves with market share winners. We look forward to opportunities to continue to expand our partnership with them in the future. Additionally, we have now launched our partnership with Outpayce, a leading global travel technology company owned by Amadeus, providing issuer solutions technology for its platforms across Europe. Outpayce is our first fintech customer operating in our AWS cloud environment in Europe, with many other clients in the pipeline. Most importantly, we also continue to make progress on our issuer modernization program and remain on track to complete the development of our client-facing applications this year. We have already initiated customer pilots and continue to expect commercial launch next year. Through modernization, we meaningfully increased our addressable market by broadening our opportunity set to include mid-market and smaller banks in addition to new geographies. Our investments also drive greater enablement capabilities for our clients and allow our leading applications and solutions to be more easily consumable by fintechs who are developing new used cases around cards. Shifting to B2B, we are seeing good trends in new bookings for our AP automation software in our core mid-market segment, while virtual card spend continues to ramp. Additionally, we signed several notable new customers for our employer solutions, including relationships with TERRA Staffing Group and Rainbow Pizza, which operates nearly 50 Domino's locations throughout Texas. We also renewed partnerships with AMC Theatres and Cracker Barrel. Before I turn the call over to Josh, I would like to highlight the appointment of Bob Cortopassi as the President and Chief Operating Officer of Global Payments. Bob is a proven growth-oriented leader and operator as well as a trusted colleague with an exceptional track record of managing key businesses across our organization during his 12-year tenure with the company. Most recently, Bob served as our Senior Executive Vice President and President of International and Vertical Markets for our Merchant Solutions business and previously led our integrated business for nearly a decade. I look forward to partnering with Bob, and I'm confident in the role he will play in our company's continued future success. Josh?

Cameron Bready:

Thank you, Josh. Moving forward, we remain committed to sharpening our strategic focus and simplifying our business to position Global Payments as the partner of choice for Commerce Solutions in the markets that we believe have the highest potential. We are finalizing the review of our business that began earlier this year. That work has involved a thoughtful and methodical assessment of our assets, which has helped us to identify meaningful opportunities to better align our organization to drive sustainable growth. Over the last two decades, we have built one of the leading global payments technology companies. As we move into the next phase of growth, we are simplifying our portfolio and streamlining our operations to deliver product-led customer-centric solutions, while continuing to emphasize service as a key differentiator for our business. Ultimately, we expect executing on these initiatives will allow us to gain share, free up capital to invest in innovation, and deliver sustainable performance through the cycle. We look forward to providing you with more details on the changes we are making at our investor conference to be held on Tuesday, September 24th in New York City. Winnie?

Operator:

[Operator Instructions]. And your first question comes from the line of Ramsey El-Assal from Barclays. Your line is open.

Cameron Bready:

Okay Ramsey, good morning. It's Cameron. I'll maybe comment on that. Look, my own perspective on the discretionary, nondiscretionary split is, it's a bit arbitrary these days. I think what's discretionary to one person, maybe nondiscretionary to another and vice versa. I think we've always looked at our portfolio as being very well diversified across what have been traditionally considered discretionary and nondiscretionary verticals. And I think even post EVO we're still in a position where as I look at the mix of business we have today, I think we're very well diversified. We're very well diversified geographically, I think around the globe. We're very well diversified across vertical markets. We're very well diversified kind of across revenue streams as well. So as I think about the overall mix of the business, particularly against the backdrop of, again, a somewhat uncertain macro environment, I remain very confident in the resilience and durability of the model that we've built, largely on the back of a business that's pretty well diversified, again, across different types of payments businesses with our merchant and issuer mix as well as different verticals, different geographies, etcetera. So I think the mix of business we have is good, and it positions us well for whatever macro environment we may face as we continue to move forward.

Cameron Bready:

Yes, it's a good question, Ramsey. The way I think about the ProFac business is it largely fills a need in the market for clients who need some payment facilitation capabilities, largely around the onboarding experience that, that delivers to merchants and some of the funding flexibility that comes through payment facilitation capabilities. But they are not scaled enough to be able to take on all the responsibilities of being a payment facility, particularly as it relates to underwriting, risk management, etcetera. So it fills a nice niche in the market for, I would say, on average, probably smaller ISVs that need some payment facilitation capabilities, but really aren't in a position to take on all the burdens of that themselves. And I think that's sort of middle of the ground solution that we've been able to offer, has been very well received by the market, and it does kind of open up a new area where I think before we had not been as successful in signing kind of ISV partners. So I think what I'm most pleased about as it relates to the integrated business is, obviously, the ongoing sort of consistent growth that we're seeing in that channel, but the -- and continued investment in capabilities to make sure that we sustain our leadership position in that market and our ability to sort of tailor our offerings to meet specific needs of ISV customers in the marketplace to compete very effectively against other solution providers.

Operator:

Your next question comes from the line of Jason Kupferberg of Bank of America. Your line is open.

Cameron Bready:

Yes, I'll make a couple of comments. I would say it declined sequentially about a point. If you look at our sort of revenue ex-Takepayments, it was up roughly kind of 7.5% organically, year-over-year, volume is up 6%. Last quarter, it was I think, 8% and 7%. So generally, I would say, a pretty consistent trend that we've seen sequentially Q1 and Q2. I think to your point, leap year probably had a little bit of an impact. The macro, obviously, other networks and competitors have reported and generally seeing the same trends as it relates to the overall volume environment and macro environment more broadly. So I don't think that's really unique to us. Takepayments delivers on the balance -- slightly more revenue than it does volume contribution. So I think net-net, we're sort of still within a point of each other as it relates to organic revenue growth and volume that we saw in the business.

Cameron Bready:

Yes. Jason, it's a good question. Maybe I'll start and I'll ask Josh to jump in. I would just say, overall, we're very pleased with the margin expansion we saw in the merchant business. And I would just note that despite absorbing Takepayments, it comes in at roughly half of our margin today. So yes, we did perform a little bit better than we expected in the second quarter from a margin expansion perspective in the merchant business. I think it largely reflects kind of continued strong execution and obviously, some of the growth trends we're seeing in aspects of the business that have attractive margin profiles for us. So I think overall, really pleased with the outcome there, as I said, and we grew it 30 basis points site absorbing Takepayments that comes in and again, about half of that margin. The last point I would make is we're still targeting 30 basis points for the year, our language is up to 30, but just to be very clear, we're targeting 30 for the year. And I'll let Josh maybe comment a little bit about what we see in the back half.

Jason Kupferberg:

Okay. And I assume that would skew a little bit towards Q4 versus Q3 just as we think about cadence, is that fair just as synergy is built?

Jason Kupferberg:

Thanks.

James Faucette:

Great, thank you very much. I wanted to touch on the ISV channel. It seemed like you had made some good progress and that kind of thing. I'm wondering if you can talk a little bit about how we should be thinking about the growth potential there and what dynamics in that segment may be different than what you see in the rest of your merchant business generally?

James Faucette:

Got it. Appreciate that. And then in the press release, you talked about looking for efficiencies and the like. And clearly, that's something you're probably always in. But is there anything incremental that you're looking at in the second half of the year and how much are you thinking about that, if at all, to contribute to the margin targets -- and margin improvement targets you have for this year and how should we think about any spillover into 2025? Thanks a lot.

Operator:

Your next question comes from the line of Darrin Peller from Wolfe Research. Your line is open.

Cameron Bready:

Yes, maybe I'll start and I'll ask Josh to share a few perspectives as well. And I'll maybe hedge my comments a little bit Darrin, just by saying a lot of this is good fodder for our conversation as we get into September, and we sort of frame up the business the way we think about it as a go-forward matter. But clearly, you laid out a few key sort of things that probably are worth spending a little time on this morning. So as we think about the business today, obviously, we, as I mentioned before, are very focused on the merchant business positioning as it relates to the intersection of software and payments. We continue to think that is the future of the SMB space and the markets that are core to us today, most specifically the U.S., and that's going to continue to be the trend of evolution in markets outside of the U.S. over a longer period of time. So our ISV strategy, our own software strategy, and maybe most particularly, just given the relevance of retail and restaurant from a consumer spend perspective to our business, our point-of-sale software strategies are really core to where we want to drive the business over a longer period of time. Those are healthy technology-led businesses. They are continuing to grow, and they're continuing to scale, and they're continuing to contribute to the overall margin expansion we're seeing in the business. So I think that as we step back and think about sort of where are we going, it's largely driven by our investments in those areas, our ability to continue to differentiate through technology, and obviously generate margins and scale those businesses in a way that contribute to the overall rate of margin expansion for our business. As we think about more traditional payments markets, they may not grow at the same pace as our technology-enabled or software-oriented businesses, but they generally have stable growth rates and they have higher margins. Those margins may not drive the same sort of margin expansion for our business overall, but they contribute a lot of cash that obviously allows us to invest in the more growth orienting -- oriented and margin expanding sort of elements of the business so that we can get to that overall mix of margins that we're targeting and margin expansion that we're targeting for the business. And then, of course, there is markets internationally that we're growing nicely as well. We're continuing to scale our businesses as well, and that is contributing to sort of margin expansion in our overall kind of emerging business. And then lastly, I would just say, we benefit from being a large-scale player. Obviously, we are able to spread those fixed costs across a large global scaled merchant acquiring businesses. And as we think about the business going forward, and I talked about this before, we're very focused on ensuring that we're sort of leaning into markets where we are a scale player today or have clear line of sight to becoming a scale player in markets that were not a scale player today, and we don't have clear line of sight to becoming a scale player over time. I think we need to think hard about whether we should be in those markets, and that's been a big part of what we've been looking at as part of our strategic review. So more to come on that in September. But I think, hopefully, that gives you some sense as to how we think about it at a macro perspective.

Josh Whipple:

Yes, Darrin, we fully expect to go ahead and convert out of the 100% this year, less obviously the R&D tax credit, which is about 5 points. But I think that the big change that you saw on a year-over-year basis is the growth in the business and operating income, lower interest expense and a change in working capital. But again, this is something that we continue to go ahead and manage very, very closely, and we feel confident with regard to our initial guide of 100% conversion, excluding the R&D tax credit for the full year.

Darrin Peller:

It’s really helpful Cameron. Thanks guys, thanks so much.

Andrew Schmidt:

Hey Cameron, he Josh, good results here. Thanks for taking my questions. Just speaking of the legacy parts of the business, could you just talk about the direct sales channel, where that's targeted today, sales efficiency, and the strategy there in terms of just the direct sales efforts? Thanks a lot guys.

Andrew Schmidt:

Got it, thank you Cameron. I hear you on the word legacy. That makes a lot of sense. Just on the outlook for the merchant segment, obviously, layering Takepayments, it sounds like a little bit more of a moderate macro assumption there. Is there anything else, is it just moderated macro or are there any other puts and takes to consider in the outlook? Thanks a lot guys.

Josh Whipple:

Yes. So I think as you think about the second half of the year, we still expect margin growth in the 7% to 8% range. And as Cameron, you mentioned this includes roughly a point of contribution from Takepayments, which will largely offset FX. And then for the full year, we still expect merchant revenue be in the 9% plus range. So we feel pretty good about that.

Operator:

Your next question comes from the line of Vasu Govil from KBW. Your line is open.

Cameron Bready:

Yes. I mean, I've said -- good morning. I have said over the last couple of years, we've obviously seen rev share sort of drift up over the course of time as you've seen more competition in the integrated space. But I'd say over the last year to 18 months, we've seen probably a more constructive competitive environment than we had seen in the previous 12 to 24 months. Just as cost of capital has come up and sort of competitors need to be a little bit more rational with their own economics and how they approach these relationships, I think the competitive environment from a rev share perspective has been fairly constructive, certainly for the last year or so. And our expectation is it will remain fairly constructive over a period of time. And our experience is, if you have the right solutions, the right capabilities, you can partner with ISVs in the right way. You need to be competitive from a rev share perspective but you don't necessarily have to be at the high watermark of rev shares. And we still see competitors offering fairly aggressive rev shares in some circumstances, but that's typically where they don't have a lot to offer the ISV outside of that sort of pure payments relationship. And one of the ways we've been able to differentiate ourselves is obviously the breadth and depth of capabilities that we think we bring across traditional integrated payment facilitation and the middle of the road sort of ProFac model that we have but also the breadth and depth of commerce enablement, embedded commerce solutions that we can deliver, which enriches the experience for us and the ISV, broadens the base of revenue that we're able to share on a rev share basis, and I think makes the overall partnership and relationship more constructive for them and obviously more constructive for us. And that's a big part of why we've been able to remain, I think, fairly well positioned competitively from a rev share perspective without always, again, having to meet the high watermark that may be out there around a pure rev share on payments alone.

Cameron Bready:

Yes, it's been pretty -- it's a fair question, and I've been pretty transparent. I think last quarter and obviously, this quarter, I'll just reiterate, we're obviously very focused on providing a full sort of update on where we see the business going and it is a strategic matter going forward. Where we're going to focus our attention, our efforts and our investments and a big part, I think, of any strategy is also what does that mean you're not going to do. And so we look forward to giving a pretty fulsome update around our strategy and where we see the business going forward, how we're going to frame up the business kind of around that strategy, the critical initiatives that we are pursuing to continue to advance that strategy and execute against it. And then, of course, the KPIs and metrics that we're looking at to judge our own performance as to how we are gaining ground against the key initiatives that we think are important to achieving the strategy that we have. So all that we would expect to be able to frame up for you at our investor conference, and then that will be coupled with a conversation around our efforts to continue to streamline and simplify our business and how we are organizing ourselves internally, some of the moves we are making to ensure we have the most nimble, agile business we can, that we remain very customer-centric in our product approach. We continue to build differentiated products and capabilities that we think compete favorably in the market. And then we're able to then couple that with further differentiation around the service experience that our clients are able to enjoy from us. And so we look forward to being able to share more around that streamlining and simplifying effort and what we think then that will unlock from a value creation standpoint, and how we'll redeploy that in some areas that we want to invest in the business, but also how that will flow through to drive better returns as we look forward in time, all against the backdrop of our efforts to, I think, again, simplify our business, improve our quality of earnings, be very focused on free cash flow generation and driving better return on capital in our business as we move forward.

Operator:

Your next question comes from the line of Bryan Bergin from TD Cowen. Your line is open.

Cameron Bready:

Yes, it's a really good question. I think what we've generally seen is we've done a better job of finding ways and encouraging our sales professionals to find opportunity to attach other value-added services to the pure payment experience with our clients. As I mentioned in my response to the integrated question, clearly that has been attractive to our integrated partners. A lot of the commerce enablement or embedded commerce solutions we can deliver really resonate with them. It makes their own software more competitive in the marketplace. It gives them another channel, I think, to help differentiate their solutions. And obviously, it improves kind of the rev shares and revenue opportunity that they see through the partnership with us. So a lot of our ISV partners are very focused on continuing to lean into our embedded commerce solutions and finding ways to distribute those through their channels in partnership with us. And on the direct side, again, we're seeing much the same. I called out specifically around Point of Sale, what we're seeing very strong attach rates for customer loyalty, particularly for our card-linked loyalty solutions, around our Point-of-Sale businesses. But we're also seeing, again, good strong attach rates around the cross-selling efforts for human capital management and payroll. So I would say across the board, a strategy that we really set out to pursue a few years ago around finding more ways to wrap value around the payment experience, which is really where we started, have continued to evolve in more of this and better commerce strategy and our ability to attach more commerce enablement solutions around pure payment capabilities we're delivering to clients and it's just further enriching the relationships that we have with our clients. It's making us more relevant to them. It's allowing us to differentiate better in the marketplace. And I think, again, it will be a core part of how we think about driving our strategy as we move forward in time. And I think, obviously, a big focus for us is where are the areas that we want to invest from a commerce enablement or embedded commerce solution to continue to drive that richer experience and more differentiated offering relative to where our competitors are.

Josh Whipple:

No, look, we're very focused on getting back to our 3 times targeted leverage point in the back half of the year. We expect to go ahead and pay down close to $1 billion in debt just from free cash flow. So we'll continue to go ahead and delever to the balance of the year, and we expect to get right back to that low 3 mark that we talked about previously.

Operator:

Your next question comes from the line of Dave Koning from Baird. Your line is open.

Cameron Bready:

Yes. I think that's probably a fair way to continue to think about it. We talked over the course of the last few quarters just around the acquisition of EVO and obviously, that rebased margin is lower, and we had a fair amount of work to do. I would think to shore up the EVO environment to make sure that it was operating at our standards, particularly in markets that we didn't overlap with EVO, where we're having to rely on their technology. And that was somewhat offsetting the synergy benefits that we were realizing over that period as well. But as we move forward, I think Q2 is really represented by and large of kind of where we see the business as we move forward. We still have some more synergies to realize around EVO, and we're still investing, obviously, in the business as well. But we were pleased with that 30 basis points of margin expansion in the second quarter. We're targeting 30 basis points for the full year. As we talked about before, as Josh mentioned, that reflects a little bit of uptick in the back half, just to get the overall to 30 basis points for the full year. And I think then that gives us kind of a good jumping off point heading into 2025 and kind of really reflects where the business is going. I'd also note, Dave, and I know you appreciate this, we've had that conversation directly. Our margin profile is now close to 50% in merchant. So it is, on average, a little easier to expand margins 50 to 70 basis points a year when you're in the low 40s than it is when you're not in 40s. So that math is not lost on you, I know. But as we think about the business, we're very, very focused on continuing to drive margin expansion in the merchant segment. And I think we're well positioned to do that. And I think Q2 just sort of gives you a demonstration of our ability to do that. But more importantly, it's reflecting what we said was going to happen over the last several quarters. As we continue to execute against synergies, as we've made the investments we need to make to share technology environments, we're getting the business sequentially continually back to sort of par post EVO and now we're seeing expansion. And obviously, we're pleased with that outcome.

Josh Whipple:

Yes. Look, Dave, so I think we've shown a real positive trend as it relates to realized integration expenses over the last three to four quarters, and they've continued to go ahead and trend lower as we said they would. And if you think about it, we're now about year and half into the integration. We said that of EVO and we said that we would complete that two years out, which would be in the March of 2025 timeframe where we'd expect to go ahead and achieve $135 million in run rate synergies. So again, I would -- I think you can fully expect the integration expenses to continue to go ahead and trend lower through the balance of the year as we get closer to that time period that we called out when we initially announced the transaction. And I also would say, if you look at our quality of earnings, they have continued to go ahead and improve. And again, our GAAP relative to adjusted is over 50% in this quarter, and we would continue to expect that to accrete higher.

Operator:

Our last question comes from the line of Tien-Tsin Huang from J.P. Morgan. Your line is open.

Cameron Bready:

Yeah, I think we did, Tien-Tsin and thanks for the question. Obviously, we have talked a lot about Point of Sale. We are seeing good momentum in Point of Sale. Point of Sale drive is a different revenue stream, four hours versus jut the fear of payment experience and obviously that is somewhat contributing to what we're seeing on the revenue side versus what we're seeing kind of on the volume side. I think our goal as we continue to move forward in time as always want those two things to be correlated. But obviously, as we continue to invest in Point of Sale, we continue to invest in embedded commerce solutions, we continue to invest in areas to further differentiate ourselves beyond the pure payment economics, many of those revenue streams aren't purely tied to volume. So we're hopeful we continue to see sort of continued growth in revenue that may outpace volume but I don't want those two trends to become uncorrelated over time because when we're selling those capabilities, it's generally driving a payment experience as well, and we hope to see volume continue to drive forward from that point also.

Cameron Bready:

Yes. I would say, Tien-Tsin, certainly in the short to medium term, we feel good about how we're positioned with that business. We're executing really well. The things we can control in that business are generally progressing very nicely. We've got 65 million kind of accounts on file in our conversion pipeline. We've got seven LOIs that we're working to convert to full contracts right now. We are seeing new opportunities emerge. We called out Amadeus this quarter, as it relates to being the first kind of customer or fintech customer in Europe, leveraging our cloud-based in AWS capabilities. So we feel good about the further expansion of that product set as we move forward as well. So we are seeing, I would say, good momentum on the commercial and sales side of the business. And we've got good metrics to demonstrate that in the short to medium term. We're well positioned to continue to grow that business at a very stable level. I think long term, it's largely our ability to grow and accelerate growth in that business is tied to what we're doing around modernization. And as I called out in my script today, we are very much tracking towards completing development of the customer-facing sort of applications by the end of this year. We're in pilot with a number of customers already. And obviously, I think that positions us to be in market with those solutions in 2025. And I think that clearly is important to kind of unlocking new opportunities for that business, not only across sort of the segments of the FI channel that we can support in different geographies around the globe that we can attack. But I think more importantly, some of the more developing used cases that we're seeing around cards that I think require our capabilities to be consumed a little bit differently than they've been able to be consumed historically, that's something we're going to be able to deliver through our modernization investment. So better enablement capabilities for our clients, more consumability of our, sort of, I think, market-leading solutions. I think that really will go a long way to kind of unlocking some of the used cases that I think you were alluding to in your question, and we're excited, obviously, to be able to start bringing that about as we get into 2025 and beyond.

Cameron Bready:

Thanks, Tien-Tsin. Well, on behalf of Global Payments, thank you very much for joining us this morning. I hope everyone has a great day. I appreciate your interest in our company.

Operator:

Ladies and gentlemen, thank you for standing by, and welcome to Global Payments First Quarter 2024 Earnings Conference Call. [Operator Instructions] And as a reminder, today's call is being recorded.

Winnie Smith:

Good morning, and welcome to Global Payments First Quarter 2024 Conference Call.

Cameron Bready:

Thanks, Winnie, and good morning, everyone. We are pleased with our first quarter results, which were ahead of our expectations as we saw strong execution across our businesses and resilient consumer trends despite the uncertain macroeconomic environment.

Winnie Smith:

Thanks, Cameron. [Operator Instructions] Thank you. Operator, we will now go to questions.

Bryan Keane:

And congratulations on the solid execution here. I guess, I just wanted to ask on thinking about simplifying the organization, Cameron. What -- is there a lot of assets potentially that you could divest? Are they small? Large? Just thinking about that. And then what would you do with some of the proceeds, I know stock buyback would be really accretive here versus M&A.

Joshua Whipple:

Yes. Bryan, what I would say is we're about a year into -- a little over a year into the integration. So we're really operating the business as one. But I think if you think about the EVO business, it's growing right in line with what we're expecting for Merchant to grow for the full year in the 9% -- the 8% to 9% range, and that kind of gets us to the core Merchant growth in that 8% range. So that's kind of how we're thinking about it and that's kind of the contribution as it relates to EVO in the overall business.

Operator:

Our next question comes from the line of Darrin Peller with Wolfe Research.

Cameron Bready:

And Darrin, I would just add two points maybe to wrap up that conversation. One is, obviously, we see a demand overall for embedded payments growing, not just here in the U.S. but globally. So clearly, as we think about how we're positioning our business and how we want to orient our go-to-market strategies and how we want to emphasize investment in the business, it's really going to be geared towards continuing to drive to be able to capitalize on that longer-term trend in the marketplace. It's point number one.

Tien-Tsin Huang:

Good, clean results here. I thought maybe, Cam, if you don't mind me asking the settlement on the credit side, and of course, [ that's going to ] change. I know there's no direct impact for you, but your thoughts on surcharging and what that might mean. And in general, could we see sort of this helping the pricing environment in general for you and the group?

Cameron Bready:

And then to your last question on...

Cameron Bready:

Yes, Capital One-Discover. Yes, not a lot more I can say, obviously, as we sit here today. The only comment I would make is largely consistent with what we said previously, which is we have a long track record with Capital One, almost 2 decades now. We just renewed our agreement with them on a multiyear basis.

Operator:

Our next question comes from the line of Dan Perlin with RBC Capital Markets.

Cameron Bready:

Yes, Darrin -- sorry, Dan, it's Cameron. I wouldn't say -- I don't know that I would call it out as a surprise so much as it's more macro driven in the sense that the macro is probably on balance a little more constructive than we would have anticipated kind of coming into the year.

Daniel Perlin:

That's great. Just a quick follow-up on, I guess, really balancing cost synergies and then the investments that are necessary. So those -- there seems to be a lot of questions around how much investments you guys have to make in kind of the current period, in '24, in particular, to achieve some of the revenue growth targets that you've set out, and this is true for kind of EVO, but also just overall in Merchant.

Cameron Bready:

Yes. I mean, I can't -- I don't want to get too far ahead of myself as it relates to 2025 and beyond. But I would start by saying we're always sort of balancing kind of our desire to invest in the business and wanting to see, obviously, the benefits of the top line growth flow through to margin and margin expansion in the business. But we recognize the Merchant business' operating margins kind of in the high 40% level, which is a fairly attractive level of margin -- overall margin quantum for the business overall.

Operator:

Our next question comes from the line of Dave Koning with Baird.

Cameron Bready:

Yes, Dan (sic) [ Dave ]. It's a good question. I would say it's really hard to get into all drivers within the Merchants business just given the number of geographies we're in, the number of different lines of business we're in, et cetera.

Joshua Whipple:

No. What I would say is, again, I would follow kind of the same trajectory that you saw us coming out of the year. We saw 30 basis points of improvement coming out of Q4. So you expect them to be approximately flat in Q2. That's how I would shape it.

Cameron Bready:

And then, of course, to get to the overall guide for the year, they would be up in Q3 and up in Q4, kind of getting to that overall up 30 basis points for the full year period.

Operator:

Our next question comes from the line of Trevor Williams with Jefferies.

Joshua Whipple:

Yes. So what I would say is it's a bit of a balance as we think about the reinvestment into the business and the technology platform as it relates to those pieces of technology that are in markets that we're currently not in. So really, Trevor, it's a bit of a balance there.

Cameron Bready:

And Trevor, it's Cameron. The only thing I would add to that is, obviously, there are certain markets that EVO operated in that we did not when we acquired them last year. And we have a very, I think, deliberate approach in terms of how we think about availability, reliability and stability of the technology environments that we operate in these markets.

Cameron Bready:

Yes, I think that's a fair interpretation. I mean, the way I would position it is we think, if you exclude the impact of EVO, the nonanniversary portion of EVO, we're going to grow Merchant in that 7%, 8% for the year and I think we remain on track to do that. Obviously, there was a slight benefit in Q1 from leap year. That's not overly impactful in the grand scheme of things, but we're still squarely in that kind of 7%, 8% range for the balance of the year as we sit there today.

William Nance:

I think a lot of mine have been asked already, but Cameron, maybe I wanted to ask about the 30% increase in U.S. Merchant partners that you had in the slides today. Maybe you can just expand a little bit on that number and provide a little more context. I think there's been obviously a lot of focus around the integrated business and the rate of ISV additions in that business.

Cameron Bready:

Yes, happy to. So look, we have a variety of different partners in our business and I think it's important to kind of start with that overarching context. When we talk about new partners in the business, these are new relationships that we have in the business that generate incremental volume, incremental lead flow and incremental opportunity for our Merchant business going forward.

William Nance:

Got it. Super helpful. And then I think you also mentioned that you're starting to see some progress on the rollout of the revenue synergies in the EVO footprint.

Cameron Bready:

Yes. I think the areas of opportunity continue to be largely consistent with the things we've highlighted historically. One is bringing our capabilities, our solutions to the EVO markets that we were not operating in historically. And we see tremendous opportunity around GP POS, GP tom as well as our customer engagement suite, analytics and customer engagement platform and some of the other value-added solutions we can bring to bear on those markets. And we're already seeing good uptake in demand around that.

Operator:

Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.

Operator:

Ladies and gentlemen, thank you for standing by and welcome to Global Payments’ fourth quarter and full year 2023 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will open the lines for your questions and answers. If you should require assistance during this call, please press star then zero. As a reminder, today’s conference will be recorded. At this time, I would like to turn the conference over to your host, Senior Vice President, Investor Relations, Winnie Smith. Please go ahead.

Cameron Bready:

Thanks Winnie, and good morning everyone. We were pleased with our fourth quarter and full year 2023 results, which exceeded our initial expectations outlined last February. I am extremely proud of our teams around the world for their outstanding execution. Together, we accomplished a great deal in 2023. Starting with our financial performance, for the full year we achieved high single digit adjusted net revenue growth and increased adjusted earnings per share 12%. This includes a more than 400 basis point headwind from the divestiture of our Netspend consumer business, which we completed early in the second quarter. We also expanded adjusted operating margins 90 basis points, including the impact of EVO payments, which had a lower margin profile than Global Payments at the time of the acquisition. Importantly, we deliver this performance consistently throughout the year despite ongoing headwinds, including macroeconomic uncertainty, persistent inflation, FX volatility and geopolitical unrest highlighting the durability of our model. Strategically, we also made significant progress during the year executing on a number of key initiatives. First, we successfully closed the acquisition EVO Payments in March, which complements our strategy of providing further penetration into integrated payments, enhancing our B2B capabilities and expanding our exposure to stronger secular growth markets globally. Our integration has progressed quite well and we remain on track to deliver on our revised target of $135 million in annual run rate expense synergies within two years. While revenue synergies generally take longer to materialize, we are more excited today than when we announced the transaction about opportunities we have to cross-sell our products and capabilities into EVO’s existing customer base. We are continuing to invest in these opportunities in 2024 and expect them to scale more fully in 2025. Further, we completed the divestitures of our Netspend consumer assets and our gaming solutions business in April. These three transactions represent important milestones as we seek to advance our strategy and operate a simpler business model centered on our core corporate and financial institution customer base. In our merchant business, that strategy is spearheaded by a software-centric approach leveraging our strengths across our vertical markets, integrated and point-of-sale businesses, and we seek to drive distinction in our offerings by providing omnichannel capabilities and value-added commerce enablement solutions across our markets, including those that benefit from stronger payment digitization and secular growth trends. We continue to see good momentum in our merchant solutions as we execute these strategies. Starting with our vertical markets businesses, we had a number of notable achievements in 2023 across the portfolio. These include Xenial’s new partnerships to be the official commerce technology provider for both the Atlanta Braves and Atlanta Hawks as we look to further expand our market presence in the stadium and event venue vertical. In the United Kingdom, we renewed our relationship with Principality Stadium, home of Welsh rugby and football, and expanded our services with Wembley Stadium in London. We were also selected by leading food service management company, Sodexo, to be its preferred point-of-sale and kiosk partner, and are now the partner of choice for the three largest players in the food service management space. Our education solutions business delivered many new marquee customer additions across our K-12 and our university businesses and continue to expand to international markets with school solutions, launching MySchoolBucks in Australia, and TouchNet achieving new wins in Canada, Australia and the United Kingdom. Our active network business had a record bookings year, singing 839 new logos, including it largest ever win in the community vertical with the City of Toronto. Moving to partner and software solutions, we achieved record bookings in 2023 with new partners increasing 23% from the prior year. This was in part driven by the strong momentum we have seen with our new progressive payment facilitation, or profac model that we launched midyear. This hybrid option provides many of the benefits of being a payment facilitator while minimizing the heavy burden that comes with it. Profac is unique to Global Payments and we are delighted to have signed 16 profac partners to date who already have thousands of merchant customers using our payment solutions. Some notable new partners in our integrated business include 402 Ventures, a leading provider of auction software in the heavy equipment and machinery vertical; Autosoft, which provides a software management platform for auto dealerships; Black Knight, a leading provider of mortgages and loan origination software; and Inovalon, a leading data analytics ISD in the healthcare vertical. These trends, including the momentum we are seeing with profac underscore our confidence in our ability to maintain consistent growth going forward as our differentiated capabilities continue to resonate with the ISB market. As for the third leg of our software strategy, our point-of-sale software business delivered strong growth for the full year as we continue to see solid demand for our solutions and benefit from the releases of new product enhancements. Notably, our average revenue per unit continues to expand, up 9% year-over-year as more merchants are using payments and other add-on capabilities in our evolving POS platform, and of course this is prior to the full launch of our complete next-generation restaurant and retail point-of-sale software platforms, which we continue to expect this quarter. Lastly, our exposure to some of the most attractive secular markets globally remains a core element of our strategy, both in terms of contributing to our overall rates of growth and providing us the global footprint we need to support complex multi-national corporations. We continue to see good trends across our businesses in Spain and central Europe, each of which delivered high teens growth, and key new European markets entered with EVO, including Poland and Greece, and also achieved double-digit growth. Further, we have seen favorable secular trends in LatAm, where we meaningfully increased our footprint with EVO. This includes new implementations in Mexico with large customers like dLocal, DHL and Petro 7 as we leverage our partnership with City Betamex. Turning to issuer solutions, where we have longstanding relationships with some of the most complex and sophisticated institutions globally, we are proud to have completed 11 customer conversions in 2023. In total, we added over 50 million accounts to our business and ended the year with record traditional accounts on file of more than 800 million. We continue to have a strong pipeline of new business that extends into 2025, as well as eight letters of intent with institutions worldwide. In 2023, we achieved 13 multi-year renewals and new customer agreements. This includes a new contract with a leading U.S. bank that is a longstanding Global Payments merchant partner, a relationship that provided the foundation for the growth of our partnership to include issuer technology solutions. We also continued to expand into new and faster growth markets, including in LatAm through our partnership with CAT, the credit card joint venture between Scotiabank and Chile’s largest retailer, Cencosud. The confidence that many of the largest and most sophisticated complex financial institutions have with us is enhanced by our issuer platform monetization efforts, which positions us to provide our clients market-leading, cloud-native, real-time solutions at scale in more markets than we ever have previously. We have made substantial progress with our modernization with two clients now in production leveraging products via our cloud solution. Further, we expect to complete the development of our client-facing applications this year and are planning to execute dozens of unique cloud-issuer platform pilots spanning multiple services, products and geographies as we prepare for the commercial launch of additional cloud-native capabilities. Moving to B2B, we continue to see solid demand for our leading capabilities across our three focus areas

Cameron Bready:

Thanks Josh. As I said when I was named CEO in May, it’s an exciting time for Global Payments, and I could not be more proud of all we accomplished last year. As we begin 2024, I remain enthusiastic about the opportunities in front of us. We have a compelling technology-enabled strategy, a world-class team, great partners and clients, and a global presence with diverse distribution capabilities. This year, I remain highly focused on the priorities for our business and customers I outlined at the time I stepped into this role. First, we will continue to execute against our strategies, which positions us well for growth and success across our markets. We will, however, sharpen our focus on the most attractive opportunities we see in these areas while seeking to further simplify our business and amplify the impact of our investments. Specifically, we are focusing on the most impactful of these initiatives and where we can drive further differentiation in our business, including with our software-centric channels across our own, partnered and POS solutions. Additionally, we will continue to harmonize areas of the business that are less differentiated with an eye towards further improving scale and enhancing margin characteristics. Further, in markets and businesses where we are subscale with limited potential to build scale, we may choose to exit certain lines of business and activities in order to better focus our investments, resources and management intention on opportunities with better long term growth prospects that can more meaningfully impact our business. Second, I am focused on making it as easy as possible to do business with Global Payments while providing more solutions that deepen our relationships with our customers. We will continue to prioritize meeting our clients and customers how and where they want to be met with innovative and distinctive capabilities that integrate seamlessly. This includes our issuer modernization program and cloud investments, which will provide our clients with greater enablement capabilities and allow them to consume the services they need with greater speed to market and flexibility while providing best-in-class experiences for their cardholders. Third, we will maintain our relentless focus on execution, which has been one of the hallmarks of Global Payments and a key component of our ability to produce consistent results through market cycles. We are, however, undertaking an initiative to further simplify our technology and operating environments across the globe to become more efficient and effective, placing greater focus on aligning with business outcomes. We are committed to redefining success with a continuous improvement mindset and increasing the speed of delivery and nimbleness of our business. Fourth, we remain committed to harnessing the power of generative AI to both innovate new products and solutions that deliver value and improved experiences to our customers, and increase the productivity and efficiency of our operating environments and workforce around the globe. We have already made meaningful progress in our journey to embed generative AI into our business to leverage its power and the richness of its data in our ecosystem. We have established a center of excellence to coordinate our adoption of generative AI technologies and provide a governance framework, implemented foundational tools and models that are being utilized throughout our organization, evaluating numerous use cases and deployed generative AI technology in a number of areas of our business. For example, in our issuer solutions business, our Foresight solution in partnership with Featurespace provider a market-leading fraud solution that uses generative AI to detect fraud strategies in real time utilizing our proprietary data. Clients using this solution have realized a nearly 50% reduction in fraud losses, and we are evaluating a number of development opportunities that use generative AI across our issuing and acquiring businesses as a key component of our next-generation applications to further combat fraud and identity risk across our portfolios. Finally, I’m focused on ensuring Global Payments’ culture is second to none. Our culture dictates how we accomplish our goals and achieve results as an organization. Having a world-class culture will further differentiate us in the marketplace while driving value creation and benefit for all of our constituents. Winnie?

Operator:

Thank you. [Operator instructions] Our first question comes from the line of Jason Kupferberg with Bank of America. Please proceed with your question.

Cameron Bready:

Hey Jason, good morning, it’s Cameron. Thanks for the question - it’s a good question. The way I think about it is we exited the year at basically 8%, and as we said in our prepared remarks, our expectation for merchant for 2024 is 7% to 8%, kind of quote-unquote organic, obviously excluding the pick-up that we get from EVO in the first quarter before we anniversary the deal. To me, that really reflects, as we said, a slightly more tempered view of the macroeconomic environment, given that we do see some risk to the consumer as we head into 2024. That being said, to your point, if the consumer hangs in better than we would expect, I would anticipate us being towards the higher end of that range. Obviously if the consumer is a little weaker, as our guide sort of contemplates or at least allows for, I think at the low end, we might be towards the lower end of that range. I think the way you’re thinking about it is right and it’s consistent with how we’re thinking about it. We’re being a little bit cautious around the consumer heading into the year. Obviously a continued resilient consumer who doesn’t weaken at all will put us towards the higher end, and if we do see a little bit of softness, we think we’d be towards the lower end of that range. But again, we wanted to be prudent with our expectations around the consumer heading into the year.

Cameron Bready:

Yes, happy to. Maybe I’ll address the latter part of that question first, and then I’ll circle back to the front in a second. I think on the M&A front, as Josh mentioned in his prepared comments, we’re kind of back to a business as usual mindset heading into the year as it relates to capital allocation. As I’ve said pretty consistently, whatever we do or consider from an M&A perspective obviously has to fit strategically, it has to fit culturally and financially, it needs to be attractive as a returns matter relative to the alternative uses of our capital, and given that leverage is right around our targeted level right now and we expect it to be for 2024, the alternative use of capital is buying back our stock, so I remain of the view that anything we do from an M&A perspective needs to be competitive from a returns standpoint relative to our ability to buy back stock and the returns that we think we can generate from that. That’s true, regardless of whether we’re thinking about smaller deals that present nice tuck-in or enhanced capability opportunities, or we think of larger deals that obviously provide more opportunity for increased scale and advance the strategy as well. As always from an M&A perspective, we’re open-minded. I think we’re very deliberate, I think in terms of how we think about M&A that’s going to fit our strategy and the things we want to pursue, and we’ll continue with that mindset as we move forward in time, but I’ll be clear - the return expectation for M&A need to be competitive, and that’s how we’ll view everything through that lens. I think as it relates to your first question around potential portfolio pruning, there is some chance that that will be in the cards for 2024, yes. It’s not contemplated in our outlook currently today, but it is something that we’re continuing to evaluate, and it’s really in the context of making sure that as we think about investing in the business, that we’re investing in those areas where we have scale, we have differentiation, we have prospects to be able to continue to grow the business at attractive rates going forward, and trying to minimize investment, minimize resources and management attention that’s focused on markets that may be sub-scale, or a line of business where we don’t have particular differentiation and we don’t see greater prospects to meaningfully impact the business moving forward. That’s the way we’re thinking about it. Obviously if we make decisions around that, we’ll provide updates as we work through the year, but it is certainly something that we’re contemplating, as I noted in my remarks.

Cameron Bready:

Thanks Jason.

James Faucette:

Great, thank you very much. Wanted to ask in terms of your current competitive environment, I think, Cameron, you highlighted a lot of different things that you’re working on in areas of strength, but how do you generally assess the competitive intensity in the market right now, and where do you see opportunities versus challenges generally?

James Faucette:

Appreciate that. Then as a follow-up, and related to this year’s outlook, how should we be thinking about the targets, especially from a profitability standpoint vis-à-vis your cycle guide that was established a few years ago, and wondering the trajectory of that and how we should be thinking about medium term EPS targeted growth rates, etc. Thank you.

James Faucette:

Great, appreciate that. Good luck.

Operator:

Thank you. Our next question comes from the line of Darrin Peller with Wolfe Research. Please proceed with your question.

Cameron Bready:

Yes, a lot is buried in there, Darrin. Maybe I’ll start and ask Josh to chime in as well on a couple of the comments. I would just say on the first question, the answer is no from an M&A perspective. We did a small portfolio buy in Q4, but it’s de minimis in terms of contribution to 2024 - I mean, less than 10 basis points, so that’s not a particular large impact. We don’t have any other M&A included in our guide. Obviously if we do M&A, we’ll update at the time, as we have historically, and provide an expectation of contribution for whatever M&A we do as we head into 2024. On the second question, I think as it relates to the margin guide, I’ll just give a couple opening comments and then I’ll let Josh maybe provide a little more color. I’d say two things, really. One is--you know, I think we’re taking a fairly prudent view of the outlook heading into the year. We have a lot of things that we’re trying to accomplish as a business, particularly as it relates to EVO integration, as well as continuing to invest in the business in areas that we think are going to help drive growth and sustain growth over longer periods of time. I think like everything in life, it’s a bit of a balanced view around how much of the benefit is flowing through margins to the bottom line versus how much we’re reinvesting in the business to support the rollout of our new POS platform, obviously to ensure that we execute integration of EVO seamlessly, effectively while we continue to invest in their underlying platforms to ensure stability and reliability. We continue to invest in bringing new product and capability to their markets, which we think will drive revenue obviously longer term, etc. I think the view around margins is pretty balanced around, again, wanting to invest in the business to drive growth as well as allowing some of that to flow through to the bottom line, to impact earnings. The last point I would make, and I’ll ask Josh to add any color he would like, is if you exclude the impact of EVO, which obviously is still coming in at a lower margin profile, I think overall margins for the year would be up closer to 75 basis points and merchant would be closer to 60. I’ll just remind you, that’s off of a base for merchant of 48%, so margins are fairly healthy in the business overall. We’re focused on continuing to find opportunities for market expansion, again while also continuing to find opportunities to invest to grow the business. Josh, I don’t know if you’d want to add anything to that?

Darrin Peller:

That’s really helpful. Just quickly on the buyback question, I mean, is this--it looks like you raised your authorization, if I’m not mistaken, so is this an indication of more capital returning expectations going forward?

Darrin Peller:

Great.

Darrin Peller:

Thanks Cameron, thanks guys.

Ramsey El-Assal:

Hi there, thanks for taking my question today. Could you help us think through the timing and magnitude of the contribution from the Commerzbank JV this year? Will it ramp quickly? Does it--you know, how much is baked into guidance, basically, from that deal?

Ramsey El-Assal:

Got it, great. Sounds like a great new channel. A follow-up from me, could you update us on the U.K. business and just let us know if you’re seeing stabilization there on the macro or consumer spending front, and I guess in the context of takepayments chatter, do you have the product capabilities that you need over there to compete effectively at this point?

Ramsey El-Assal:

Great, thank you.

Dave Koning:

Yes, hey guys, thanks. I thought one of the really encouraging parts of the quarter and just the guidance is free cash flow conversion. Not many companies are guiding to around 100% conversion. Can you discuss that a little bit - you know, what about your company converts so well? Kind of a pairing with that question, you’ve had semi-high merger add-backs, although they’ve come down the last few quarters. Are those going to go down pretty significantly in 2024?

Dave Koning:

Thank you, and maybe just a quick follow-up on the pace through the year of earnings. It sounds like once you anniversary Netspend and anniversary EVO, both revenue and EPS can accelerate a little bit, given just the profiles?

Dave Koning:

Great, thank you.

Bryan Bergin:

Hey guys, thank you. Good morning. Want to dig in on the merchant growth guide first. Are you expecting volumes to be generally in line with the forecast you have? Just any comments on additional potential lift from pricing in that view, and are you forecasting that merchant growth level in the balance of the year after EVO and the gaming sale to be generally level?

Bryan Bergin:

Okay, I appreciate that. A follow-up on the vertical solutions business. As you think about potential investments, where may you have further interest to lean in, where you aren’t currently exposed?

Bryan Bergin:

All right, thank you.

Andrew Jeffrey:

Hi, good morning. Appreciate you taking the questions. Cameron, I love the build-up the growth rates in merchant and the focus on software and technology broadly. Can you talk a little bit about--again, the macro aside, maybe a couple levers that might accelerate merchant organic revenue growth, or longer term, and again I want to stay away from cycle guide, but just theoretically, conceptually, is there the capacity to accelerate top line, how do you do it, and how much of a sense of urgency is it versus just compounding what is a very nice rate today? Just trying to think about that longer term.

Andrew Jeffrey:

Okay, I appreciate that, it’s helpful. Then just a quick one to follow up, it looks like yields within the issuer business have been pretty stable. Can you just comment on renewal terms - you called out a couple big customer renewals, I just wonder if pricing is stable or what the trends are there.

Andrew Jeffrey:

Thank you very much.

Operator:

Thank you. This concludes today’s conference call. You may disconnect your lines at this time. Thank you for your participation.

Operator:

Ladies and gentlemen, thank you for standing by and welcome to Global Payments Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will open the lines for questions-and-answers. [Operator Instructions]. As a reminder, today’s conference will be recorded. At this time, I would like to turn the conference over to your host, Senior Vice President, Investor Relations, Winnie Smith. Please go ahead.

Cameron Bready:

Thanks, Winnie and good morning, everyone. Thank you for joining us today. We delivered strong third quarter results that were ahead of our expectation, despite what continues to be an uncertain macroeconomic environment and a much stronger dollar than forecasted when we provided our outlook back in August. I am very proud of this performance and our teams globally for their ongoing consistency of execution. On a consolidated basis, we reported 9% adjusted net revenue growth and adjusted earnings per share growth of 11% for the quarter. This includes a roughly 700 basis point headwind to adjusted earnings per share growth from the divestiture of Netspend consumer assets, which we completed last quarter. We also expanded adjusted operating margins by 50 basis points. Focusing first on our Merchant Solution segment, we again delivered strong organic growth in the third quarter, consistent with our second quarter performance, driven by ongoing momentum in our technology enabled offerings, which collectively represent roughly 65% of our total merchant adjusted net revenues. Our software centric businesses across our partnered, owned, and POS strategies continue to drive a meaningful share of growth in the business. Starting with our integrated business, we achieved strong growth in record new bookings again this quarter, signing 16 new integrated partners, a 33% increase from the prior year. These booking trends underscore confidence in our ability to maintain consistent growth in this business going forward, as our differentiated capabilities continue to resonate with the ISP market. Our new Progressive Payment facilitation, or profac model is a prime example of our leadership in this channel. We signed six new profac partners in the third quarter and have more than 20 additional opportunities in the pipeline, reflecting strong demand for this new offering. We also saw a strong double-digit performance in booking trends this quarter across our own vertical market software businesses. Zego, our newest addition to this business continues to see solid demand for its solutions, with bookings growth of 15% in the quarter. Notably, Zego also expanded the scope of existing partnerships to include additional payment solutions with global real estate management firm Harbor Group and multifamily management company, Respond, while furthering its expansion in the student housing vertical by signing an additional partner, Domus Student Living. An active network had one of its best booking quarters since the pandemic, including new partnerships with YMCA of Vancouver, Alterra Mountain Company, the New York Triathlon, and the Sydney Half Marathon. Additionally, our university business, TouchNet, signed a new partnership with the college in Vancouver and extended the relationship with the Texas State University system. As for our POS software business, we again delivered 20% plus growth in this channel as we continue to see strong demand for our solutions and benefit from releases of new product enhancements. Collectively, adjusted net revenue for our POS business is approaching $400 million annually and is one of the fastest growing channels of our business. Today, we offer complete cloud based POS software in commerce enablement platforms targeting three distinct segments of the market with solutions that are purpose built for key verticals, primarily restaurant and retail. We focus on these verticals for several reasons. One, they are large addressable markets. Two, they are international in scope. And three, because more and more payment decisions are being made in connection with the point of sale in these markets. Our POS solutions are used by over 80,000 merchant locations globally, enabling businesses of all sizes, from SMBs to enterprise customers, to run and grow more effectively. Our products easily scale from simpler solutions for a single location to complex environments for large merchants with multi-unit and multinational requirements. Across our POS platforms, we seamlessly combined software, hardware, and payments for in-person mobile and online environments, providing for great customer experiences. And we deliver all this and customized configurations that specifically addressed the unique software and payment requirements of our customers. Our solutions are designed to grow with the customer's business. We leverage a common technology stack that enable customers to easily add functionality as they expand. This allows us to serve the small end of the SMB market and scale with merchants, increasing software revenue along the way. Importantly, this differentiates us from many of our competitors who attempt to address small and large and general and vertically specific used cases with the same single offering. And we couple our complete commerce enablement solutions with distinctive distribution and full local service and support that is unrivalled in the market. Our entry level product or general purpose cloud based point of sale solution is branded GP Pause. This offering provides a highly competitive starter solution for SMB customers who want a simple and intuitive system with a robust feature set. GP Pause delivers an expansive set of mobile POS capabilities and commerce enablement tools. These features can be tailored to the specific requirements of the merchant business on the vertical market and geographies they serve. Importantly, GP Pause is essentially self-service from beginning to end. From onboarding to full configuration of the functionality, a merchant can easily enable our software and begin accepting payments in less than 24 hours. We offer GP Pause globally through a variety of regional and wholesale distribution channels. In the last year, we successfully launched our GP Pause technology in numerous international markets, including Canada, the UK, Spain and Central Europe, and expect to further expand to Poland, Germany and Ireland over the next 12 to 24 months. We couple our innovative GP Pause solution with local presence and support capabilities, as well as our long standing FI partnerships in these markets. A powerful combination our competitors simply cannot replicate. In North America, we have distinct, vertically specific restaurant and retail focused, cloud based POS solutions Heartland Restaurant and Heartland Retail. We leverage our Heartland direct channel to target SMB and mid-market customers with these solutions. Typically, those serving 2 to 20 locations but can scale to customers with significantly more locations. The vertically fluent capabilities we offer customers include mobile POS and Pin on Glass solutions, guest and table management, ordering kitchen management, pricing matrices, discounting functionality, cash discount programs, predictive analytics, AI driven marketing and loyalty programs and human capital management and payroll solutions. And we deliver this seamlessly as a cohesive commerce enablement platform, all from the point of sale. Our solutions also offer open architecture and have integrations with dozens of software partners, which allows our customers to enable various delivery services, accounting applications, inventory management software, and other disruptive technologies, again, all accessible at the point of sale. We have two primary distribution channels for these solutions in North America. The first is our local dealer network, representing nearly every major metro market in the U.S. and Canada, where we have over 300 partners who provide sales, support and service. The second is our local sales professionals across the U.S. and Canada, who are solution-oriented domain experts and serve as relationship partners to our customers. We have seen strong growth in our Heartland POS software solutions and expect the momentum to continue on the heels of the launch of our next generation offerings in early 2024, which will deliver an improved user interface and more intuitive experiences across our iOS and Android based solutions. Our Next Gen POS is also designed to be mobile first, allowing for a best in class, omnichannel experiences. Completing our suite of POS capabilities, we have solutions for specific vertical enterprise customers, which have the most complex requirements in operation and technical environments. At this end of the market, we offer our Xenial Cloud POS enterprise solution, offering scalable, secure and real time services for the world's largest quick service restaurants, food service management companies, and sports and entertainment venues. The Xenial POS ecosystem provides an API-first approach to in-house and partner integrations for the most sophisticated enterprise customers. Whether supporting a multi-lane drive-through, QSR, or a large sports arena, Xenial provides the complete technology stack required to run these operations all fully integrated at the point of sale. This includes dynamic digital menu boards, kiosk and mobile ordering solutions, kitchen management solutions, AI based drive-through solutions, and customer engagement to name a few. And we are proud that Xenial is also leading the way in delivering the drive through of the future technology for its enterprise QSR customers. We are proud to serve 26 of the top 50 QSR brands with our technology on a global basis. With respect to entertainment venues, Xenial operates the food and beverage suite and retail environments for some of the most complex stadiums in the world. In these environments, food service management providers rely on our technology to deliver best in class customer and fan experiences. We currently serve almost 100 stadium and event venues with our solutions globally. We went in the market by solving complexity for our customers, whether that is multi-unit requirements or multinational expansion, or the convergence of physical and virtual environments. From delivering core feature functionality required by small merchants by a mobile solution, providing greater levels of functionality in a simple register to a full featured software platform, we provide our customers with the ideal point of sale technology tailored to their specific needs. And we couple our best in class commerce enablement capabilities with more distinctive and diversified distribution streams and service at scale worldwide that our competitors really can't match. As a result, we remain very enthusiastic about the growth prospects for our POS business globally moving forward. Speaking of our global reach, it is worth noting that we achieved strong double-digit growth in Spain and throughout Central Europe in the quarter, while Poland, Greece, and Ireland, which we entered via our acquisition of EVO, were also bright spots in Europe. We're also excited to announce a new agreement with the International Parking Group to support payments for a Smart Parking Solutions on an omnichannel basis across the UK and Ireland, as well as the U.S. and Canada. In Asia Pacific, we are thrilled to have recently signed a new partnership with Marriott International and will begin offering seamless omnichannel solutions this quarter in select hotel locations across the region. Turning to issuer, we achieved mid single-digit growth consistent with our expectations and longer term targets once again this quarter. Transaction growth remains strong throughout the quarter, led by our commercial business, highlighting ongoing improvements in cross-quarter corporate travel. Traditional accounts on file increased by approximately 11 million sequentially as we continue to benefit from strong growth with our existing large financial institution clients in the ongoing execution of our conversion pipeline. This quarter, we successfully completed conversions of two new portfolios acquired by large existing FI partners through M&A, further supporting our strategy of aligning with market share winners. Further, we recently completed the migration of the first wave of accounts for a leading U.S. retailer for one of our largest partners as part of a co-branded relationship. And early this month, we migrated CAD, the credit card joint venture between Scotiabank and Chile's largest retailer, Cencosud, representing our first issuer customer in the market. We are also pleased to have reached a new issuer processing agreement with a leading U.S. bank during the third quarter. This FI is a long-standing Global Payments merchant partner, and the strength of our relationship provided the foundation for expansion of our partnership to include our leading Issuer Technology Solutions. Notably, this partner will also leverage our next-gen analytics platform via the AWS Cloud, as we continue to see great progress with clients enabling our modernized services. We also signed a multiyear extension with two large-standing FI partners during the third quarter. Shifting to B2B, we continue to drive strong growth with both corporates and financial institutions as we leverage our capabilities across software-driven workflow automation solutions, money in and money out funds flow capabilities, and our broad suite of employer solutions. Starting with workflow automation, MineralTree subscription bookings for its AP automation software increased an impressive 86% year-over-year this quarter. We are also pleased to have successfully integrated EVO's PayFabric software into our merchant business, which provides our new and existing U.S. customer greater AR automation capabilities. Regarding B2B funds flows, as we discussed last quarter, virtual card option continues to expand, contributing to the strong growth in commercial transactions. We're also seeing an acceleration in virtual cards being tokenized and provisioned in mobile wallets, which is further catalyzing growth. Additionally, our B2B bookings in Merchant Solutions doubled in the third quarter relative to the prior year while new merchant B2B payments volume increased by more than 50% from last year as we continue to progress the EVO integration and harmonize our go-to-market strategy. Moving to Employer Solutions, our PayCard business signed a new partnership with hospitality staffing firm, Exclusive Services, and renewed its existing relationship with Flynn Restaurant Group, the largest restaurant group in the U.S. We also achieved a new EWA partnership with KFC franchisee JRC Restaurants. Lastly, our software-driven human capital management and payroll solutions business delivered growth of more than 20% in the third quarter. B2B offers an attractive growth opportunity for our business and represents a core element of our strategy going forward. As we continue to unify our offerings in this space and refine our strategy, we expect to continue to capture share and accelerate growth in B2B over the long-term. With that, I'll turn the call over to Josh.

Cameron Bready:

Thanks, Josh. We continue to see strong momentum in our business and consumer spending has remained resilient over the course of the year. Although labor trends remain quite strong, we are monitoring the impact of rising rates resulting from monetary policy decisions globally, elevated inflation, and of course geopolitical risk from the ongoing situation in Europe and recent events in the Middle East. We are confident we have built a better and more durable business model, which positions us well to manage through any environment if the current backdrop changes. I am pleased with all that we have accomplished this quarter and for the first nine months of 2023, as we continue to advance our strategy and maintain strong execution throughout the business. We have the very best team members providing the very best experiences for our customers, with the very best technologies in the most attractive markets globally. Together, we are positioned to deliver strong operating and financial performance while remaining at the forefront of innovation. Winnie?

Operator:

Thank you. [Operator Instructions]. Our first question comes from the line of Ramsey El-Assal with Barclays. Please proceed with your questions.

Cameron Bready:

Yes, Ramsey, it's Cameron. Good morning and thanks for your comments. I'll kick it off, and I'll ask Josh to add any color that he would like to. So if you look across the portfolio today, I would characterize the business mix we have, it's pretty well diversified across discretionary and non-discretionary verticals. Without putting a specific point estimate on each, it's roughly split evenly between discretionary and non-discretionary. I think today, we're probably exposed to over 70 different vertical markets, and we have good diversification again across the overall merchant business domestically here in the U.S. and in our international markets as well. I think if you look at the overall economy today, we are seeing better trends in the non-discretionary categories. I would say, however, we are seeing vertical markets like restaurants continue to hold up well. And certainly, it's an experience-driven economy as we sit here today. So certainly, areas that are more focused on providing experience to the consumer are trending better than what you see across broad-based retail. But by and large, I'd say, as we said in our prepared remarks, the overall level of consumer spending, I think, remains pretty resilient across the board.

Cameron Bready:

Yes, I think my perspective on that, Ramsey, is any time the cost of acceptance goes down for our customers, it's a good thing for our business. So certainly, lowering the cost of interchange for our merchant customers is a positive for the business. Generally, much of our portfolio is passed through pricing, so interchange plus pricing, where those benefits would immediately get passed on to merchant customers. And what we've generally seen over time is where it's not, the market will sort of compete away that benefit over a period of time. So there may be a short-term sort of blip around it. But generally, what we see is that benefit to interchange would ultimately get competed away in the market over some period of time.

Operator:

Thank you. Our next question comes from the line of Darrin Peller with Wolfe Research. Please proceed with your questions.

Cameron Bready:

Yes, Darrin, good questions both. So I would say the drivers continue to be what we've talked about throughout the course of the year. Our technology-enabled businesses continue to perform really well. They are the tip of the spear for growth in the business. I'll highlight our POS, which obviously, we spent a lot of our time in our prepared remarks talking about today. We continue to see very good momentum, 20% plus growth in that channel again this quarter. And again, we're very enthusiastic about the future of that, particularly as we begin to roll out B2 of our restaurant and retail platform through the Heartland channel as we get into 2024. So we're very bullish on the outlook for that business over a longer period of time. Integrated continues to be a very strong performer as well. Consistent growth this quarter as to what we saw in the Q2 time frame. And again, our vertical market businesses continue to grow in the low double-digit pace as we continue to see good strong demand for our software solutions and continue to monetize payment flows around that pretty effectively. So I think if you step back and look at the business, the themes are very consistent kind of Q2 to Q3, and we expect that to be the same as we get into Q4. I think as it relates to the second part of your question, and I think much of what you're seeing kind of flowing through right now is really the impact of EVO to some degree, because they really just sold payments, so their revenue is more directly tied, obviously, to just the level of payment volumes in the business. As we bring more value-added services to the business, as we sell more software on our own Global Payments channels, obviously, we think there's opportunities for more elevated growth in revenue relative to the growth of volume that we see through the business over time. So I think that long-term macro trend remains in effect. But certainly, there are investments that we're going to need to make in the business to be able to deploy a lot of the value-added services, software capabilities we have through the EVO channels, which will be a tailwind to kind of driving that revenue growth. It may be decoupling slightly from the overall level of volume growth that we see in the business but I've said many times, I want those two trends to obviously correlate very highly. I think they should correlate highly. Our goal with software is to monetize payments. So as we're doing that, we should see uplift in payment volume even as we're selling more software in the business. So I wouldn't expect radical departures but obviously, to your point, there is opportunity, I think, to continue to drive more non-volume-based revenue growth in the business, and you should see that play out over a period of time.

Cameron Bready:

Yes. I think -- look, I think in the issuer business, it really boils down to the feature-rich capabilities that we bring to bear on that market. That really are distinctive relative to what other competitors can provide. And it also aligns with our strategy of picking market winners and trying to grow with market winners. There's a lot of business we can do in the issuer space. I would say historically, we've really tried to focus our efforts and lean into those relationships with partners that have good strategies in the market where they're growing and winning. So obviously, as they succeed with their own business strategies, we obviously benefit from that as we look to grow and scale our issuer business as well. So I think it's just a combination of having fantastic capabilities, feature-rich functionality, and a good strategy of aligning ourselves with market winners that we see continue to play out in that business.

Cameron Bready:

Thank, Darrin.

Ashwin Shirvaikar:

Hey, congratulations on the quarter and the consistency, appreciate it. I guess I wanted to ask, Cameron, just given your commentary up top with regards to the POS stack and software and such, what is the appetite for tech-heavy solutions across the globe, we kind of know what the appetite is here in North America, but are you finding incremental interest in that higher penetration in parts of Europe, because I think that's the other part of the European volume comments that you had, so I appreciate any comments you have there?

Ashwin Shirvaikar:

Understood. And then I do have to sort of go back to the stock nine times earnings. Use of capital at these levels does become sort of interesting question, because I would imagine you need to have a very high return bar on an acquisition or any kind of M&A to prefer that to buying back your own stock. How are you thinking, just heading into 2024 when you kind of hit your leverage targets and such, about capital return and use of capital?

Josh Whipple:

Yes. So Ashwin, great question. I think as you think about the balance of the year here, we're focused on paying down debt. That's as Cameron mentioned, I think as we go into 2024, we'll get back on a normal capital allocation strategy where we'll focus on balancing reinvestment in the business and returning capital to shareholders. What I would say is that from an overall M&A perspective, I would say, our pipeline is very, very full. We're continuing to go ahead and build that pipeline. But there is a balance as it relates to returns, a balance between M&A and buying back our own stock. So that's something that we'll closely monitoring. And at these levels, it's something that we'll focus on.

Cameron Bready:

Thanks Ashwin.

Jason Kupferberg:

Good morning guys. Wanted to start on the merchant side of things. Can you tell us what the organic volume growth in the quarter was relative to the 9% revenue growth there and for Q4, are you thinking a similar organic revenue growth rate as the 9% you saw in Q3? Thanks.

Jason Kupferberg:

Okay. And on the issuer side, I wanted to come back to that new U.S. client that you mentioned having won that was already working with you on the merchant side of the business. Any color you can just give us in terms of accounts on file, is this a needle mover for you, and when do you expect to convert that new win?

Jason Kupferberg:

Thanks Cameron.

Operator:

Thank you. Our next question comes from the line of Dan Perlin with RBC Capital Markets. Please proceed with your questions.

Cameron Bready:

Yes. Good question, Dan. I'll start and ask Josh to chime in as well. So I think those comments were really with respect to, obviously, our guide being able to accommodate a macro environment, excuse me, that is probably less constructive than what we've seen over the course of Q3 and what we've seen in October. I called out in my prepared remarks the things that we're obviously focused on globally as it relates to the macroeconomic environment. Clearly, the impact on a monetary policy decision increases in rates and how that manifests itself through the various economies we operate in around the globe. It's something that we continue to monitor very closely. Inflation remains stubborn, although we had a pretty decent print in Europe this morning. Overall, inflation still is trending kind of above expectations for most federal banks around the globe. And obviously, that's something that we continue to monitor, obviously, closely tied to monetary policy and what decisions may be made over the coming months. And then certainly, on the geopolitical front, we continue to monitor and watch the situation in Europe that has extended now well over a year. And obviously, the recent events in the Middle East, which are horrific as it relates to the terrorist attacks. Israel and then the resulting obviously war that is now developing in that region. Those are things that we're monitoring very, very closely. Obviously, as Josh said in his comments, October trends looked just like Q3, which is a positive, I think, from our perspective. But there is uncertainty out there and part of our job is to monitor that uncertainty and make sure we're positioning the business appropriately in light of what we see from a macroeconomic perspective. Josh, I don't know if you'd add anything to that?

Daniel Perlin:

That's helpful. Just a quick follow-up, I don't know maybe it's kind of a bigger picture question, but when you think about your ability to drive noncyclical growth, so to speak, in an environment where the consumer may weaken. Like how do you think about your ability to be able to manage that and balance it, noncyclical in this case could also be just like share gain or the new rollout of POS or things of that nature, I'm just trying to kind of gauge the ability for you to manage that? Thank you.

Josh Whipple:

And the only other thing I would add is that from a macro perspective, if you think about our business, it's incredibly versatile. As Cameron mentioned earlier, we do business across 70 different verticals. We have a physical presence in 41 countries around the globe and do business in 170 different markets. So I think the diversification of our business really creates that durability and stability that we're seeing currently.

Operator:

Thank you. Our next question comes from the line of Trevor Williams with Jefferies. Please proceed with your questions.

Cameron Bready:

Yes, it's a good question, Trevor. I think, obviously, as a sensitivity matter, the issuer business is less macro sensitive than the merchant business kind of by definition given the revenue construct of that business and how we go to market from a commercial standpoint. So I do think there's arguably greater durability. Obviously, less upside, of course, as we've seen through different cycles with the issuer business but more downside protection, more durability through softer macro environments in the issuer business. I would say, look, we target that mid-single-digit growth level in that business given where we are currently. I think we feel good about the prospects of continuing to deliver on that level of growth in the business over the short to medium term. Naturally, the investments we're making in that business are designed to drive higher levels of growth in the business over a longer period of time. So as we continue to execute on our modernization program, we continue to nativize existing core feature functionality and capability in the AWS cloud environment, and we continue to obviously sell that and bring more customers into our issuer environment. Our hope is that we can obviously improve the outlook from a growth perspective in that business over a long period of time. But sitting here today, I think the execution that we've seen, the pipeline that we have, the underlying trends we're seeing in the business gives us confidence around the ability to kind of sustain that mid-single-digit growth level heading into the next couple of years.

Josh Whipple:

Yes, let me start with Merchants. So if you go back in Q2, Merchant margins were down about 170 basis points. And then we saw some -- we saw improvement, obviously, going into Q3 was down 90 basis points as we go ahead and continue to ramp in synergies. And for Q4, we expect it to be roughly flat margins for Merchant. And as we said before, we expect a modest decline for the full year in Merchant. Issuer, year-to-date, we've seen margins expand 170 basis points, really a great trajectory. If you go back to Q1, 80 basis points of expansion, 300 basis points of expansion in Q2 and then 110 basis points of expansion in Q3. And if you recall on the Q2 call, I said that issuer margins would be in the high 46% range, and we delivered margins of 47.5% in the issuer business. And we expect those to be similar in Q4, and so I would say issuer margins will be more than 60 basis points for the overall full year. So that's kind of where we're thinking about the overall margin profile of the business. And as we -- as I said in my prepared remarks, we reiterated total company margins of up to 120 basis points for the full year.

Operator:

Thank you. Our next question comes from the line of Bryan Keane with Deutsche Bank. Please proceed with your questions.

Cameron Bready:

Yes, Bryan, it's Cameron. I'll kind of kick it off. I would say maybe just to your latter point first, I do generally think about bookings as a little bit separate from the overall macro environment. Largely because we're not focused on that small end of the market that's going to be more impacted, I would say, by the overall macro as it relates to small business creation in new business development. We're more focused on, I would say, the upper S in the mid-market opportunities, where those businesses, by and large, are going to be less impacted by the macro environment, so to speak, as -- from a formation standpoint. So I think as it relates to the overall booking trends we're seeing kind of across the business, we remain very pleased with the level of performance. We called out a couple of highlights on the call this morning around the Zego booking trends that we've seen. Obviously, our POS bookings remain very strong as well. So overall, across the Merchant business, bookings are in the double digits, which gives us good visibility around new business that's going to be coming into, obviously, our environments over the course of the coming months as we install those merchants or install those software customers into the business. So I think the outlook, as it relates to, obviously, new business remains very strong as we sit here today. And retention levels remain very consistent. We've seen very stable trends around retention kind of through the course of 2023. Even as I think businesses have become more attuned to the cost side of their business with inflationary pressures and whatnot, we've been able to sustain consistent levels of retention in the business, which obviously sets up for why we've been able to see such a consistent level of revenue performance over the course of the year as well.

Josh Whipple:

Yeah, so Bryan for the quarter, EVO was approximately $165 million. There's obviously -- seasonally, that's a higher quarter for EVO and we're still trending right around that $490 million of adjusted net revenue for the Merchant business that we talked about on the prior call.

Bryan Keane:

That’s great. Thanks so much.

Operator:

Thank you. Our next question comes from the line of Will Nance with Goldman Sachs. Please proceed with your questions.

Cameron Bready:

Yes, Will, it's Cameron. It's a very good question. And I think much of this sort of reflects back on the comments that I made in our Q2 call as to what attracts ISVs to this particular model. And as I described at that time, it's all the benefits really a payment facilitation without level the pain, I would say, being a payments company. And I think the types of ISVs and partners that we see attracted to this particular model, and this is spanning a number of different vertical markets, most ISVs today have monetized payments in some form or fashion, some better than others, of course. But I think it's, again, typically ISVs that have some specific boarding requirements and need more control over the boarding experience itself, and have some specific funding requirements as well to kind of support the customer base that they target in the marketplace. And so these are ISVs that otherwise might be good candidates for payment facilitation, but in many cases kind of lack the scale, lack the payments expertise to be able to become a true registered payment facilitation entity. So as we talked about at the time, we think this Profac model kind of hits a sweet spot in the market around, obviously, demand for payment facilitation capabilities and tools. But obviously, there's only a subset of ISVs that I think really have the scale and capability to become registered payment facilitation entities over a period of time and to do that very successfully and monetize payments at a very high level. So as we called out on the prepared remarks, obviously, six wins in the quarter for that new solution. We've got over 20 in the pipeline now that are very attractive opportunities for us, ISVs of all different sizes, all different vertical markets. The commonality is really around that boarding experience that they're looking for as well as specific funding requirements they may have, and in understanding that it's difficult for software companies to become payments companies. And obviously, the Profac model tries to solve for that. And I think it does it very well.

Cameron Bready:

Yes. It's a good question, Will. We tried to call out over a long period of time, there's never going to be sort of exact correlation between any particular acquirer, sort of mix of business and what the networks represent. The networks represent the market more broadly as it relates to the brands that they serve in the marketplace. So there's always going to be differences between their fundamental performance and what we're seeing in our business. I think as it relates to our volume, we've seen consistent trends kind of Q3 through October as we called out in our prepared remarks today, there's reasons that the networks may be saying something different in their business. They've got travel comps than we may have in our business. And generally, they may have more fuel exposure in their business than we have in our business. So I think that's one thing that they called out as a reason for volume slightly ticking down in October relative to Q3 performance in their underlying businesses. So there's always going to be some degree of difference between what we're seeing in underlying trends and what the networks may be seeing as well.

Operator:

Thank you. Our final question this morning comes from the line of Tien-Tsin Huang with J.P. Morgan. Please proceed with your questions.

Cameron Bready:

Yes, really good question, Tien-Tsin. So as we called out in our prepared remarks earlier, in the U.S. market we go to market through a dealer channel, which is about 300 dealers that cover most of the major markets across the U.S. and Canada as well. And then we have somewhere in the neighborhood of, call it, 1,700 sales professionals who either can sell POS directly or refer POS sales into a specialist who can sell that. So we've tried different combinations as go-to-market from a sales and distribution matter around selling more software. We typically have gone to what I would call somewhat a hybrid model, where we do certify certain RMs to be able to sell POS capabilities. They have to be certified to sell those into the marketplace. But we allow all of our sales professionals, and we compensate them, of course, as well to refer business into those specialists as well. So that relationship, I think whether it's payroll or whether it's point of sale, I think that distribution model has served us well. And I think, generally, it's a good model for us to continue to leverage as we move forward, which means we have lots of distribution, obviously, to be able to push product through in North America. In markets outside of the U.S., I would say the point-of-sale system that we talked about, GP POS, is a little simpler solution. It's easier to sell. It's less complex. So generally, we can push that through the various distribution channels that we have as well as through FI partner distribution as well in international markets in which we operate. So there's really good distribution, I think, capability for us being able to sell our point-of-sale capabilities over time. Obviously, a more sophisticated sale is going to require a more specific specialist who focuses exclusively on POS sales. We're at the smaller end of the market. Most of our sales professionals are going to be able to sell our GP POS solution.

Cameron Bready:

Thanks Tien-Tsin. And that concludes our call for this morning. I want to take a moment just to thank you for your interest in Global Payments, and thank you for joining us today. I hope everyone has a happy Halloween. Take care.

Operator:

Ladies and gentlemen, thank you for standing by, and welcome to Global Payments second quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will open the lines for questions and answers. If you should require assistance during this call, please press star then zero. As a reminder, today’s conference will be recorded. At this time, I would like to turn the conference over to your host, Senior Vice President, Investor Relations, Winnie Smith. Please go ahead.

Cameron Bready:

Thanks Winnie and good morning everyone. It is a privilege to be addressing you today for the first time as Global Payments’ CEO. I have been in this role for roughly two months and am delighted with how my tenure has begun. The transition has been seamless, as expected. Our organization and team members continue to execute at a very high level, as evidenced by the outstanding second quarter results we reported this morning. Our performance for the quarter was ahead of our expectations despite what has been an uncertain macroeconomic environment globally, driven by the effectiveness of our strategy and ongoing relentless focus on execution. On a consolidated basis, we reported 7% adjusted net revenue growth while expanding adjusted operating margins 100 basis points and delivering adjusted earnings per share growth of 11% for the quarter. This includes a roughly 400 basis point headwind to adjusted earnings per share growth from the divestiture of Netspend’s consumer assets. Focusing on our merchant solutions business, we again delivered strong organic growth in the second quarter led by ongoing momentum in our technology-enabled businesses. Our software-centric strategy with an overlay of leading ecomm omni capabilities in value-added commerce-enablement solutions continues to drive our performance, and our ability to deliver these solutions across a diverse and attractive set of geographic markets worldwide further differentiates our business. Software sits at the heart of our merchant solutions business and is supported by a three-legged go-to-market integrated payment strategy spanning our partner ISV, vertical market software, and point of sale software businesses. Collectively, these businesses comprise approximately 40% of our merchant solutions adjusted net revenue and are contributing a meaningful share of the growth in the business. In our partnered ISV channel, or integrated business, as we often refer to it, we continue to deliver consistent teams growth and again achieved record sales this quarter, surpassing last quarter’s strong performance. We signed 33% more integrated merchants this period than in the second quarter of 2022. We have a long history of success in our partnered ISV business and continue to gain share despite this becoming a more crowded market over the last several years. Against that backdrop, it is important to highlight why we continue to grow and win in this space. First, we have developed a more streamlined and simplified offering for partners with the options they desire, allowing us to meet both them and their merchants where and how they want to be met. The ISV landscape has changed significantly in the last five years. Software providers desire to bring payments closer to their business and require options on the depth of integration, a clear understanding of the responsibility those depths carry with them, and the benefits of a feature-rich solution. Our simple SDKs and APIs allow us to deliver on these expectations for our ISV partners. Second, we offer three distinctive integrated payments models to our partners, allowing us to meet the unique demands of an ISV customized for its specific vertical market and merchant base. This includes a more traditional direct integrated model where we provide the most comprehensive suite of products, services and support for both the ISV and its customers. We also offer a full payment facilitation, or payfac model where the partners have access to our leading payments technologies, although much of the operating complexity, including compliance and regulatory requirements, reside with the ISV. Additionally, we recently launched our new progressive payment facilitation, or profac model, a hybrid option which provides many of the benefits of payment facilitation while minimizing the heavy burden that comes as a payfac. Our profac model is unique to Global Payments, serving as another example of our leadership in integrated payments. We have seen great interest in this proposition and have a strong pipeline of partners seeking to board in the coming quarters. Our full spectrum of integrated solutions allows us to customize our offerings and provide different levels of support based on the specific needs of our partners. Third, across all these models, we offer a higher level of service than our peers, including for our payfac and profac customers, and we also provide our partners with a breadth of commerce enablement and value-added solutions to sell into their merchant base, which meaningfully increases the revenue opportunity and accelerates growth. This includes human capital management software, payroll, loyalty, tailored marketing solutions, BNPL, and call center support, amongst others, again all customized to meet the unique needs of each partner. Overall, our technology leadership, unrivalled distribution, tailored operating model, comprehensive suite of products and capabilities, and best-in-class service and support is why we win. We meet the specific needs of our partners, which differentiates us in the marketplace and is allowing us to achieve sustainable high rates of growth at attractive margins. Turning to our vertical markets business, our approach is largely consistent with how we think about the ISV partner channel with the exception being that we control the entirety of the technology stack and monetize it accordingly. This business again delivered double digit growth this quarter led by strength in our Zego, Xenial, and school solutions businesses. Zego has seen great momentum in the student housing vertical and recently expanded its relationships with Scion, as well as another large player in this space. Zego is also partnering with our higher education business, TouchNet, to help us capture a greater portion of the student payments value chain through our campus management and one card solutions. Focusing on Xenial, we announced our partnership with the Atlanta Hawks earlier this year and are now officially live with our Xenial cloud point of sale solutions at State Farm Arena. Xenial also recently signed an agreement with Sodexo, one of the leading food service management companies globally to be its preferred point of sale and kiosk partner. With this win, Xenial is now the partner of choice for the three largest players in the food service management space. Our school solutions business had a strong quarter, achieving a new school district partnership with Oklahoma City, expanding its partnership with Baltimore County, and extending a large existing relationship with Chicago public schools for several more years. Additionally, Active recently signed the City of Toronto, its largest ever win in the community vertical and one of 14 new partnerships achieved in this space during the quarter. In vertical markets where the primary mode of competition is at the point of sale, we go to market through one ecosystem of owned POS software solutions with two distinct operating platforms, one for restaurants and one for retail. These cloud-based software solutions operate on a single hardware environment custom designed, built and branded with a modern look and feel. Our POS business grew 20%-plus again this quarter as we continue to see strong demand for our solutions and benefit from releases of product enhancements, including email marketing, customer engagement, and our latest mobile-first online ordering platform, and we expect this momentum to continue on the heels of the launch of our next generation POS platform later this year. Our latest solution provides best-in-class offerings coupled with the full local support and service capabilities to delight our merchant customers in these verticals. Importantly, our software platforms are vertically fluid, which unlike more horizontal solutions in the market offers feature-rich capabilities geared towards the specific requirements of businesses we serve with capabilities that integrate seamlessly. More to come on this. Our technology-enabled strategy is further enhanced by our differentiated ecommerce and omnichannel capabilities which we overlay across all of our businesses, channels, verticals and geographies. Today, roughly 30% of the volume in our business is ecommerce, well above the overall percentage of retail sales tied to ecommerce. We again saw mid-teens growth in ecommerce related adjusted net revenues globally in the second quarter. We continue to benefit from our ability to seamlessly blend physical and virtual worlds in more markets than our peers, supporting the strong growth trends we have seen in ecommerce across our businesses. To that end, we are pleased to have recently signed a new partnership with EasyPark Group, a global provider of digital parking services across the U.S, Canada and the U.K. Our exposure to some of the most attractive secular growth markets globally remains an important part of our strategy, both in terms of contributing to our overall rates of growth and providing us the global footprint and scale we need to support complex multinational corporations like EasyPark. Our faster growth markets again contributed to our strong performance in the quarter as we saw double digit growth in Spain, central Europe and Asia Pacific. In APAC specifically, we signed new merchant relationships with several large retailers across multiple geographies, including A.S. Watson Group, Foot Locker, and [indiscernible]. EVO aligns well with our overarching strategy, and its performance was consistent with our expectations for the quarter. We remain excited about the synergy opportunities we see as a combined company, both revenue and expense, and remain very much on track to deliver at least $125 million of run rate synergies from the transaction. Turning to issuer, we achieved mid single digit growth in the quarter consistent with our expectations and longer term targets. Transaction growth remained strong throughout the quarter led by our commercial business, highlighting ongoing recovery trends in cross-border corporate travel. Traditional accounts on file increased by approximately $10 million sequentially as we benefit from the strong growth within our existing large financial institution clients and the ongoing execution of our conversion pipeline. As yet another example of our successful strategy of aligning with market share winners, Deutsche Bank, our largest client in the [indiscernible] region, recently announced a new issuing partnership with Lufthansa for its Miles & More MasterCard, one of the leading credit card portfolios in Germany and Europe. We were also delighted to assign multi-year extensions with 118 118 Money in the U.K. and another large longstanding financial institution partner here in the U.S. this quarter. We currently have eight LOIs with institutions worldwide, nearly all of which were achieved through a competitive RFP process, and several will go direct to cloud by our collaboration with AWS, our preferred issuer technology solutions partner. Our relationship with many of the most complex and sophisticated institutions globally speaks to our competitiveness well into the remainder of this decade and beyond, and our issuer conversion pipeline remains at near record post merger levels, providing further confidence in our growth trajectory well into the future. The future for our business remains very bright as we execute on our multi-year strategy to modernize our technology platforms in cloud native environments, positioning us to provide market leading technologies at scale through more distinctive and defensible distribution channels in more markets than we ever have previously. Our unique collaboration with AWS is tracking well. We now have our first client in production with our cloud native next gen analytics solution and have a number of additional customers preparing to join our cloud journey by leveraging capabilities we are launching together with AWS throughout the year. Moving to B2B, we continue to drive strong growth with both corporates and financial institutions as we leverage our capabilities across three focus segments within the overarching B2B market

Cameron Bready:

Thanks Josh. I’ve been at Global Payments for nearly a decade, and I am more enthusiastic now than I ever have been about the opportunities in front of us. We have a compelling technology-enabled strategy, a world-class team, great partners and clients, and a global presence with diverse distribution capabilities. As I step into the CEO role, I am highly focused on several priorities for our business and customers. First is continuing to pursue the key pillars of the strategy we set forth in detail at our investor conference in September 2021, while sharpening our focus on the most attractive opportunities we see in these areas and amplifying our investment on the most impactful of these initiatives. This is the right strategy for our business and one that positions us well for continued growth and value creation. Second is continuing to make it as easy as possible to do business with Global Payments while providing more commerce-enablement solutions that deepen our relationships with our customers. This starts with our ongoing focus on meeting our clients and customers how and where they want to be met with innovative and distinctive solutions that integrate seamlessly, and of course we need to continue to couple this with exceptional service to ensure that we delight our customers with every interaction, leveraging our scale that many competitors simply cannot match. Third is to maintain our relentless focus on execution, which has been one of the hallmarks of Global Payments and a key component of our ability to produce consistent results through market cycles. We have good competitors in our markets, and I strongly believe the consistency of execution separates one from another. Global Payments will set the standard for execution in our space. Last and certainly not least, I am focused on ensuring Global Payments’ culture is second to none. Our culture dictates how we accomplish our goals and achieve results as an organization. It is the connective tissue that makes the organization operate effectively. Having a world-class culture will further differentiate us from our competitors, drive value creation and benefit all of our constituents. I am delighted to be taking over Global Payments now that we have simplified our business and clarified our strategy going forward. With a sharpened focus, relentless execution and disciplined investment, I am confident our exceptional team will drive sustainable growth and performance. We look forward to sharing more as we continue on our journey. The future is indeed very bright at Global Payments. Winnie?

Operator:

Thank you. At this time, we will be conducting our question and answer session. [Operator instructions] Our first question is coming from the line of James Faucette with Morgan Stanley. Please proceed with your question.

Cameron Bready:

Yes James, this is Cameron. Good morning. I would say a couple things, and I think some of this was covered in Josh’s prepared remarks. First and foremost, July trends are tracking very consistent with what we’re seeing in--or what we saw, excuse me, in Q2, so I think our outlook for the balance of the year reflects a relatively stable macro environment - that’s our base case sitting here today. I think the point we’re trying to emphasize, and some of this, quite frankly, is based on commentary we heard on the heels of Q1, is the range of outcomes that we’re reflecting in our guide will accommodate at the lower end some softening of the macro environment and some softening of consumer spend, should we see that. That’s not our base case today, but if things do soften in the back half of the year relative to where we are today, I think the guidance range that we propose today, even with the increase at the low end on both revenue and EPS, would still accommodate some modest slowdown in economic activity in the back half of the year, but that’s not our base case. We’re expecting, and I think you’ve heard similar themes from others who have reported already, a relatively stable macro backdrop in the back half of the year, consistent with what we saw in Q2 and what we obviously saw in July as well.

James Faucette:

Thanks for that - pretty compelling algorithm, for sure. I wanted to ask a follow-up around pricing. Some of your peers have moved pricing recently, basically to reflect more of the value that they’re delivering. Where do you see your opportunities around pricing and the value you’re providing, and how should we think about that on a go-forward basis, especially if the macro remains relatively stable?

James Faucette:

Great, thank you very much for that, Cameron.

Operator:

Thank you. Our next question is coming from the line of Ramsey El-Assal with Barclays. Please proceed with your question.

Cameron Bready:

Ramsey, you were breaking up a little bit, but I think your question relates to issuer margin expansion and what the drivers are associated with that?

Cameron Bready:

Yes, no worries. I’ll let Josh chime in on that.

Ramsey El-Assal:

Got it, okay. A follow-up question from me is basically wanted to ask you if you could [indiscernible] some topics around resiliency [indiscernible]. Discretionary versus non-discretionary mix [indiscernible] size of merchants you’re going after [indiscernible] you were describing your vertical markets business, you were talking about signing some [indiscernible]. I’m just curious in terms of how you’re thinking about the size of customers you’re servicing [indiscernible] discretionary versus non-discretionary [indiscernible].

Operator:

Thank you. We’ll move onto our next question, which is coming from the line of Jason Kupferberg with Bank of America. Please proceed with your question.

Cameron Bready:

Yes Jason, good morning, it’s Cameron. Organic volume growth in the second quarter was roughly 9%, so EVO contributed roughly 11%, they contribute roughly 10-ish, 10.5% on top line revenue, and they contributed roughly 11% on volume, just in aggregate to the metrics for the quarter, so organic was around 9%. That includes a little bit of a headwind from fuel - I think you’ve heard other people talk about that, but in our portfolio, it’s a portion of our volume. It’s not a dramatic portion of the volume, but we did see a little bit of a headwind from that. So again, consistent with what I generally like to see, which is volume--organic volume growth and organic revenue growth generally tracking at a similar pace, which is obviously something we’re striving for in the business. I would say the outlook in the back half around merchant organic will remain in that 9% to 10% range. We are not changing our outlook, and I have a lot of confidence in our ability to deliver on that 9% to 10%. We were north of 9% this quarter - to be very specific, we were around 9.25%. I think we have a few initiatives, kind of in the back half of the year, that give me confidence that certainly 9% is the low end of what our expectation would be around the merchant business, and there may be some potential for it to drift up closer to the 10%, but we’re sticking with the 9% to 10% for the time being.

Cameron Bready:

Yes, thanks Jason. I would say absolutely B2B is in the mix as it relates to how we think about M&A in the future. Generally, just philosophically, obviously I want to use M&A as a lever to support all the pillars of our strategy. I think our primary focus is finding opportunities that we think really augment what it is we’re trying to accomplish across the different pillars of the strategy, and of course B2B is an important element of that. I do feel like sitting here today, we’re getting ourselves in a position where we have a more refined, more clear cut approach to how we want to pursue the B2B opportunities. I provided some commentary today in my prepared remarks about how we segment the B2B market, where we expect to play in B2B, and where we want to focus our efforts and attention in what is a large, diverse and, quite frankly, B2B means different things to different people, so. I thought it’s important to segment the market to provide clarity as to where we’re going to place our bets from a B2B perspective, and certainly I think M&A can help build out our tool kit to make us successful and position us for success, to be able to win across those three segments of what we think of as a broader B2B opportunity. But also, obviously I think M&A is a lever that we can utilize as we continue to pursue our software strategy in our merchant business, continue to find exposure to faster growth markets which creates, as I mentioned in my comments, some good secular tailwinds for the business, and obviously it’s a scale business, so continuing to look at opportunities to help augment scale and what it is we’re trying to accomplish is compelling as well. As we get to the back half of the year and we get leverage back to our targeted ratio, certainly M&A comes back into focus for us, and it’s something that we expect to pursue in a disciplined fashion going forward. But I’ll just comment to close to say obviously that’s all got to be weighed against what the alternative uses of our capital is, and we need to make sure that the investments we’re making from an M&A standpoint are attractive from a return perspective relative to what else we could do with that capital.

Cameron Bready:

Thanks Jason.

Darrin Peller:

Guys, thanks. First of all, it’s nice to see the volume growth very similar to the revenue growth rate, which I guess does, to your point, give opportunity. I guess on that note, just that volume growth rate, 9% organic or even pro forma--or, I’m sorry, reported 20%, clearly the 9% is better than we’re seeing across the industry right now, so Cameron, maybe just re-highlight what the strengths are you’re seeing that’s providing that stability. I think you’re the about the only company we’ve seen stable volume transact quarter versus last quarter on a year-over-year basis, so what you think is the driving force of that relative to the industry, and it sounds like you’re seeing sustainability into July, so maybe just reiterate the points of strength that you’re seeing that’s driving that versus the market overall.

Darrin Peller:

Yes, that’s great. Cameron, your comments on the partner channel that you provided during the beginning of the call was pretty helpful, and obviously I think it was intentional, just to get the message out about the [indiscernible]. When you think about the strategy on partners versus owned software going forward and assuming you had an incremental dollar to spend on something, what would you prefer, or is it really a balanced approach? I guess it sounds like the ISV channel is sustainable and doing well, so I’m curious to hear what you--if you have a strategic preference.

Darrin Peller:

Yes, that’s really helpful. Thanks guys.

Operator:

Thank you. Our next question is coming from the line of Dan Perlin with RBC Capital Markets. Please proceed with your question.

Cameron Bready:

Yes, I think it’s a fair question. I do think there will be some slight decoupling over time, but remember we’re not selling software just for the sake of selling software. We’re selling software in payments and monetizing payment flows as we’re selling software. That’s why I think, notwithstanding the heavy emphasis on software, which is the right strategy for our business, there is obviously an element of that that’s going to drive volume growth as we execute on the software strategy. Software takes three flavors, as I mentioned before, but it’s rare that we’re selling software into an environment now where we’re not selling and monetizing the payment flows around that. From my vantage point, yes, you can see some decoupling as we continue to add more value-added services to the portfolio, other things that aren’t directly linked to volume, but by and large as we’re selling software, it’s going to be linked to volume, and you should see relatively consistent trends as it relates to volume growth and software and, obviously, revenue growth in the business over a long period of time. But I do think it gives us, to your point, better visibility, better predictability around the business, and certainly it gives me a lot of confidence in the sustainability of the performance that we can achieve over a long period of time.

Cameron Bready:

Yes, sure. It’s a good question, and it’s a model that we’re really proud of and we’re seeing a lot of traction on in the market. Not to be too cute, think about profac as all the gain and none of the pain for the ISV partner. They get all the benefits that they’re looking for as it relates to a payment facilitation model, as it relates to the boarding experience, the control that they have, the funding options on the back end, some of the spend back capabilities and virtual accounts that kind of come with a payment facilitation model, but they have none of the pain of everything that comes along with being a payment company, so think about that in the context of risk management and software to support risk management activities. It’s compliance and software to support AML, PCI, audits, those types of activities in the business. We’re doing the underwriting and on-boarding teams, and we’re utilizing our software to provide that for these customers, then they don’t have to manage their own charge-back and cash accounts to support charge-backs and liabilities, etc. Then of course reporting, they don’t have to invest in that capability. They’re buying that essentially from us, leveraging our capabilities. Think of it, as I said, quite simply as all the gain that ISVs perceive come from being payment facilitation businesses, without the pain of actually being a payments company, and that model, as I said, is really resonating because it’s really the best of both worlds. Mot payment facilitators don’t set out to become payment companies because they really desire to build all the infrastructure required to be a payments company. They want more control, they want a different on-boarding experience, and they want different back end capabilities from a settlement capability, etc., so I think it’s our model that really allows them to achieve that on economic terms that are advantageous for us and also beneficial for them, so it’s something that we think is really going to continue to grow in popularity in the market.

Operator:

Thank you. Our next question is coming from the line of Tien-tsin Huang with JP Morgan. Please proceed with your question.

Cameron Bready:

Yes, both good questions, Tien-tsin. On the vertical side, I would say it’s kind of across the board. I think we’re seeing good strength probably skewed right now towards non-discretionary spend verticals versus discretionary spend, but we’re seeing just great engagement with our partners, we’re seeing great lead flow into the business, and we’re seeing very strong conversion rates of lead flow to new merchant and new mid accounts for us, and I think I commented that mid account conversion was something up 33% year-over-year in the second quarter, so very strong just overall performance, I would say slightly skewed and much of our integrated business is skewed towards consumer non-discretionary, so I think that’s where we’re seeing obviously the strength in the overall portfolio as well. As it relates to the different partner models that we operate, again we’re probably somewhat ambivalent. We’re really more focused on what’s the right model to meet the demands and requirements of the ISV partner, and there are plenty of situations where the right model for the ISV partner in terms of how they want to go to market and what it is they’re trying to accomplish is payment facilitation. There’s plenty of times when the right model for a partner really is direct integration, depending on, again, what it is they’re trying to accomplish, their objectives, their go-to-market strategies, etc. As I mentioned before, we think the profac model we rolled out this past quarter blends that in a way that works for some merchants but not all, so I think we’ve tried to structure each of those models where we’re somewhat economically neutral in terms of the overall net result for us, given the level of work that we’re doing to support a partner across those three models. Obviously in a payment facilitation model, we’re not doing nearly as much work, so obviously we don’t have as much cost supporting that part of the business, and certainly in a direct integration model we’re doing a lot more work for the partner, and the economics need to reflect that so we can maintain, obviously, the margins in the business that we’re trying to achieve. As long as it’s structured the right way with the right partner, as I said before, we’re somewhat ambivalent. We want to make sure that the model itself is appropriate to accomplish the objectives for the ISV partner.

Cameron Bready:

Thanks Tien-tsin.

Will Nance:

Hey guys, appreciate you taking the question. I figure I’d pile on off the last question on the integrated business. I was wondering if you could maybe talk about the trends in the mix between the payfac versus the traditional integrated model that you talked about. I think one of the longer term concerns from investors is that the yield delta is large and the trend is towards payfacs, so can you maybe talk about how that has trended over the past couple of years and what the actual growth between those two channels has looked like? Then maybe when you think about the new product, where do you expect the pricing on the profac model to land relative to those two models?

Will Nance:

Got it, that’s helpful. Then maybe another number that really stuck out to me was the 20% growth in POS this quarter. I think that’s another area that investors commonly cite as being very competitive and maybe being at risk from vertical-specific ISVs. Where is the growth coming from, what do you think is driving that 20%, and maybe how that trended over the past couple of years?

Will Nance:

Got it. Yes, it looks very strong trends. I appreciate you taking the questions today.

Operator:

Thank you. Our final question will come from the line of Bryan Keane with Deutsche Bank. Please proceed with your question.

Cameron Bready:

Yes, maybe I’ll start, Bryan, and I’ll ask Josh to chime in with his perspectives as well. I am more excited about the opportunity, largely because as we’ve been able to spend more time with the individual businesses and we’ve been able to spend more time in the markets where EVO operates in, where we’re not overlapping at the time of the transaction, I think I’m just much more bullish the opportunity to be able to bring Global Payments’ capabilities to those markets to drive incremental growth in those businesses, to leverage some of the things that EVO has done well in those markets, but really amplify that and accelerate what they’re doing with better product, better capability, and better solutions. A few examples of that are really ecomm - I think by and large, EVO’s ecomm capabilities were not market leading by any stretch of the imagination. I think bringing our ecomm solutions into these markets, particularly markets like Poland and Greece, is going to be a very strong catalyst for growth in those individual markets. Point of sale opportunities are immense within their portfolio. EVO really provided by and large just payment solutions to merchants, they didn’t have a lot of other product and capabilities that they could bring to bear on the markets, so bringing more point of sale software into these markets is an attractive opportunity for growth, bringing some of our data and analytic capabilities and some of our other loyalty platforms into these markets, I think are excellent opportunities to augment growth. I think by and large, the opportunity to bring Global Payments product and capability to EVO markets is greater than I envisioned at the time that we announced the transaction, going on a year ago today. I would say secondly, the embedded opportunity around some of the multinational customers that EVO has been able to win in discrete markets and the ability to expand relationships them in other markets, I think is a nice tailwind for growth for us as well, and I’m particularly excited about the ability to tap into some of those opportunities, again leveraging our UCP platform to deliver ubiquitous processing and acquiring capabilities to some of these larger customers in more markets, obviously, than EVO has been able to do historically. Then lastly, I think as we dug in further into the B2B opportunities and the software that EVO brings to bear, the relationships they’ve had, I think again we’re more bullish the opportunity to grow and scale the B2B side of the EVO business, more on the acceptance and AR solutions side of the B2B offering by, again, aligning that with capabilities that we have inside of Global Payments. I think streamlining the go-to-market around B2B, leading with those software solutions and obviously monetizing payments as a part of that sale, I think again end of day, there’s probably greater opportunities to grow and scale the B2B side of the business than I anticipated when we announced the transaction. That’s really on the revenue side. Maybe I’ll let Josh chime in and just give his perspectives on the expense side as well.

Cameron Bready:

Yes, and I would just conclude, Bryan, by saying it’s still early in the transaction. We’re really only a quarter in, but we’ve got a pretty good track record of exceeding expectations that we set around synergies for these transactions, and sitting here today, I don’t have any reason to believe this won’t be another opportunity for us to do that. Obviously we’re sticking with our results--our expectations for now, but I’ve got a lot of confidence in our team and our ability to outperform over a longer period.

Cameron Bready:

Yes, look - I’m certain other people are going to look to provide a similar type of model in the future. I do think one of the distinct sort of advantages we have is scale. I mean, there’s not many players out there that have over a billion dollars of revenue through a partner integrated hand hold. There’s not that many players that have the scale that we can bring to bear across the operating and compliance and regulatory management and software side of integrations, that I think we can bring to that equation. I think certainly the scale that we bring and the capability we bring is clearly one differentiating factor. I think the second differentiating factor is the number and the breadth of commerce enablement and other solutions that we can bring to bear on those relationships. I think that allows us to really think about revenue share and revenue splits differently. I think it allows us to drive better economic outcomes working with partners, and I think it allows our partners to have more attractive offerings for them to compete in the markets that they’re trying to serve as well. Then lastly, I would say support - the white glove support we offer, obviously the ISV support as well as the merchant support capabilities we can bring to bear on that channel are clearly differentiators for us relative to other integrated competitors, and again I think all of those are reasons we’ve been able to sustain growth rates in that business while certainly others in the marketplace have not been able to achieve quite those same levels over a longer period of time.

Cameron Bready:

Thanks Bryan. With that, that concludes our Q2 earnings call this morning. I want to take a moment to thank all of you for joining us. We appreciate your interest in Global Payments, and we look forward to following up with you after the call. Have a great day, everyone.

Operator:

Ladies and gentlemen, thank you for standing by. Welcome to Global Payments First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] And as a reminder, this conference is being recorded. At this time, I would like to turn the call over to your host, Senior Vice President, Investor Relations, Winnie Smith. Please go ahead, Winnie.

Jeff Sloan:

Thanks, Winnie. We are pleased to have delivered our best first quarter in four years. Exceeding our expectations to start 2023, despite continuing macro uncertainties. Our ongoing businesses produced adjusted net revenue growth, adjusted operating margin expansion, and adjusted earnings per share growth consistent with our cycle guidance once again. This performance reflects the wisdom of our strategies and our consistent focus on execution. We accomplished these results while also turning the page on our strategic initiatives. First, we are delighted to have closed our acquisition of EVO Payments in late March and we are already off to a strong start. Cameron will provide more details our integration efforts now underway, but let me preface his comments by saying that we remain as excited about the many opportunities we have together as we were at the time we announced the transaction nine months ago. I am delighted to officially welcome Eva's value team members to the Global Payments family. We are pleased to have also recently completed the divestitures of Netspend's Consumer Assets and our Gaming Solutions business. With the successful execution of these transactions, we are focused on managing our go forward business composition with merchant solutions representing approximately 75% of our adjusted net revenue, and issuer solutions including B2B, comprising roughly 25%. This platform provides us the ideal set, core capabilities from which to grow, for many years to come. [Our issuer merchant] [ph] posted exceptional results for the first quarter. Starting with issuer solutions, our core business again generated substantial sequential financial and operating improvement, achieving high single digit growth and marking its best quarterly performance in more than five years. It is worth highlighting that our core customer base consists of money center and systemically important financial institutions globally. We believe that we've been the beneficiary of incremental depository flows or larger institutions, combined with several significant implementations during the quarter, which we expect to provide tailwinds for some time to come. Year-over-year, consumer transaction volumes grew into the double-digits. Our commercial part business also continued to perform with transactions growing nearly 25% in the first quarter as cross-border and domestic corporate travel continued its recovery trajectory. Traditional accounts on file increased by roughly 200 million sequentially, and double-digits from the prior year to a new record due to strong conversion execution of new accounts and growth with existing customers. Our decades long strategy of aligning with market share winners continues to bear fruit. And I think it's clear at this point that the legacy versus fintech hypothesis from 2021 has now been thoroughly debunked and turned on its head. We are delighted that we successfully converted a significant portion of one of the top 10 commercial banks in the United States in early March. This win was a double competitive takeaway, early after the announcement of our merger. We also completed the conversion of the Postbank portfolio in April. And in collaboration with AWS, we successfully deployed our cloud-based data and analytics platform for a leading financial institution partner in the United States. Finally, we are pleased to have signed multi-year extensions with M&T Bank, as well as another longstanding U.S.-based FI partner during the quarter. We currently have nine letters of intent with institutions worldwide nearly all of which were achieved through a competitive RFP process. Turning to B2B, we continue to drive strong growth with both corporates and financial institutions as we leverage our virtual card, MineralTree automation and employer solution capabilities. This quarter, we achieved record supplier enrollments as middle market companies further digitized their payments. It's worth noting that MineralTree delivered normalized growth of roughly 20% for the period and we continue expect near 30% growth for this business in calendar 2023. We are proud of the resiliency of our merchant business, which delivered double-digit growth, excluding dispositions and the one-week contribution from EVO. This performance was achieved despite incremental macro uncertainties driven by the banking crisis that developed in the latter part of the quarter. Stand-out for the period again include our worldwide e-commerce and omni-channel businesses, where growth accelerate into the high teens. Speaking of UCP, we are making great progress in our partnership with Spring by Citi that now spans North America, the UK, and Continental Europe. We are currently live across 14 countries and run rating at more than 100 million transactions and over $3 billion in volume annually. And based on our pipeline with many of Citi's largest treasury and trade solutions customers, we are on-track to more than double our volume together by the end of 2023. We also continue to see strong trends in our integrated business in the U.S., which grew at a mid-teens rate with sustained rates of accelerated growth. We also produced a record quarter for new sales in this channel, demonstrating ongoing strong demand for our solutions. Additionally, vertical markets achieved double-digit growth led by School Solutions, Zego, and real estate and Xenial on quick service restaurants and stadiums. After announcing our partnership with the Brave last quarter, we are excited to have gone live with our Xenial cloud point-of-sale solutions on April 6, opening day for Truist Park. And we are pleased to have reached an agreement with the leading parks and entertainment company to provide both our Xenial food and beverage solutions, as well as our retail solutions at all of its theme park locations across the United States. Our pipeline remains full across our fixed service restaurant and sports and entertainment businesses. Stay tuned. Outside the United States, our Asia Pacific business produced its best first quarter since 2018 as COVID-related restrictions were lifted at the end of 2022, including in Greater China. We continue to see strong trends in other faster growth geographies such as Spain and Central Europe and we are excited to enhance our scale with EVO in these markets. We also had several successful product launches during the quarter in Europe, including our point-of-sale solution in Central Europe, in our [tap-on phone solution] [ph] in the UK. These all bode well for the cross-sell opportunities with EVO. Before I turn over to Cameron, I'd like to address the announcement of my departure as CEO of Global Payments effective June 1 and the appointment of Cameron Bready, as our next CEO. I've known Cameron personally for nine years and he has held the most senior and trusted positions in our company during that time. First, as our CFO and today as our President and COO. Cameron is an outstanding leader and the right person to succeed me. I have every confidence in his and our company's continued future success and will do everything I can to ensure a smooth transition to Cameron over the coming weeks. Now is the right time for us to execute on our succession plans. We recently closed on all three of our strategic transactions and we produced our best first quarter in four years with our first beat-and-raise in 18 months. Our businesses are exceptionally healthy. We delivered on a heightened cycle guidance in 2022 and are poised to do the same in 2023, excluding of course dispositions. While challenges undoubtedly remain, we are on a path to return to normalcy as I suggested and hope for work, on our February call. When we arrived at Global Payments 13 years ago, we have many strengths, but we lack direct distribution, scale and e-commerce, a B2B strategy and we have much legacy technology debt to repay. Now, roughly 10 years after I became CEO, we have distinctive software assets owned and partnered, a market-leading e-com and omni-channel presence, enhanced exposure to faster growth markets and sizable B2B assets. We couple distinctive distribution with a solid technology footprint and unique multi-year collaborations with both AWS and Google. Finally and importantly, over the last 9.5 years since we've been running the company, GPN stock has compounded at nearly 16.5% annually, 650 basis points in excess of the S&P 500 index and 300 basis points in excess of our peers, despite all the turmoil over the last three years. Simply put, we've accomplished our goals. I'll now turn the call to Cameron.

Josh Whipple:

Thanks, Cameron. We are pleased with our strong financial performance in the first quarter, which exceeded our expectations despite ongoing macro concerns, highlighting the strength and durability of our business. Specifically, we delivered adjusted net revenue of $2.05 billion, an increase of 6.5% from the same period in the prior year on a constant currency basis. Excluding the impact of disposition, and roughly one-week of contribution from EVO, adjusted net revenue increased 9% on a constant currency basis. Adjusted operating margin for the quarter increased 200 basis points to 43.1%. The net result was adjusted earnings per share of $2.40, an increase of 18% on a constant currency basis, compared to the same period in 2022. Taking a closer look at performance by segment, merchant solutions achieved adjusted net revenue of $1.46 billion for the first quarter with constant currency growth of 10%, excluding dispositions and the contribution from EVO. This performance was led by the ongoing strength of our technology-enabled businesses, while we benefited from the recovery in Asia Pacific as COVID restrictions eased across Greater China markets. We also saw consistent double-digit growth from our vertical market, POS, and payroll businesses. This strength was partially offset by ongoing headwinds from adverse foreign currency exchange rates. Along with macro softness in limited geographies, including the UK. We delivered an adjusted operating margin of 47.3% in the segment, consistent with last year. Excluding the impact of EVO’s close in March, adjusted operating margin expanded 25 basis points and was in-line with our expectations. We are pleased with the fundamental performance of our issuer solutions business in the first quarter, which produced adjusted net revenue of $490 million, reflecting growth of 7.2% on a constant currency basis. Notably, core issuer grew high-single-digits this quarter, excluding the impact of FX, which was over 300 basis point acceleration sequentially. As Jeff highlighted, traditional accounts on file increased by approximately $20 million sequentially driven by strong account growth from our major consumer portfolio customers, as well as several portfolio conversions we successfully completed during the period. Transactions also grew double-digits, compared to the first quarter of 2022 with strong contributions coming from both commercial and consumer card transactions. Finally, we delivered adjusted operating margins of 43.9%, an increase of 80 basis points from the prior year fueled by our accelerated growth. As for adjusted free cash flow, consistent with the prior period, we converted approximately 80% of adjusted earnings into adjusted free cash flow. We continue to target converting roughly 100% of adjusted earnings for the full-year, excluding the impact of the timing change related to the recognition of research and development tax credits. We expect our adjusted free cash flow conversion for the year to follow a similar trajectory as 2022. We invested $162 million in capital expenditures during the quarter and continue to expect capital spending to be around $630 million in 2023, consistent with our long-term targets. This quarter, we repurchased approximately 2.1 million of our shares for roughly $200 million, which was executed prior to the closing of our acquisition of EVO payments on March 24. To help fund the EVO transaction, in early March, we successfully priced an [€80 million] [ph] inaugural European debt offering at a fixed rate coupon of 4.875% during 2031. With this transaction, we continue to evolve our capital structure to align with our global operations and gain access to a broader investor base and new sources of capital. Separately, in January, we established a $2 billion commercial paper program. The CP program is supported by our revolving credit agreement. At the end of the quarter, we had approximately $1 billion of commercial paper outstanding. We currently have in excess of $3 billion of available liquidity. Following the aforementioned capital markets transactions and drawing on the revolver to close EVO, our total indebtedness is approximately 90% fixed with a weighted average cost of debt of 3.8%. We are also delighted to have closed both the divestiture of Netspend's consumer assets and the sale of the Gaming Solutions business in April. Following all of these transactions, our balance sheet remains healthy and our leverage position is roughly 3.8x currently. We continue to expect to return to a similar leverage level to where we ended 2022 by year-end 2023, while maintaining existing investment grade ratings. We are pleased with how our business is positioned following our first quarter performance and we are raising our financial outlook for the year. We now expect reported adjusted net revenue range from $8.635 billion to $8.735 billion, reflecting growth of 7% to 8% over 2022, an increase from 6% to 7% previously. We continue to forecast annual adjusted operating margin to expand by up to 120 basis points for 2023. As a reminder, this is above our cycle guidance for margin expansion of 50 basis points to 75 basis points annually, driven by benefits to our business mix from our ongoing shift towards technology enablement and the divestiture of Netspend, partially offset by the lower margin profile of EVO prior to full synergy realization. [To provide] [ph] color at the segment level, we continue to anticipate our merchant segment to report adjusted net revenue growth of roughly 15% to 16% for the full-year, but now expect to be toward the higher end of that range. We continue to expect more than 100 basis points of adjusted operating margin expansion from the existing Global Payments merchant business, excluding dispositions in 2023, which again is ahead of our cycle guide. We expect this expansion will be more than offset beginning in the second quarter with the absorption of the lower margin profile of EVO Payments. We anticipate this impact to be mitigated by synergy realization as the year progresses. As a result, we are forecasting margin contraction in the second and third quarters and then margin expansion in Q4 as synergies ramped for our merchant business. The net result will be a modest decline in our total merchant business reported adjusted operating margin for the year, consistent with our prior guidance. Moving to Issuer Solutions. We now expect to deliver adjusted net revenue growth in the 5% to 6% range, up from 4.5% to 5.5% previously for the full-year, compared to 2022. This outlook reflects our better than expected performance in the first quarter and the benefit we anticipate from our conversion pipeline. Specifically, we now expect core issuer to grow above 5% and continue to expect MineralTree and Netspend B2B businesses to grow low double-digits. We anticipate adjusted operating margin for the issuer business to expand by up to 60 basis points consistent with our prior outlook as we benefit from the natural operating leverage in the business. In terms of quarterly phasing, there are two continuing items to note. First, while we expect foreign exchange rates to be roughly neutral for the full-year, we still anticipate a currency headwind to adjusted net revenue of up to 100 basis points in the second quarter. Second, we expect the successful closing of the sale of Netspend for the end of April to add roughly $25 million of incremental revenue for the second quarter versus our prior expectation with no change to our expected earnings per share dilution impact for the year. Moving to a couple of non-operating items. We expect net interest expense to be roughly $550 million, a modest $10 million increase from our prior guide in-light of yield curve movements. And for our adjusted effective tax rate be in the range of 19% to 19.5% consistent with our prior guidance. For modeling purposes, we continue to assume excess cash is used to pay down indebtedness in 2023 until we return to our targeted leverage levels for the end of the year with minimal share repurchases until then. Putting it all together, we now expect adjusted earnings per share for the full-year to be in the range of $10.32 to $10.44, reflecting growth of 11% to 12% over 2022, up from 10% to 11%, previously. Excluding dispositions, adjusted earnings per share growth is expected to be 16% to 17% for 2023. This is consistent with our updated 2021 cycle guide, despite incremental adverse changes in the macro environment since then. Our first quarter results represent roughly $0.05 adjusted earnings per share be relative to our internal forecast. Our raised guidance for calendar 2023 essentially rolls the beat plus a couple of cents for the year in-light of the uncertainties of the current environment. Similar to what you've heard from others, we saw strength across our markets in January and February, which moderated somewhat in a number of our businesses in March. Our issuer business did not experience any discernible moderation as our large money center bank customers benefited from the regional banking crisis that developed in March. Trends in this business continue to remain resilient through April and similar to March levels of activity. Our updated outlook today presumes a worldwide macroeconomic backdrop that is consistent with the current environment throughout the remainder calendar year 2023. And with that, I'll turn the call back over to Jeff.

Winnie Smith:

Thanks, Jeff. Before we begin our question-and-answer session, I'd like to ask everyone to limit their questions to one with one follow-up to accommodate everyone in the queue. Thank you. Operator, we will now go to questions.

Ashwin Shirvaikar:

Thank you and congratulations on the good quarter. And Jeff, happy for you. It's been a pleasure. Cameron congratulations on the promotion. Let me let me start with the merchant if you could, kind of provide a more detailed geographical walk through as you consider macro and other factors, U.S., and the Americas now includes couple of new geographies for you. Europe, including the EVO footprint, how should we think of, sort of normalized growth rate and Asia Pac recovery as well, if you could sort of unpack that for us, that would be great?

Ashwin Shirvaikar:

That's very useful. Thank you very much. And then sticking with merchant, the adjusted rev growth was greater than volume growth, I think, probably for the first time in a couple of years. What's driving that? Is that value-add services? Is there, sort of different business model with, like, more subscription revenue or something like that or do you expect that to sustain?

Ashwin Shirvaikar:

Understood. Congratulations again. Thank you.

Operator:

Your next question is coming from Darrin Peller from Wolfe Research. Your line is now live.

Jeff Sloan:

Darren, it's Jeff. Thanks for saying that. Let me just start by saying Cameron and I have worked close together for nine years and probably in his judgment, it's nine years too late. Probably where I start, but look, I would say, as we said in the press release and our prepared remarks that look, we just posted the best first quarter since 2019. We talked about in February hoping that we were in an environment of normalcy. I think we're there today. We've got our first real beat-and-raise in 18 months. And then really importantly, Darrin, we've said publicly for 12 months that we're focused on closing EVO, closing Netspend, closing the sale on Gaming Solutions, but not surprising you, those probably started like 18 months ago, right. And it's like the last 12 months to 14 months that really kind of ramped up. So, just sticking for me, I mean, Board and I agreed that I think with these important strategic transactions behind us, I just would thank Cameron for putting up with me for all this period of time, until we got these things done. And then I'd also say, it's important. I talked about the return to normalcy, but I want to make sure we have a stable macroeconomic environment and really this is the first period since probably 2019 that we've had, do any kind of real stability, normalcy our businesses are operating at very good levels. So, I think the timing is right and I'll quite really be sitting on a beach that [indiscernible]. Darrin, if you’re ever in [South part] [ph], just come visit me.

Cameron Bready:

Yes, Darren. I think our perspective around pricing really hasn't changed and the philosophy that we have has been pretty consistent for many years now. We try to price our services to reflect the level of value and capability that we're bringing to the market, which we do think in many ways is differentiated from our competitors. Think we were very hard to try to optimize our pricing and have for again the past several years to make sure that we’re constantly looking at, sort of the price points and how we're packaging a variety of different value-added services and capabilities we can bring along with obviously the pure payment acceptance solutions that we offer to the marketplace. So, our perspective is look, I think overall more people are being, I'd say, on the more aggressive side, perhaps for lack of a better term with their pricing strategies more recently. I think that bodes well as it relates to the competitive landscape and particularly how we try to position our business over a long period of time. So, nothing unusual coming from us as a pricing matter. I would say, it's more of the same, looking at portfolio optimization and pricing strategies again to try to reflect the value and service that we bring to the customer, but obviously in the backdrop with other people doing that makes it a little bit easier for those to stick. It is probably the point I would make into that.

Jeff Sloan:

Thanks, Darrin.

Operator:

Thank you. Your next question is coming from James Faucette from Morgan Stanley. Your line is now live.

Cameron Bready:

Yes, James. Great question. So, I would say first and foremost, Jeff and I have pretty much been locked at the [head] [ph] for the last nine years. So, you shouldn't expect a radical deviation in strategy. And quite the contrary, you should expect a continued focus on the four-pillar strategy we articulated 18 months ago at our investor conference. I'm very much 100% behind that strategy. Jeff and I worked closely to kind of build that strategy together over many years, and I absolutely think it's the right strategy for us as a business matter going forward. So, my highest priority will continue to be to execute against that strategy as we move forward. I think from a capital allocation perspective and priority perspective, as Josh highlighted in his prepared remarks, we're very focused on getting back to our targeted leverage ratio by the end of this year, that is a priority of the capital allocation matter, as well as make sure that we integrate EVO effectively over that same period of time. We have a saying here that we like to do the things we've already committed to well before we try to take on the next thing. So, I think as it relates to the next, call it, nine months, our focus is clearly going to be on getting leverage back to the targeted level, integrating EVO effectively, making sure that that's off to a good start. And then as a go-forward matter, I think our capital allocation priorities will remain relatively unchanged. We're going to continue to try to strike the right balance between obviously investing to grow the business. Our priority is finding ways to invest in the business to grow and expand our footprint to support the various pillars of the strategy that we're pursuing and find ways to augment that through inorganic activities, as well as organic investment in the business. And absent meaningful opportunities to do that in a way that drives value and returns for our shareholders, we'll look to return capital as we have over a long period of time. So, I don't think the overall philosophy or approach to capital allocation is going to change dramatically. I think it's going to be more of the same, and I think more of the same will be very good for our shareholders over a long period of time.

Josh Whipple:

Yes. So, I'll go ahead and take that. So, as we thought about the guide, the outlook assumes the macro backdrop, as I said in my prepared remarks, is consistent with the current environment. And really, there's really two primary changes to the guide. What I would say is, the first change is the outperformance that we saw in Q1, which was approximately 40 million from a revenue perspective and EPS was about $0.05 or $0.06 better relative to our internal forecast. And then secondly, it's the $25 million that we expect to or that we received from Netspend in the month of April. Other than that, nothing has really changed relative to our guide that we went through on the February call and laid out specifically – very specifically by quarters.

James Faucette:

That’s great. Thanks for all the detail.

Operator:

Thank you. Your next question is coming from Jason Kupferberg from Bank of America. Your line is now live.

Josh Whipple:

Yes, absolutely. Look, what I would say is, February, we gave you very specific quarterly growth rates on revenue and earnings per share. And I would say, Q2 through Q4, nothing has really changed. So, if you go back to the earnings presentation that we put out there, we said adjusted net revenue reported 5% to 6% Q2, 8% to 9% in Q3. And four, we did obviously raise – we did raise the overall outlook to 7% to 8% based on the performance that we saw in Q1 and which I just outlined. And then from a margin perspective, look, we saw a really good margin expansion in Q1 of 200 basis points, exactly what we said we would do. And from Q2 through Q4, we expect 100 basis points margin expansion, which we laid out on the February call. And then from an EPS perspective, again, we're right in that 9% to 10% range for Q2 through Q4, which we outlined in February. So again, nothing has changed as it relates to Q2 through Q4 relative to what we discussed on the February call.

Cameron Bready:

Yes, Jason, it's Cameron, I'll jump in there. I would say that overall split holds roughly pretty well post-EVO. Obviously, I don't think at this stage we've kind of aggregated all the different geographies around the globe in terms of what the volume mix is across every single vertical that they have exposure to, but given the size of EVO relative to our existing merchant footprint globally, it's not going to move the needle a great deal one way or the other even if their split is slightly different. I would say, and I'll use the U.S. as kind of example, you sort of saw the trend around retail sales in the U.S., which is really food and kind of retail more broadly. In the first quarter, January was very strong and February slowed down relative to January. And March, kind of slowed down relative to February, but I would say, overall, from a spending perspective, we continue to see spending skewed towards more services in experiences and less, sort of retail goods and food to some degree. So, a little better trends in the non-discretionary categories that we are heavy in, particularly as it relates to services, health care, et cetera, and a little lighter trends in the traditional, kind of retail, food and beverage, et cetera. But overall, the portfolios, I think, came together pretty well. I don't think the trends we're seeing in our business are any different than what you heard from Visa and MasterCard as it relates to March and April activity, more broadly, which we've talked about already. But I like, obviously, the diversification we have across nearly 70 different vertical markets. I like the split and sort of weightings that we have across discretionary, non-discretionary categories. So, I think we're well-positioned, obviously, for the macro environment as it continues to evolve through the balance of the year.

Cameron Bready:

Thanks, Jason.

Ramsey El-Assal:

Hi, there. Thanks so much for taking my question. I will add my congratulations as well to both of you. I wanted to ask if you could provide a little bit more commentary on the timing of the revenue synergies with EVO. When do those start flowing in? Is there any work that needs to be done in order to unlock those and how long might that take?

Ramsey El-Assal:

Got it. Okay. And one follow-up for me. Could you give us an update on value-added services and how that part of your business is evolving? I'm just curious how important value-added services have become to things like either new sales or retention? And how like attach rates are trending?

Ramsey El-Assal:

Thank you so much.

Operator:

Thank you. Your next question is coming from Bryan Keane from Deutsche Bank. Your line is now live.

Cameron Bready:

Yes, Bryan, it's Cameron. I'll just start at a macro level, and I'll let Josh maybe jump in if he has any additional color to add. I would say, we got to look at margin profile in Q1 ex-EVO because EVO comes in at a lower margin profile than our core business. So, in Q1, we expanded margins ex-EVO by around 25 basis points. That's pretty consistent with where we ended up in Q4. As you can imagine, mix probably impacts that more than anything else, that we've got mix movement. As the vertical market businesses continue to perform well and recover in some of those verticals relative to what they experienced during the pandemic, that tends to come in at a lower margin profile, which from a mix matter, kind of ways to the overall margin expansion we're seeing in the business. But I would say, for Q1, we delivered margin expansion for the merchant business ex-EVO exactly on top of our plans. And I'll remind you, those margins are at, sort of north of 47%. So, as we think about margin expansion in the business over a longer period of time, when we're already at margins of 47%, 48% in that business, obviously, as we look at margin expansion for the company overall, more of that will be driven through gaining better scale across our corporate functions and obviously continue to see those expenses as a percentage of revenue not grow at the same pace. And then secondly, obviously, in the issuer business that has a little more runway, I think, around margin expansion over the near to medium-term. So, merchant was exactly what we expected for the quarter. We still expect the same expectation for the full-year, as Josh articulated in his prepared remarks around merchant margins. As we bring EVO in, it comes in at a lower margin profile. As we continue to build synergies over time, we'll get back to kind of pre-EVO levels and then, of course, look to expand from there.

Bryan Keane:

Got it. No, that's really helpful. And then just as a follow-up, just thinking about the trends in issuer. I know you guys raised the Issuer segment revenue growth for the year, but the trends, obviously, you're pointing in your favor towards the movement towards assets towards larger banks, and I think it was 9 LOIs. So, just thinking even about longer-term, are you guys feeling a little bit more positive about maybe the issuer outlook even beyond 2023 as a result of some of these trends?

Bryan Keane:

Okay, great. Congrats again.

Cameron Bready:

Thanks, Bryan.

Vasu Govil:

Thank you very much and congratulations to you both, I want to add that as well. My first question is for you, Jeff. I think you mentioned MineralTree grew 20% in the quarter and you're expecting it to grow 30% for the year. So, I just wanted some color on what, sort of going to drive that acceleration. And if you could also give us more broadly an update on the cross-sell efforts you are seeing for that piece of the business into your merchant base?

Vasu Govil:

That's great. And then just my follow-up on just the macro backdrop. I know you guys are sort of assuming that macro stays stable from here. But I think the risk of a recession is probably higher today than it was three months ago. So, just can you talk about the sensitivity in both the merchant and issuer revenue as to the extent we do see a slowdown and also cost levers that you might have? Thank you very much.

Cameron Bready:

Yes, Vasu, it's Cameron. I think I mentioned this before. Obviously, to Jeff's point earlier, we saw strong trends in January, February. March kind of slowed down a little bit relative to that. And April has been more of the same relative to what we saw in March. So, that's the expectation we kind of have as we look towards the balance of the year. As I said, kind of many times in the past, we don't need perfection for the balance of the year relative to our current outlook to obviously achieve the expectations that we've set forth today. So, I think we feel good about how we're positioned to deliver on the overall guide that we've shared. And obviously, that can withstand, I would say, relatively we're seeing slight deviations, I'd say, in the overall macro environment that we're anticipating for the balance of the year. If things fall off precipitously, then obviously we'll revisit it. If things obviously improve more than we anticipate, obviously, that creates some upside opportunity. So, I think we feel good about, obviously, how the business is positioned for the balance of the year. The guide, I think, today reflects that. And we're looking forward to continue to execute against that.

Cameron Bready:

Thanks, Vasu.

Operator:

Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.

Operator:

Ladies and gentlemen, thank you for standing by and welcome to Global Payments Fourth Quarter and Full Year 2022 Earnings Conference Call. [Operator Instructions] And as a reminder, today’s conference will be recorded. At this time, I would like to turn the call over to your host, Senior Vice President, Investor Relations, Winnie Smith. Please go ahead.

Jeff Sloan:

Thanks, Winnie. We delivered strong results for the fourth quarter and calendar 2022 in what was an unprecedented year by nearly any measure with heightened worldwide macroeconomic uncertainties caused by persistent inflation, dramatically rising interest rates, significant foreign exchange volatility, a war in Europe and lingering impacts from the pandemic early in the period. Yet the consumer remained resilient throughout the year and we enabled a record over 64 billion transactions, culminating in a successful holiday season with multiple all-time high peak days. We delivered record results for 2022. While it’s certainly in the New Year, internal metrics indicate more of the same. Where we have seen any discernible change, it is in some macro weakness in limited geographies like the United Kingdom and parts of Asia-Pacific. Having said that, those items already are reflected in our fourth quarter results and our guidance assumes no meaningful change in operating environments for 2023. We are pleased with our preliminary January results. For the fourth quarter, our Merchant business delivered 9% adjusted net revenue growth excluding dispositions and our Issuer segment achieved 5% adjusted net revenue growth, each on a foreign exchange neutral basis. Importantly, our core Issuer business again generated sequential financial and operating improvement, consistent with our expectations and the best performance since our merger with TSYS in 2019. For the full year, our performance was consistent with our September 2021 cycle guidance despite multiple black swan disruptions that emerged in 2022. Our Merchant business delivered 13% adjusted net revenue growth, excluding dispositions and our Issuer business generated 5% growth, each on a constant currency basis. For calendar 2022, we produced 10% total adjusted net revenue growth, again excluding dispositions, expanded margins by 200 basis points and generated 17% adjusted earnings per share growth on an FX-neutral basis, all right lined with our raised cycle guidance from 18 months ago despite all the incremental challenges of the macroeconomic environment. At our investor conference, we outlined our four-pillar strategy and focus on a simpler model more geared toward our corporate customers with enhanced growth and margin prospects. We detailed our capital allocation priorities that balance building the leading technology-enabled, software-driven payments business worldwide with efficient return of capital. And we highlighted our commitment to advancing our strategic partnerships with leading global technology companies, investors and share gaining financial institutions to further expand our competitive moat. We anticipate closing the acquisition of EVO Payments no later than the end of this quarter. With EVO, we have reinforced our position as a preeminent payments technology company with extensive scale and unmatched global reach. EVO enhances our target addressable markets, increases our leadership in integrated payments, expands our presence in new and provides further scale in existing geographies and augments our B2B software and payments solutions. We look forward to welcoming EVO’s valued team members to the Global Payments family. We also remain on track to close the divestiture of Netspend’s Consumer portfolio by the end of the current quarter, a key element of our strategic pivot. We believe that this transaction will best position Netspend’s Consumer business for future success and we wish its team members the best of luck in the future. Additionally, we have reached an agreement to sell our Gaming Solutions business to Parthenon Capital Partners for $415 million. This transaction, much like the sale of Netspend B2C is consistent with our efforts to refine our portfolio toward our core corporate customers in a way from consumer-centric businesses. These three transactions further our strategic objectives, simplify our businesses and provide us with enhanced confidence in our growth and margin targets. We expect each of them to close by the end of March, providing us with core businesses from which to grow for many years to come. Our unique ability to provide differentiated vertical market software, payments and other technology solutions continues to resonate with customers. Our vertical market segment again delivered low double-digit growth in the fourth quarter with our QSR and School Solutions businesses, notable standouts. We are delighted to announce today that both the Atlanta Hawks and the Atlanta Braves have chosen Global Payments to serve as their official commerce technology provider for State Farm Arena and Truist Park. The Hawks and the Braves ranked comprehensive RFPs to select their partner for the future. And they chose Global Payments because of our ability to deliver distinctive cloud-based software and payment solutions to create enhanced frictionless experiences that increase fan engagement, drive loyalty, provide cloud-based data and improve operational efficiency. We are proud to be the commerce technology partner for all of Georgia’s major professional sports and entertainment venues. And our pipeline in this channel remains robust. In addition to the Hawks and the Braves takeaways, Xenial produced record revenue in the fourth quarter of 2022. Recent wins also include A&W Restaurants, Jack in the Box and Panda Express. What do these new customers all have in common such that they chose us in recent competitive takeaways? In short, consumer expectations for the sports and entertainment and QSR channels are high and the pace of technological change in those markets plays uniquely to our competitive strengths. Our technologies are winning everyday in the marketplace with more than 51,000 restaurants in over 65 countries choosing our purpose-built ecosystems to deliver positive experiences back to their customers. Other standouts in our Merchant business for the fourth quarter include our integrated and worldwide e-commerce and omnichannel businesses, which both again delivered mid-teens growth in the period. We are excited to combine the best of these businesses with EVO as our integration activities commenced in the near-term. In addition, we are now live with our acquiring relationship with Google across North America on the heels of the success of our initial launch in Asia-Pacific in 2021. Turning to our Issuer business, we produced the best performance we have experienced since the TSYS merger in 2019 in the fourth quarter of 2022. We ended last year with a record 816 million traditional accounts on file, an increase of 15 million AOS sequentially, driven by double-digit account growth with industry-leading customers as our strategy of aligning with market share winners, shows gains. Our commercial card business continued to perform well, with transactions growing 20% in the fourth quarter as cross-border and domestic corporate travel continued its recovery trajectory. We lead in the issuer market with cutting-edge technologies, worldwide scale, terrific customer service and a partnership mentality. While the issuing business has always been and we expect will always remain highly competitive, those partners seeking to compete digitally know where they need to invest to be competitive in the marketplace. Much like in the Merchant business, issuing businesses in growth challenged markets without the wherewithal to make cloud-centric technology investments for the digital future will be increasingly challenged to compete. Thankfully, that’s not our target market. We are very pleased to announce that TSYS signed a multiyear extension with Bank of America, one of our largest customers and relationship that spans consumer and commercial card portfolios in North America and the United Kingdom. We also extended our successful partnership with Deutsche Bank, our largest client in the DACH region into the next decade as TSYS remains their partner of choice for scheme branded card portfolios across international brands, including Deutsche Bank and Postbank, also good timing in light of our pending entry into the acquiring business in Germany through EVO. Other recent multiyear extensions with longstanding customers include P&C for its commercial business. Our durable relationships with some of the most complex and sophisticated institutions globally speak to our competitiveness well into the remainder of this decade. We currently have 9 letters of intent with institutions worldwide, nearly all of which were achieved through a competitive RFP process. This includes a recent LOI for new business with TSYS in Mexico, well timed in relation to EVO and a competitive takeaway conducted via RFP. Another 12 of our recent LOIs, including 5 competitive takeaways, have gone to contract since the beginning of 2022, providing further future growth opportunities. We recently entered the Swedish market through a contract we executed with Entercard during the quarter spanning both its consumer and commercial portfolios. And we have got a contract with Scotia Chile portfolio, which is being added to our agreement with Scotiabank, a partnership that spans multiple markets across the Americas. This marks our second win in Chile, following the long-term agreement we reached with market leading retailer, Cencosud, signed earlier this year. Our issuer conversion pipeline stands at a record post-merger of over 75 million accounts, providing further confidence of our growth trajectory well into the future. We are pleased to report that we have now reached business agreement on ahead of terms with CaixaBank, one of the largest issuing institutions across Europe. Post implementation, we expect to become one of the largest debit technology providers in Europe. We are the beneficiaries of technological innovation, continued share shift and market share gains is just one example while we have been providing market-leading technologies for buy now, pay later initiatives for decades. We continue to innovate and deliver installment products as BNPL demand grows. This includes launching a successful BNPL program with one of our longstanding partners, NatWest, to aid customers with longer term purchases and special events. This product was designed to enable payments to be easily tracked and incorporates the robust fraud protections provided by FCA-regulated purchases. Other issuer highlights include a new partnership with Mastercard, leveraging Ethoca consumer clarity to improve the dispute resolution process and digital experiences for more than 25 million car owners in the U.S. and the UK. We also are collaborating with fintech software-as-a-service platform, Mondu, to provide next-generation capabilities for financial services customers across a number of strategic use cases, including credit cards BNPL, prepaid cards and a range of deposits and lending solutions. Finally, we have now combined the TSYS commercial card business, MineralTree and Netspend’s B2B assets into a single unified B2B organization within the Issuer Solutions business as we focus on driving cross-selling opportunities. Across MineralTree and our core TSYS virtual card capabilities, total spend grew more than 50% in 2022 over the prior year as we remain focused on bringing the industry’s best virtual card capabilities to our FIs, enabling B2B transactions, mobile wallet provisioning and online travel capabilities. MineralTree had a terrific fourth quarter of 2022 with growth in excess of 30%, and it is well positioned for gains heading into 2023. Josh?

Jeff Sloan:

Thanks, Josh. I could not be more proud of all that we accomplished in 2022 despite the incremental challenges we faced throughout the year. These achievements have given us increased confidence in the accelerated growth trajectory we outlined at our investor conference. Simply put, we built a better, a more durable business model. Our expectations for 2023 are for a return to normalcy with businesses across our markets delivering a typical financial and operating levels. The consumer remains resilient with anticipated spending patterns reflected in our recent results and our guidance. The imminent closing of the acquisition of EVO and the sales of Netspend B2C and Gaming mean that three quarters of calendar 2023 will reflect results of the businesses that we intend to manage well into the future. We’ve completed the strategic pivot set forth in September 2021, and we are very much the better for it. Winnie?

Operator:

Thank you. [Operator Instructions] Our first question comes from the line of Darrin Peller with Wolfe Research. Please proceed with your question.

Jeff Sloan:

Darrin, it’s Jeff. I’ll start, and I’ll ask Cameron to jump in, too. So I think we’ve described that over the last number of calls. We’re going to end up with – in the aggregate, if you step back, a Merchant business is three quarters of the revenue of the company and an Issuer in B2B business that’s 25% of the revenue of the company. That’s reflected in our September ‘21 cycle guidance expectations, and if anything, makes us feel better about achieving those expectations. That was covered in our press release in our prepared remarks this morning where, excluding dispositions on an FX-neutral basis, we actually hit those targets despite all the incremental challenges and uncertainties in a lot of the markets that we’re in. I’d also say that we expect all the transactions that we’ve announced previously and now Gaming today that closed by the end of this quarter, So three quarters of 2023, as I said in my prepared remarks, I expect to reflect the businesses that we will have for many years in the future and the future to come. I also touched on – I’ll turn to Cameron in a second, but I also touched on some of the pieces that have generated fantastic growth, the 9% that we announced this morning in Merchant, the 13% for the year, 9% for the quarter, the 9% volume growth I announced in my prepared remarks. Some of the pieces that added into that namely our integrated business, which again grew into the mid-teens, our e-comm and omni businesses. which again grew into the mid-teens meaningfully in excess of the Visa, Mastercard kind of e-com reporting, and of course, meaningfully in excess of what PayPal announced last night in terms of their volumes and the like. So I think those growth drivers that we’ve described historically at our last investor conference in probably the last 4 or 5 years of calls in our Merchant business, I expect to continue to drive the business forward. Cameron, do you want to provide more detail on merchant to take it?

Jeff Sloan:

Yes. And we see that trend, as I said, just to finish off on that point from Cameron, Darrin. As I said in the prepared remarks, we saw the same trends continue into January. So really with the preliminary results that we have for January, we are pleased with the metrics that we have into January and into February. So we really haven’t seen – as Cameron just alluded to, really haven’t seen much of a change. Bank of America came out this morning with some comments about a healthy consumer. So we continue to be pleased with where we are.

Jeff Sloan:

Thanks, Darrin. Yes. So look, I think we’re really pleased with where the Issuer business is, and it’s really issuer and B2B now. So look, I would tell you that in the back half of calendar 2022, for Issuer in particular, we exceeded our expectations almost every month and certainly for the two quarters. So we’ve got our fingers crossed that we will do better and what that it will accelerate further. As I mentioned a minute ago, the metrics to January – preliminary results in January and metrics and issuance of February also look very healthy. So look, we’re hopeful we can do better than that. I would say though that the fourth quarter of ‘22 itself represented 80 basis points of sequential acceleration in core Issuer just from Q3, Darrin, into Q4 sequentially in terms of revenue. So look, I’m hopeful we can all look back and say that was a low bar, but you’re talking about a business that had its best performance in the month of December that adds since the merger expect performance in the quarter that it had since the merger, Darrin, be delighted to talk to you in May about how good the performance is in the first quarter if that will continue. But I think we’ve got multiple tailwinds in that business. We’re really excited about where it is. Obviously, part of our goal is to get B2B larger. So as Josh said in his prepared remarks, B2BX Paycard added about 60, 70 basis points to the growth rate. We’d obviously like to get that bigger and that’s part of our plan to get to mid to high over time single-digits in that business, but that’s reflected in our guide today, up to 5.5% growth. So I think we’ve got every avenue of opportunity available to continue to build on the sequential acceleration that we saw in calendar 2022. And hopefully, Darrin, can look back later in the year and laugh about how easy it was.

Jeff Sloan:

Thanks, Darrin.

James Faucette:

Great. Thanks. I wanted to touch quickly on the expense side and expectations for margin expansion. I wonder if you can just give a little more detail there, particularly around like labor. And just wondering if wage pressures have largely subsided at this point? And is that part of what you’re expecting to help contribute to margin expansion?

Josh Whipple:

Yes, absolutely. So James, as I said in my prepared remarks that we expect margins to expand approximately 120 basis points in 2023, which is if you think about our cycle guide at 50 to 75 basis points, that is ahead of our cycle guide. And we expect to see outsized margin expansion in Q1 of approximately 200 basis points, which is similar to the levels that we saw in Q4, and then we expect to see more normalized expansion of 100 basis points to the balance of the year. And I would say that the primary driver of the benefits of this margin expansion is really a business mix shift towards technology enablement and the divestiture of Netspend, which we had talked about, which we expect to be partially offset by the lower margin profile of EVO before we start to go ahead and realize synergies. So that’s a little bit more color as it relates to margin outlook for 2023.

Jeff Sloan:

Yes. I’ll start, James, and then I’ll ask Cameron to give more detail. So I would just say, as we said in our prepared remarks, look, the fourth quarter and Cameron said this, in certain of our markets, United Kingdom, Asia Pacific, they moved from a tailwind to a headwind. And I think a lot of that is macroeconomic-related. Some of that obviously is COVID, as Cameron alluded to, kind of coming in and out. I mentioned before that January preliminary results are favorable and that we see those metrics kind of trending and continuing, so that doesn’t appear shifted from the fourth quarter. But the point I was trying to make in my prepared remarks, James, is whatever macro disruption we’ve kind of seen from higher rates, FX, COVID, whatever you want to call it, UK, already in our results from the fourth quarter and certainly our annual results from January and guide our expectations. So I would say that’s kind of early in the cake, so to speak, as we think about kind of where we are. Cameron, you want to be a little bit more detailed on SMB and mix?

James Faucette:

Thanks everybody.

Operator:

Thank you. Our next question comes from the line of Jason Kupferberg with Bank of America. Please proceed with your question.

Jeff Sloan:

Yes. Jason, it’s Jeff. So, I will start. So, we will start with our GAAP guide, which is the first row, and then we have got our normal GAAP adjustments, which is the second row, the home adjustments to get adjusted net revenue. That’s what we report, the 6% to 7%. We said currency was roughly neutral. The truth is it’s a 20 basis point headwind. We are just going to absorb that. We didn’t think calling that out and trying to back out 20 basis points based on what we know is really worth anyone’s time. Our job is to manage those things. The reason we call it net divestiture, if that’s net of EVO. So, as I mentioned a minute ago, Netspend B2C and EVO are roughly similar in size. They are going to close, our expectation, is on around the same day. So, there is no timing discontinuity of those things. Those offset more or less, I would say there is a little bit of leakage. So, there might be something like 50 basis points, 60 basis points of leakage on the sale of Netspend Consumer relative to the acquisition of EVO. But then remember, we were forced to exit the Russia business April 29th, Jason, of last year, so we have overlap there for a period. And then we obviously also announced today from a revenue point the sale of gaming, which is earnings-neutral, but obviously revenue-dilutive. So, the net effect of that is minus 1.7%. If you get the lot together, the acquisition of EVO, the sale of Netspend Consumer, the forced divestiture of Russia, the sale of gaming does net to minus 1.7%. So, if you add back currency and get back the net effect, which is why it says net there on Slide 10, you get to the 8% to 9%, which to your point, and we call it core here. That’s our view of what the core business is really doing. If you want to take that to earnings, and Josh actually put this in his quote in press release. If you back out the divestiture because it’s not our – our cycle guide doesn’t include divestitures. If you back that out, core earnings growth would have been 15% to 16%. That’s not what we were guiding to, because that’s not what we are going to report. But the 8% to 9% correlates to the 15% to 16%. Then if you say, well, what about EVO’s run rate of expense synergies because we only get 1 point or 2 points of accretion this year because we only own it for nine-twelfth of the year. But if you look at our guide from August 1st, there is another 3% of accretion to EPS at full run rate – incremental free at full run rate phase in full expense synergies, which is from August 1st of last year. You put that in, and we are actually at 17% to 20% earnings guide. So, the way we think about it, Jason, is 8% to 9% is the run rate of what the quarter is doing. We are not guiding to that because we are going to report which is what Pages 7, 8, 9 do, what our press release does. We don’t want to have any confusion. But for those who are interested in what’s really going on, what’s the core revenue growth rate of the company, whatever it is, it’s 8% to 9%. What’s the core earnings growth of your company, it’s 15% to 16% and with full phase in EVO synergies, it’s 17% to 20%. So, right on top again – and Josh already said, it’s 120 on the margin, so right on top again of our cycle guide despite all the uncertainties of the world.

Josh Whipple:

Yes, absolutely. So, our primary focus this year is to go ahead and pay down debt. And so we are currently 3.25x levered. Today, with the – once we close, EVO will be about 3.75x levered. And then we will focus on paying down debt for the balance of the year, and we expect to get back to our current leverage levels at the end of the year. If you think about interest income, it’s approximately $75 million for the year.

Jeff Sloan:

Thank you.

Bryan Keane:

Hi guys. Good morning and congrats on the solid results. Jeff, I wanted to ask about yields. A lot of chatter on looking at the merchant side. If you look at your volumes, they look very favorably versus peers. On yields, you guys are about flat. Others are showing large increases. Can you just give some comments on how you think about yields and yields going forward in the merchant business?

Bryan Keane:

Got it. Great. And just on some of the renewals, the larger renewals. I guess the worry always is on a renewal basis, you will have to take significant kind of discounts to renew those businesses in a competitive environment. Jeff or Cameron, obviously, could you just talk a little bit about the renewal cycle because it sounded like with BofA and others, you have signed quite a bit of business, just thinking about pricing there. Thanks.

Cameron Bready:

No, the only thing I was going to add to that, Bryan, as it relates to renewals and issuer. It’s a little bit like the merchant business and that we are not trying to be all things to all people. We target very specific segments of the market, and we are really targeting winners in the market. Those issuers who are growing, they are acquiring more portfolios, they see good organic growth from a card deployment perspective in their business today. So, you can afford to give, to some degree, those discounts on renewals because you are going to grow through them over a short period of time, to Jeff’s point. So, it speaks to a little bit around how we position the issuer business in the marketplace, the target market for us from a growth perspective. And again, the organizations we like to partner with, those that are winning in the marketplace and give us the opportunity to grow through any sort of discount we may have to provide on a renewal over time.

Bryan Keane:

Got it. Very helpful. Thanks guys.

Cameron Bready:

Thanks Bryan.

Vasu Govil:

Hi. Thanks for taking my question. My first question is just on the macro and the EVO business. I guess could you talk a little bit about the defensiveness of the book of business that you are acquiring with EVO? And to the extent macro does slowdown, how would your outlook on the accretion change there, if at all?

Jeff Sloan:

Yes. I mean at that point, Vasu, as Josh in his prepared remarks, that 430ish, 435 number, which is like 630, whatever the math is, for the full year reflects double-digit growth over EVO period-over-period. So, that’s the number ready. Then on your earnings question, what we showed today was consistent with what we said on August 1st is really no change. That 1% to 2% of accretion for nine-twelfth of the year for EVO, if you fully phased in, as I said, as a response I think to James’ question, you fully phased in the synergies for EVO. You would get to 4% to 5%, which basically offsets completely the Netspend B2C Consumer disposition. That’s what we guided to in August 1st of ‘22. Vasu, we said, nothing has changed.

Jeff Sloan:

Yes. I will take that Vasu and Josh can jump in. So, look, our cycle guide for that business has been, I think TSYS was 2%, 4% to 6%. The good news is in our guide, we go up to 5.5%, right, today. So, we have 4.5% to 5.5%. Obviously, 5% in the midpoint, 5% is the midpoint of 4% to 6% also. But notice the 4.5% to 5.5% relative to the 4% to 6% historical cycle guide. So, I think that’s good news. I think the difference in that business is really twofold. One, as I mentioned in response to Bryan’s question, I think the cloud-centricity and the advent of new technology business, look, we wouldn’t have won the deal in Mexico. I don’t think we would have won – I know we would have won CaixaBank and the other things we described, if we weren’t cloud-centric and cloud native in that business, which is obviously what we have been working on since our announcement in August of 2020 with AWS. So, the first thing I think it’s changed is what people are buying, which is really technology and look, price is always an issue, but I think as I mentioned a minute ago and Cameron too, I think we are always price competitive. That’s kind of point number one. Point number two, obviously, is the mix with B2B assets that we made the pivot on with MineralTree in September of 2021 and now with elements of Netspend B2B. And I think what we said in the back half of last year, Vasu, is that should over time, and now I am talking about including B2B, right, that’s kind of a new item. That takes you from the 4% to 6% and it’s going to take you higher to this x as B2B becomes a bigger point. As I think Josh said in his prepared remarks today, excluding Paycard, which is more macro sensitive and had lot of COVID subsidies in it. For employment, if you back that out, B2B added 60 bps to the core. So, if the quarter is growing 5%, I think we just said it was growing 5% in the fourth quarter. If the quarter is growing 5% and you are adding 60 bps, now you are close to 6%. And as those mixes change and as we burn through the pipeline, you are going to get to that mid to mid to high, which obviously is an enhancement with B2B over the traditional 4% to 6%. So, the high end of our guide right now is 5.5%. That’s higher than 5%. We hope, obviously, that continues over time. But the business is in a very healthy place. As I said in my prepared remarks, we had record after record during the peak in particular, in our issuer business. And I don’t see any signs currently of our expectations changing.

Operator:

Thank you. Ladies and gentlemen, our last question this morning will come from the line of Will Nance with Goldman Sachs. Please proceed with your question.

Jeff Sloan:

Yes. So, what I would say is our cycle guide, I would like to start with that Will and just work in reverse. So, our cycle guide of low-double digits includes M&A in it. For example, on the revenue side as well as the expense side, capital deployment has always been a part. And what we have said historically, Will, even before ‘21, probably going back to ‘15, ‘18, is that M&A, for example, can add up to a couple of hundred basis points of revenue in any given period. And capital deployment generally gets 2 to 3 points kind of earnings growth and has historically for a company, whether it’s buybacks or M&A or anything else. So, that’s the overall generality. Then if you go to your question, on Pages 9 and 10. So, what we are trying to get at is we only have three quarters of EVO in 2023. Obviously, we have a disposition coming in 2023, where our cycle guide doesn’t assume we are selling 10% of the revenue of the company, which is what’s in the disposition. So, we tried to back that out to give you a better sense of the 8% to 9%. And then obviously, the exit period also has a currency assumption, as I mentioned a minute ago, and there is a bit of a currency headwind over the year. So, I think the answer to your question is as we accelerate merger integration with EVO, we expect to see revenue acceleration, 125, Will, is just an expense number. So, as we integrate EVO towards the end of the year, as we look at revenue opportunities when it closes beyond expense opportunities, if you add those 1 to 2 points, which is back to our cycle guide over the last number of cycles, you are exiting the year at 8% to 9% on Page 9. Obviously, it’s a bit of a currency thing there, 7% to 8%, add 1 to 2 points, just on EVO alone, and you are going to get to double digits of revenue. I mentioned a minute ago in response to Jason’s question that on earnings ex dispositions this year were 15% to 16%, and EVO were 17% to 19%. So, I think we are kind of at the earnings number with a full year effect of EVO ex the disposition. And I think we are within sharing distance on the revenue side. Then lastly, I would say, we kind of alluded to this in the investor conference, the shifting business mix on the issuer business towards more B2B, I just mentioned a minute ago in response to Vasu’s question, our 4.5% to 5.5% of 5% in the middle, I think it’s right in line with what we said historically. But obviously, that 5.5% is towards the high end of 6%. So, it’s still like we would have said 4% to 6%, like here it is 5.5%. And obviously, it was a lower number in ‘21 and for most of ‘22 to end up the year at 5%. As that mix continues to shift, we see another 50 basis points, 60 basis points coming from B2B as the wins continue to roll in from things like CaixaBank, etcetera. That business should accelerate. Now, you are on top of 10% to 11%, which is our cycle guide with M&A in it. So, I think Will, exiting this year, we are kind of right on track to be where we would like to be from a cycle guide point of view. I would also say, as we said both in the press release and our prepared remarks today, we hit the sight for calendar ‘22, let’s not lose sight of that, constant currency neutral and ex dispositions. So, I think we are right, we are at we want to be despite all the uncertainties in the current macro environment.

Cameron Bready:

Yes. I can give you a little bit of color there, Will. It’s Cameron. The gaming business got about $100 million a year or so. And I think we sold that business at around kind of an 8x multiple level, 7.5x, 8x. Can give you a sense of sort of the EBITDA contribution that it would deliver. So, as we look at 2023, we will have one-quarter of the business, so about $25 million of revenue. You can see that highlighted on Page 9 of our disclosures today. And then we will lose about $75-ish million plus of revenue kind of relative to what we had in 2022 from that business.

Jeff Sloan:

Thanks Will.

Jeff Sloan:

Well, on behalf of Global Payments, thank you very much for joining us this morning. Have a great day.

Operator:

Ladies and gentlemen, thank you for standing by, and welcome to Global Payments Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will open the line for question-and-answer session. [Operator Instructions] As a reminder, today's call will be recorded. At this time, I would like to turn the conference over to your host, Senior Vice President, Investor Relations, Winnie Smith. Please go ahead.

Jeff Sloan:

Thanks, Winnie. We delivered record results in the third quarter, consistent with the higher end of our September 2021 cycle guidance on a constant currency basis and excluding dispositions, highlighting the resiliency of our business model, and our consistency of execution across market cycles. Importantly, our merchant business again delivered double-digit revenue growth, and our core issuer business continued to produce sequential improvement consistent with our expectations each on a foreign exchange neutral basis. Internal metrics thus far into October suggests continuing solid performance for the fourth quarter, much as September did versus August and August versus July. It's certainly possible that things could change for the worse, given ongoing macroeconomic concerns, but that would require an adverse change that we do not broadly see in the current environment. Notably, we are achieving these results while making substantial progress on our strategic and financing initiatives. We received Hart-Scott-Rodino clearance in the United States for our acquisition of EVO Payments, and divestiture of NetSpend's consumer business. And we have now made regulatory filings in all jurisdictions, foreign and domestic, contemplated by the transactions. We took steps to finance the EVO transaction with a successful $2.5 billion fixed income offering in early August at attractive rates, and we undertook a concurrent long-term extension and enhancement of our revolving credit facility. We also completed our $1.5 billion strategic investment with Silver Lake and associated transactions. We are proud of the Company that we keep, and we welcome senior partner, Joe Osnoss from Silver Lake to our Board of Directors. Our issuer business remains on track for continued core growth acceleration into year-end following an acceleration into the third quarter after a robust Q2. Our relationships with many of the most complex and sophisticated institutions globally speak to our competitiveness well into the remainder of this decade. Our issuer conversion pipeline now stands at a record post-merger of 75 million accounts, providing further confidence of our growth trajectory well into the future. What better example than our recent go-live with one of the top 10 commercial banks in the United States, which was a competitive takeaway early after the announcement of our merger. We are delighted that earlier this month, we began onboarding and servicing the bank's new consumer and small business commercial accounts on TS2. We expect this partner to be prepared for the conversion of its existing consumer and commercial accounts early next year. This quarter, we also converted the consumer and commercial portfolios for another large U.S.-based bank as a new customer as well as a large retail portfolio acquired by an existing financial institution partner, both of which were competitive takeaways. And we continue to make great progress with AWS, our preferred issuer technology solutions partner, for unique distribution and cutting-edge technologies. We are pleased to announce that we have reached an LOI with a leading global travel technology company who chose TSYS as an issuer solutions partner for its platform across the U.K. and EU after an extensive RFP process. Once live, this will be our first fintech customer on Prime in the AWS cloud in Europe. We currently have seven letters of intent with institutions worldwide, nearly all of which were achieved through a competitive RFP process and a competitive takeaway. Another seven of our recent LOIs, including five competitive takeaways, have gone to contract since the beginning of 2022 providing further future growth opportunities. Traditional accounts on file increased by $14 million sequentially this quarter, driven by account growth with existing customers as our strategy of aligning with market share winners continues to pay dividends. And transaction volumes grew double digits in Q3, led by commercial card transactions, which increased 25%, highlighting ongoing recovery trends in cross-border corporate travel and the strength of our long-lasting partnerships. At our investor conference last September, we announced B2B as the fourth and newest pillar of our strategy, meaningfully expanding our target addressable markets. As of this quarter, we are now managing Netspend's B2B assets as a part of our issuer business after successfully aligning MineralTree's capabilities with this segment earlier this year. We are delighted with the momentum we are seeing across our B2B portfolio, which includes technology centered on virtual card solutions, a vast commercial card footprint, massive distribution partnerships with the world's leading financial institutions, data and analytics, market-leading payroll technologies and access globally to nonbank card rails. Recent B2B highlights include providing virtual commercial account services to banks and fintechs in partnership with Extend, reaching a letter of intent with specialty fintech [Even Bolt] to enable commercial expense management and integrated payable solutions and signing a multiyear commercial card agreement with Santander in the United States as a competitive takeaway. We are also pleased to have signed new virtual card services and AP services in wins with two leading U.S. financial institutions. Additionally, MineralTree achieved a number of milestones, including signing a marquee deal with Grupo Bimbo in the U.S. and Canada, one of our largest B2B bookings to date; generating record-breaking virtual card spend in the month of September and executing a referral agreement with fintech Ramp to cross-sell expense management and card on file capabilities. We're also pleased to have recently enhanced our relationship with Visa to support their branded cards in the payables space. And this is all, of course, before augmenting our B2B capabilities with EVO's leading accounts receivable automation software solutions, including its extensive proprietary integrations to some of the most widely used ERP environments in the market through its paid fabric platform, including SAP, Microsoft, Oracle, Acumatica and Sage. Moving to Merchant Solutions, we are pleased to announce in partnership with Google that we have partnered with Genuine Parts Company to deliver innovative cloud-based payment solutions for the extensive NAPA Auto Parts domestic distribution network. Leveraging the combined power of Global Payments and Google Cloud, NAPA will streamline Commerce operations for its B2B transactions across the United States. We continue to expand our acquiring relationship with Google in North America following the success of our initial launch in Asia Pacific late last year. Volumes are now building in the U.S. market with Google as a customer, and we expect the ramp to continue throughout this quarter. We also anticipate bringing our partnership with Google to Europe next year. Additionally, we remain on track to launch Phase 2 of Google Run and Grow My Business to help our merchants grow faster by connecting additional Google services to our digital platform this quarter. We yet again delivered solid growth in our e-comm and omni-channel business for the third quarter, well ahead of the markets as we have done all year. We continue to benefit from our unique ability to seamlessly blend the physical and virtual worlds in more markets than our peers. And of course, the pending acquisition of EVO and entry into new geographies like Poland and Germany will enhance our target addressable markets. We are excited to have recently reached an agreement to expand our e-commerce partnership with Gucci, a division of French multinational corporate carrying for acceptance services beyond Europe and into Asia Pacific, where we will deliver a uniform solution and seamless experience virtually for one of the most sophisticated luxury retail brands. Our partnership with Citi via UCP recently went live in Spain, France and Italy, and we continue to expect to go live in Belgium, Denmark, Finland, Norway and Sweden prior to year-end. Together, we are currently targeting Citi's largest treasury and trade solutions customers, and are excited to announce Citi recently signed one of the world's top social media platforms and one of the world's top e-commerce markets platforms. In our vertical markets portfolio, we saw a significant return of growth in School Solutions as expected, and this business delivered substantial improvement in the quarter with the lapsing of pandemic subsidies on school lunches. Also, our Xenial business continues to post solid wins in the sports and entertainment areas, with new signings with the Carolina Panthers and the Winnipeg Jets. And our pipeline in this channel remains robust. Lastly, we continue to see strong double-digit growth in our real estate vertical market business, Zego, with our new flexible payments product driving significant demand for our digital solutions. Lastly, I'm delighted to announce that we have launched our merchant referral relationship with Virgin Money in the United Kingdom this quarter and are already realizing strong lead flow and new signings from this partnership. We also remain on track to launch Virgin Money's new pay proposition early next year. We did exactly what we said we would do in the third quarter of 2022. Our core businesses continued their track record of extraordinary growth and are well positioned heading into year-end. Our strategic investments are tracking the plan and our new partnerships are right in line with our expectations. We are very fortunate to be in the position that we are in heading into the final quarter of the year. Josh?

Jeff Sloan:

Thanks, Josh. We delivered record performance again in the third quarter as we have throughout 2022. Underlying fundamentals across businesses remain broadly healthy. While macroeconomic concerns around, we do not see significant broad-based evidence of softness in the trends that we have experienced to-date or in the bookings and implementation pipelines that we have the good fortune to enjoy currently. And with the dissipation of the pandemic, we are now back to typical financial and operating levels. Despite the background noise, we continue to make significant progress on our strategic and financial initiatives in the third quarter. The acquisition of EVO and the disposition of NetSpend's consumer assets remain squarely on track with our expectations. Our debt capital raise in early August was well timed and executed. Our balance sheet remains strong, and our new partnership with Silver Lake is off to a terrific start. These transformative transactions will serve to accelerate our strategy and provide us with enhanced confidence in our increased growth and margin targets over the cycle. Upon the expected closing of these deals in early 2023, Merchant Solutions will represent approximately 75% of our adjusted net revenue, with Issuer Solutions, including B2B, comprising roughly 25%. We have multiple levers in each segment to continue to gain share over the cycle with a simpler model, more geared toward our corporate customers with enhanced growth and margin prospects. Happy Halloween, everyone. Winnie?

Operator:

[Operator Instructions] Our first question comes from the line of Darrin Peller with Wolfe Research. Please proceed with your question.

Cameron Bready:

It's Cameron, I'll jump in, and I'll ask Jeff and Josh to add any color they'd like to. So what I would say is if you look across the data, the volume data, in particular, in our merchant business, we're seeing very good sort of stability and strength kind of across most of our sectors. And I think what's particularly, I think, gratifying to me is when you look at our performance, which, to your point, is better than the networks and our peers, that's without the benefit of the significant travel rebound that I think is propping up volume numbers for other people. As we've talked about many, many times, we don't really participate widely in travel and entertainment. And as a result of that, we're not really seeing the strength of the recovery coming in those channels, which I know is driving a good portion of volume growth kind of across the sector. So I'm really pleased with the volume growth we're able to produce, notwithstanding the fact we're not really exposed to that segment of the market is the first point I would make. The second thing I would comment on is we're seeing, I think, largely what others are seeing in the marketplace. Consumers are focused more and more on experiences. Hospitality continues to be good in our space. Obviously, retail is not quite as good as it was during the pandemic time as people have pivoted away from goods to more services and experiences. And I think you're seeing sort of volume trends in our portfolio that generally align with that overall macro trend. The last thing I'd say and kind of to the end of your question, given the diversity that we have across our portfolio and how well positioned we are, I'd say, across 70-plus vertical markets from an exposure perspective. I think we feel pretty confident that the stability and strength and volume growth that we've seen over the last several quarters is sustainable as we move forward in time. So, we feel as if we're kind of operating now in a normal environment. And the results that you saw in Q3 kind of reflect normal operating expectations for the merchant segment more broadly. And the last comment, I'll make and sorry, before I turn it over to Jeff, is just. We are still dealing with pockets of weakness around the globe as well. So I'm again pleased with the overall performance, notwithstanding the fact that we're still seeing COVID-related impacts in Asia Pacific. Obviously, the Greater China markets continue to struggle with periodic lockdowns and travel restrictions, et cetera, as it relates to their desire to have sort of a zero coved policy. And of course, we're seeing a touch of macro impact in the U.K., although a relatively small portion of our business. I think it's hard not to notice obviously, the impacts in the U.K. stemming from a variety of overall macro factors there. And certainly, that has weighed on the performance slightly as well. But if you look at everything in aggregate, again, very pleased with the overall sort of revenue growth and volume performance we've seen across the portfolio.

Darrin Peller:

Just one quick follow-up and maybe, Josh, this might be a little bit more for you on the financial side. But when we look at the quarter itself, obviously, there were some adjustments to try to figure out, what the core results are. I guess there's bridge financing that you guys added back. But then when looking at guidance, you're talking about FX adjusted, but then you're also saying that FX was, I think you said 400 or 500 basis points embedded. And correct me if I'm wrong, maybe you could just reiterate again what the reported outlook is for the year in terms of any -- if there's any other adjustments going on, just to be clear.

Operator:

Thank you. Our next question comes from the line of Jason Kupferberg with Bank of America. Please proceed with your question.

Darrin Peller:

Yes. No, thanks. So as you think about NetSpend and EVO together, depending on timing, they -- it's pretty much an asset swap where they're offsetting one another. So we would expect that to go ahead and be neutral from an overall accretion dilution perspective.

Jason Kupferberg:

Okay. Understood. And then just as a follow-up, I think you've steadily raised margin guidance this year, each quarter to a level that's well above your cycle guidance. I think you've gotten a little bit of benefit from exiting Russia, but I just wanted to understand a little bit more the underlying drivers you would point to that are driving the outperformance? And then if you can just make a quick comment on Q4 growth expectations for issuer?

Josh Whipple:

Yes, absolutely. So I think the question was with regard to issuer. And look, throughout the year, we've seen a really nice trend in the issuer business, 1Q to 2Q, obviously, and then 2Q to 3Q, we saw 20 basis points of growth there. And what I would say is based on the internal metrics that we're seeing now would suggest that through the first month of the quarter, that things are consistent with regard to what we saw in September, which Jeff had mentioned just a moment ago. So, we feel very, very good about the trends of the underlying business with an issuer, and we expect to see those trends continue into the fourth quarter.

Operator:

Thank you. Our next question comes from the line of Brian Keane with Deutsche Bank. Please proceed with your question.

Josh Whipple:

Yes, Brian, it's Cameron. I'll jump in. So, we've talked about U.K. before. It's about 5% of the merchant business, roughly 3% of the total company revenue Canada is roughly the same size. It's actually slightly larger than the U.K. market, but again, going to be in that sort of a little over 5% range and again, 3% on the total company. Asia Pacific, it's more pockets of Asia Pacific. So it's probably 1/3 of that size for the U.K. and Canada, where we're seeing a little bit of weakness, given the COVID-related restrictions and lockdown. So I would say not material and Brian, we've talked about for a long time. We don't need every market, every geography, every channel to perform perfectly for us to hit the expectations that we have for the business. And I think this is a really good sort of example of that. The performance in the quarter was very much in line with the expectations we have for our overall business, 11% constant currency revenue growth, excluding Russia, which again, is very good growth in that portfolio, notwithstanding again, not everything is going perfectly in every market around the globe. So that's our expectation as we move forward. We'll continue to see pockets of areas that may create challenges, but we feel poised to continue to produce growth consistent with our cycle guidance for the merchant segment.

Jeff Sloan:

Yes. Good question, Brian. I don't think you have to look any further than our history to see how we've operated in more challenging macro environment than the one that we see today. A great example would be kind of early on in the pandemic when we took an incremental $400 million of annualized cost saves out in a couple of weeks, of which $200 million was permanent. That was probably six to nine months, March of '20 after we closed the TSYS merger. Of course, we're -- as we announced, we're to continue to expect to close the EVO merger in the first quarter of '23. When we do deals even beyond the normal operating environment, when we do deals, we have the ability to accelerate the synergies. If you go back to our commentary on the synergy expectation for EVO, it's $125 million of annualized expense synergies. I think we've assumed at 1/3 of those is I think what we said at the time on August 1 would be phased in that's the realized number in the first year. Obviously, we've an ability to move those around and accelerate those. So, we have a track record of over-performing on our synergy expectations on the cost side. And we also have the flexibility as we did in the case of the TSYS merger and even the Heartland merger from accelerating synergy realization, if that's kind of what we need to do. So listen, as we think about it and as we said in our prepared remarks today, the internal metrics through the first three weeks of October are in a really good place. We don't see any kind of broad-based evidence of any impact from the macroeconomic environment. Having said that, we have plenty of levers that we can pull to manage to our expectations for '23 and beyond, I think if you look at the history, you'll see how we've done that.

James Faucette:

I want to follow up on Brian's question there on EVO and you mentioned the synergy potential. As you've kind of started to look more closely at that business, can you talk about like what are the puts and takes that at least at this stage, think could come from that could move those synergies around? And what are you finding there that maybe is encouraging you to feel like a little bit optimistic in terms of potential to do more there than you've outlined?

Cameron Bready:

Yes, James, it's Cameron. I'll add a couple of other comments. I would say, in addition to B2B on the revenue side, I think we're particularly excited about the prospects of bringing our product particularly our commerce enablement solutions to EVO's international markets into the U.S. portfolio as well. But certainly, internationally, EVO's done a great job sort of building payment businesses in these markets, but they're product set is very payments oriented. And I think we have a significant opportunity to augment what they're doing in market today, particularly in markets where we don't operate by bringing our commerce enablement solutions, some of our other products and solutions, particularly on the software side to those markets. So we see very strong, I think, revenue opportunities coming from that. And then secondly, more on the expense side, obviously, we have very much duplication in markets where we overlap. So U.K., Spain, Mexico. And then that gives us and certainly here in the U.S. market, of course, across the integrated channel and then EVOs more traditional merchant business. Those areas are obviously going to provide meaningful opportunities for expense as we rationalize technology, operating environments, go-to-market strategies across those overlapping businesses. So I would say sitting here today, we have high confidence in the synergy targets that we provided. Certainly, I think there's more revenue upside there that we can tap into as we progress in time and we bring the businesses together, but certainly feel very good about our ability to achieve the 125. And in keeping with past practice, we're hopeful we'll find opportunities to even exceed that as we bring the two businesses together over the next few years.

Jeff Sloan:

Yes, James, it's Jeff. I'll start and ask Cameron to join too. I'll speak to the issuer side first. So we've made a tremendous amount of progress on the issuer side in BNPL. And I think given our advantages with the 1,500 financial institutions pre EVO, that we have relationships with today, our perspective is providing BNPL technologies and services to regulate a responsible BNPL providers or used to extending credit and provide AML and KYC is absolutely the right thing to do. We have a number of customer implementations underway, particularly outside the United States, in the United Kingdom for the BNPL and the take-up rate from our FI traditional clients and issuer has been very high. In fact, I would say, I don't think we've ever had, as we said in the slide, so more of an implementation pipeline post merger in issuer. And I don't think the funnel of opportunities beyond that in terms of what we're pursuing, which includes BNPL has never been greater. So, I think our strategy go along of aligning with market share winners and the most successful traditional financial institutions as well as fintechs, including in particular in BNPL has been absolutely the right thing to do. We're seeing a lot of traction in that area on the issuer side. Cameron, do you want to comment on the things we're doing in merchant?

Jeff Sloan:

I'd also add to your last point there, James, if you look at our e-comm omni numbers, which we reported again this morning, those remain in line or ahead of the market as represented by the e-comm omni numbers for Visa and MasterCard is now 30% roughly of the revenue of our company. So, we've been in line/accelerating/multiples of where the market's been growing. We wouldn't be in those positions if we didn't have a hypercompetitive offering via the UCP, which we've been talking about, I think, for four years plus now. So, we feel really good about where that business is. Obviously, BNPL is a piece of that business, but we're very pleased with the continual growth in our card-not-present business as measured by our performance relative to the market.

James Friedman:

Congratulations. I want to also ask about issuer. So on the commercial side, that I think you said 25% transaction growth. Is that related to comps? Is that the marriage of the strategy or -- or is that a reflection of the types of accounts on file you're boarding? Any color you might have on commercial would be helpful.

James Friedman:

Okay. Thanks for that Jeff. And there's a lot of good color on Slide 6 on issuer. So about the -- is there any reason why you're excluding Caixa, I think you said in your prepared remarks, you're excluding Caixa. If I heard that wrong, I apologize. But what's the logic there?

Operator:

Thank you. Our next question comes from the line of John Davis with Raymond James. Please proceed with your question.

Jeff Sloan:

Yes, John, it's Jeff. It's not a pull forward. I mean, as I said, in response to a couple of questions ago. The fundamental driver of margin improvement is terrific growth. So when you look at the things that are driving the growth of Merchant as Cameron alluded to, our software businesses, our higher-margin businesses that are technology-enabled as those grow faster than market rates, which we reported again this morning, that is going to drive outsized margin performance. And I think that's what you're seeing in merchant, which had 50-plus percent margins for the second time in a row this quarter. On the issuer side, it's a very healthy growth profile on Issuer. I think Josh alluded to this. It was 4% core constant currency in the second quarter, now 4.2%. As Josh said, our expectations for north of that in the quarter we're in right now based on the metrics through the third week of October. So when you have businesses that are probably 80% plus incremental margins relative to a 40% average margin number growing at above market rates, you're going to drive better margin returns. That's the fundamental thing. The second thing I would say, as you alluded to is, look, we provide ourselves in execution. We've got a long time here making or exceeding our margin targets. So we are appropriately cautious throughout the back half of this year heading into next year. But no, our expectations, EVO remained for normal margin enhancement heading into next year, I think EVO and the disposition of NetSpend provide opportunities for accelerated margins when we get there. But I think for the time being, it's really driven by 11% fundamental growth in merchants, 6% fundamental growth in issuer if we keep doing that, we're going to keep expanding margins.

Cameron Bready:

Yes, John, it's Cameron. Maybe I'll jump in, and I'll ask Jeff to chime in with any other additional comments. So if you think about the B2B strategy, I'd break it down into its individual building blocks because ultimately, end of day, what we're trying to achieve is sort of fully integrated B2B offering, where we have software at the heart of our ability to provide accounts payable, accounts receivable solutions with money and money outflows for largely mid-market customers and obviously, enterprise customers to the extent we want to scale into that market as well. So if you think about that as a sort of core underlying strategy, obviously, MineralTree is the base foundational asset to support our AP software automation capabilities. It will complement, obviously, or EVO, I should say, will complement what we have with MineralTree by providing, again, the core foundational AR software capabilities, again with the integrations into the largest ERP providers in the marketplace today. So -- if you think about the B2B strategy, much like we've done on the merchant side. The foundation of that will really be software driven by both AP and AR software solutions. And we'll wrap around that to the ability to provide, again, money in and money out solutions to our customers in the B2B space. So their ability to accept payments, obviously, of course, on the merchant acceptance side, their ability to make payments and outflows on the AP side all of that in a fully integrated package that we can sell either as micro services or any one of those solutions or as a fully integrated package again into that market. So I think the attractive part of EVO as we talked about before there are many attractive elements. One of the most attractive developments is the AR automation software that they bring to global payments and how nicely again, it complements the overall B2B strategy that we're trying to build out here.

Operator:

Thank you. Our next question comes from the line of Bob Napoli with William Blair. Please proceed with your question.

Jeff Sloan:

Yes, Bob, I won't belabor the B2B topic because I think we spent a lot of time on this call talking about our B2B strategies and how we do stand-alone and also with EVO, but just to start at the top, I mean, I think B2B is a big driver of our future growth expectations, we talked about last year, about a year ago in our September '21 Investor Day. The second thing I would say is what we call commerce enablement, really on the merchant side of the house, which I know Cameron has touched on. If you look at our recent announcements, with a bunch of stadiums, Mercedes-Benz is probably the most notable. But as we alluded to in the script, more are coming kind of imminently probably before our next call. What's really driving that, Bob, at the end of the day, is the seamless combination of software, digital, mobile in the way that consumers want to be treated. So we've talked about this, I think, in our Investor Day, but pre-pandemic, maybe people got paper tickets, maybe people were okay getting a parking pass, maybe people are okay taking a stub at the parking lot in the stadium, maybe people are right, touching something at the counter and inserting their card. If that's table stakes, I think, for all that stuff to be done digitally, maybe that was going to happen anyway. But as we said repeatedly in '20 and '21, I think the pandemic probably accelerated that migration by three to five years, and that's what we're seeing. So when we're going into RFPs now with stadiums, and we won, obviously, a lot of them, more will come, but just take Mercedes-Benz more recently as one example. All that stuff now is done digitally, meaning your ticket's on your phone, your parking pass is digital also on your phone. When you order something, you can do that from your phone, too, it can be delivered to your seat. You can do it from a kiosk, you can pick it up in a locker. No one wants to touch anything anymore. Another great example of this, we call that commerce enablement, which means it's less about what the point-of-sale device is and more about the consumer experience. Then if you look at something like real estate, and I think Josh and I alluded to Zego today and its performance, same thing. If you go back, Bob, kind of pre-pandemic, people would show up at the landlord's office with their check. If they had a repair ticket to fill out, they fill it down a paper, hand it in. If they wanted their car, they hand in a parking ticket. We don't want those stuff anymore. No one want to touch those things. It's all done on your phone. When you sign up for a new apartment, it's all done electronically. When there's a repair thing, you do it on your iPad when you want your car, you kind of press a button on your phone. So when we think about commerce enablement and the opportunity to seamlessly combine what we've built here, which is software as well as payments as well as a digital environment as well as wallets as well as e-com omni, we think there are only a couple of people in the world who can really provide those services. And I think the rate of our pros growth or implementation provides all the evidence you need to do -- you need to see as to how those undertakings are going.

Jeff Sloan:

I'd also say, Bob, just to circle back to complete the question. On the issuer side, the cloud sales. So look, when we announced the deal, the unique partnership we have with AWS 2 and 1/4 kind of years ago now. We are very excited, but probably uncertain about the timeline, the path of migration, traditional financial infusions, we're not uncertain about that anymore. I mean, I think now that the world has reopened, I think I've been in Europe, three times for work along with Gaylon in the last few months and that with most of the top financial institutions in the United States, in Canada and most of Western Europe. As I mentioned a minute ago, in addition to the $75 million accounts and implementation for accounts on file, I don't think we've ever had the bucket of opportunities that we have today on the issuer side. And every one of those RFPs comes in and says we want 100% cloud kind of the first day. So I would just say in terms of other areas of focus on the issuing side beyond B2B and both on what we've already described, I think the cloud sales and in particular, I think the AWS cloud sales.

Jeff Sloan:

Yes, I think it's really, Bob, led by technology. So we really have a technology and product-centric first view of the world. I also think we have excellent people both on the sales and support side and we hear that consistently from our financial institution partners. So listen, as it relates to pricing, I think as with all things in life, you have to be competitive. These are big, smart, sophisticated institutions that run our fees. But at the end of the day, I think it's really driven by the product stack and the technology stack. And I think public cloud or table stakes now in that environment, also dovetails very nicely with our go-to-market on the B2B side, which is also obviously with MineralTree, very cloud-centric. So I think we've got all the elements of successful offering, and it's nice to see the investments we've made over a period of years play out in terms of wins and conversions. Thanks, Bob. On behalf of Global Payments, thanks for your interest in us this morning. And again, happy Halloween, everyone.

Operator:

Ladies and gentlemen, thank you for standing by, and welcome to the Global Payments Second Quarter 2022 Earnings Conference Call. [Operator Instructions] And as a reminder, today's conference will be recorded. At this time, I would like to turn the conference over to your host, Senior Vice President, Investor Relations, Winnie Smith. Please go ahead.

Jeff Sloan :

Thanks, Winnie. We welcome Josh Whipple, our new CFO, to the call today. Josh has been a senior leader at our company for 7.5 years, guiding us through some of the most significant milestones in our history. He's a trusted partner who has played a key role in building a leading technology-enabled software-driven payments business worldwide that Global Payments is today. We also thank Paul Todd for his terrific partnership and the critical role he has played in the successful merger of TSYS and Global Payments over the past 3 years and his 27 years at TSYS. We wish Paul all the best in retirement. We delivered second quarter adjusted results that were the best in our history across our key financial metrics despite the self-evident incremental headwinds. Both our merchant and issuer segments exceeded our expectations on a currency-neutral basis post the divestiture of our Russian business. Importantly, our issuer business generated 400 basis points of sequential revenue improvement on a comparable basis, exactly as we said it would, and our pipeline remains at record levels. And we achieved these results while executing multiple transactions to better align our businesses with our strategy, getting a key new partnership, extending our lead and deepening our competitive moat. First, we're delighted to announce that we've entered into a definitive agreement to acquire EVO Payments, significantly increasing our target addressable markets, enhancing our leadership in integrated payments world-wide, expanding our presence in new geographies, further scaling in existing faster growth markets and augmenting our business-to-business, B2B, software and payment solutions. Specifically, EVO provides us with a new presence in attractive geographies such as Poland, Germany, Chile and Greece. It enhances our scale in existing markets, including Mexico, Spain and the U.K. and of course, the U.S. and Canada. For B2B, EVO brings us key technology partners and integrations, including with many of the largest enterprise ERP solutions. And it adds leading accounts receivable software capabilities to complement our B2B and accounts payable offerings, which we significantly augmented with our successful acquisition of MineralTree last fall. At our investor conference last September, we announced B2B as the fourth and newest pillar of our strategy, meaningfully expanding our target addressable markets to include a segment that remains substantially under-penetrated, providing tremendous opportunities for future growth. As we said then, we have the technology and distribution assets we need to compete effectively in B2B post our TSYS merger and already positioned as one of the largest B2B companies globally at scale. This includes technology centered on virtual card solutions, a vast commercial card footprint, massive distribution partnerships with the world's leading financial institutions, data and analytics, market-leading payroll technologies and access globally to non-card-based rails. Our acquisition of MineralTree last October provided us with a leading cloud SaaS accounts payable business, which grew 30% in the second quarter and is now operating at EBITDA breakeven ahead of plan. We've been on the lookout for an accounts receivables business corollary to complete our B2B go-to-market offerings. We believe that EVO now provides that missing link. Cameron will provide more details on the tremendous value creation opportunity in combining EVO with Global Payments. But let me start by expressing how delighted I am to welcome EVO team members to Global Payments. The transaction is expected to close no later than the first quarter of 2023, subject to regulatory and, of course, EVO shareholder approvals. Second, we are thrilled to announce Silver Lake, the global leader in technology investing, has committed a $1.5 billion strategic investment in Global Payments in the form of convertible unsecured senior notes. As an expression of their confidence in our long-term leadership role in digital payments and sustainability of our growth, this amount is by far the largest commitment in Silver Lake's long distinguished history. Silver Lake has an outstanding track record of successful investments in technology-driven companies, and we are humbled by their confidence in us as the winner in the digital payments ecosystem over the cycle. This new partnership serves as further proof of the distinctiveness of our model, wisdom of our strategy and position as a leading driver and beneficiary of innovation and payments. A senior partner from Silver Lake will join the Global Payments Board of Directors. We are very proud of the company that we keep. Third, we reached a definitive agreement to sell NetSpend's consumer portfolio to search like capital and Rev Worldwide from $1 billion to further align our businesses with our strategy while simultaneously enhancing our organic growth and margin characteristics. As we said at the time, we announced the strategic review in February, NetSpend's direct-to-consumer portfolio is an attractive set of solutions with a favorable profile, but there is limited overlap between its customer base and our traditional corporate clients. As expected, we will retain Netspend's B2B assets, which delivered strong mid-teens normalized growth in the second quarter and will be included in our Issuer Solutions segment beginning with our third quarter. We're very proud of all that our value team members in NetSpend have accomplished as part of Global Payments, and we have every confidence this business is well positioned for the future under new ownership. We expect this transaction to close by the end of the first quarter of 2023, subject to regulatory approvals. The completion of these important transactions provides us with heightened confidence in the raised cycle guidance for revenue, margin and earnings that we provided at our investor conference last September. Post the acquisition of EVO and NetSpend sale, Merchant Solutions will then represent approximately 75% and of our adjusted net revenue with Issuer Solutions, including Netspend's B2B assets, comprising roughly 25%. The future is indeed bright. Cameron?

Josh Whipple :

Thanks, Cameron. We're pleased with our strong financial performance in the second quarter, which exceeded our expectations despite ongoing macro concerns, the exit of our Russian business and incremental headwinds from adverse foreign currency exchange rates. Specifically, we delivered adjusted net revenue of $2.06 billion, an increase of 6% from the prior year and 8% growth on a constant currency basis. Excluding the NetSpend consumer assets, which will now be held as available for sale, adjusted net revenue grew 11% on a constant currency basis. Adjusted operating income increased 14% on a constant currency basis and 17% excluding NetSpend consumer assets. Adjusted operating margin for the quarter was 43.8%, a 200 basis point improvement from the second quarter of 2021 or approximately 250 basis points, excluding the impact of acquisitions. Excluding the Netspend consumer assets, adjusted operating margin was 45.3%. The net result was adjusted earnings per share of $2.36, an increase of 16% from the prior year or 19% on a constant currency basis. Taking a closer look at our performance by segment. Merchant Solutions achieved adjusted net revenue of $1.43 billion for the second quarter, an 11% improvement from the prior year or 14% on a constant currency basis. ahead of our expectations despite our exit from our Russian business in the quarter. Notably, we delivered an adjusted operating margin of 50.2% in this segment, an increase of 170 basis points year-on-year. Our combined U.S. payments and payroll and integrated business delivered another strong quarter, led by our integrated channel, which again reported mid-teens growth. We also continue to see strong momentum in our POS software solutions, which grew roughly 40% this quarter, and our HCM and payroll business, which grew 20%. Our worldwide e-commerce and omnichannel business delivered constant currency growth in the mid-teens this quarter, well ahead of the trends reported by the networks as our unified commerce platform continues to resonate with customers. To that end, we are excited that we have now expanded our acquiring relationship with Google across UCP to North America following the success of our launch in Asia Pacific late last year. This quarter, we also signed new omnichannel partnerships with multinational retailer, Aldo, and global hospitality company, Delaware North. As for our vertical market solution, we were pleased that the overall portfolio delivered 20% revenue growth compared to the prior year and bookings trends remain strong across the portfolio. We continue to see strong performance in AdvancedMD and TouchNet, the latter of which produced record new sales for the first half of 2022. Further, Xenial continued to realize strong bookings momentum, including increased demand for our kiosk and mobile offerings from food service management customers and new wins with the Winnipeg Jets Canadian Life Center and Ole Miss University in the events and stadium vertical. We also saw local currency growth accelerate across our international businesses this quarter with particularly strong results in the U.K., Spain and Central Europe. I'm excited to announce that we recently signed our merchant referral relationship with Virgin Money, achieving a significant milestone in our strategic alliance combining issuing and acquiring capabilities. Our Issuer Solutions business delivered $459 million in adjusted net revenue, a 6% improvement on a constant currency basis from the second quarter of 2021, consistent with our expectations and long-term growth target for this segment. Issuer adjusted operating margin of 43.5% increased 60 basis points, excluding the impact of MineralTree. On a reported basis, it was down 40 basis points from the prior year. Our transaction and account on file revenue growth grew low double digits. accelerating from the mid-single-digit growth achieved in the first quarter. Notably, commercial card volumes increased nearly 35% with growth improving throughout the period. We also converted the GAAP portfolio of approximately 13 million accounts, which was purchased by our long-standing partner, Barclays, late last year. During the quarter, we signed long-term contract extensions with multiple clients, including Carrefour in Brazil following its acquisition of the Grupo BIG portfolio in the region. And more recently, we signed a long-term agreement with another market-leading retailer in South America, [SyncOnSet], to enter the Chilean market. This will provide further opportunities for our business with today's announcement of our acquisition of EVO. From a cash flow standpoint, we delivered $432 million of adjusted free cash flow for the quarter, and we continue to target converting roughly 100% of adjusted earnings to adjusted free cash flow for the full year. We invested $168 million in capital expenditures during the quarter and expect roughly $600 million in capital expenditures for 2022 consistent with our prior outlook. On the capital allocation front, we repurchased just over 4.5 million of our shares this quarter for approximately $600 million. Our balance sheet remains extremely healthy, and we ended the period with roughly $2.5 billion of liquidity and leverage of 2.9x on a net debt basis. As Jeff and Cameron discussed in detail, we have entered a definitive agreement to acquire EVO Payments for $34 per share in cash, representing an enterprise value of approximately $4 billion. Silver Lake will invest $1.5 billion in Global Payments in the form of privately placed convertible senior notes, which will serve as a source of funding together with our committed bridge facility from our banks. The convertible note will have a cash coupon of 1%, a 7-year term and a conversion price of $140.66. In addition, as is customary with convertible instruments, we expect to execute a call spread overlay to significantly raise the effective conversion premium. We are very excited to have Silver Lake as a new partner and their investment underscores their long-term commitment and their strong belief in the opportunity ahead for Global Payments. Additionally, we entered into a definitive agreement to sell NetSpend's consumer assets to Searchlight Capital and Rev Worldwide for $1 billion. We also expect the NetSpend transaction to close by the end of the first quarter of 2023. Following both of these transactions, we expect our net leverage to be approximately 3.9x at close. We expect our leverage by the end of calendar year 2023 to be back to current levels, highlighting the substantial free cash flow generation we discussed at our investor conference last September. We expect to maintain our current investment-grade ratings. Turning to the outlook of 2022. We remain encouraged by the underlying trends we are seeing in the business and our outlook for the year remains unchanged, excluding impacts from FX and M&A. On a constant currency basis, we expect full year adjusted net revenue before dispositions to be in a range of $8.48 billion to $8.55 billion reflecting growth of 10% to 11% over 2021. This is consistent with our prior outlook from our May call. Adjusted earnings per share on a constant currency basis are expected to be in a range of $9.53 to $9.75, reflecting growth of 17% to 20% over 2021. This is also consistent with our prior outlook. Also, we are raising our expectations for adjusted operating margin expansion to up to 150 basis points, an increase from the prior outlook of up to 125 basis points. On a reported basis, we now expect foreign currency to be in excess of an incremental 100 basis point headwind for the remainder of 2022, bringing the total impact to 200 to 250 basis points for the year. Additionally, we are now reclassifying NetSpend’s consumer assets as held for sale in light of our decision to sell the business and therefore, removing it from our outlook for the remainder of the year. Also, effective July 1, we have moved NetSpend's core B2B assets to our Issuer segment as we look to continue to bolster our leading B2B businesses. In combination with incremental adverse FX headwinds, the reclassification of NetSpend's consumer assets to held for sale and the exit of our Russian business we now expect to report adjusted net revenue in a range of $7.9 billion to $8 billion for calendar 2022. We continue to expect to report adjusted EPS in the range of $9.45 to $9.67 for 2022, which includes an anticipated roughly $0.11 impact from incremental adverse foreign currency exchange rates since May. We are maintaining the same guidance range relative to our original 2022 outlook as we are absorbing additional currency headwinds and the exit from Russia, albeit we expect to be toward the lower end for those reasons. This adjusted EPS outlook assumes ongoing pandemic recovery and a stable macro economy throughout the remainder of the year. As our slide presentation today indicates, we expect the acquisition of EVO and the sale of NetSpend's consumer assets to help deliver on the goals that we set forth at our September 2021 Investor Conference. We raised our cycle guidance then to double-digit top line growth and high teens to 20% adjusted earnings per share growth. Upon the closing of these 2 transactions, our merchant business will represent 75% of our company and Issuer Solutions, inclusive of the NetSpend B2B assets will represent 25%. This intentional mix shift will provide us with enhanced confidence in achieving our raised financial targets over the cycle. At full run rate synergies from the EVO acquisition, we expect the combined result of the purchase of EVO and the disposition of NetSpend's consumer assets to be roughly neutral to adjusted earnings per share. In effect, we have swapped NetSpend's consumer assets for EVO, which is consistent with our strategy and core customer focus. And we've done so while concurrently bolstering the growth prospects of our issuer business by retaining Netspend’s attractive B2B businesses. And with that, I'll turn the call back over to Jeff.

Winnie Smith:

Thanks, Jeff. [Operator Instructions] Operator, we will now go to questions.

Darrin Peller :

Congratulations on all these. Look, I want to start off I just want to start strategically, when we think about the combination of the businesses now going forward and really much cleaner without the -- without that Netspend side of the business. You historically had been a very software-led strategy where you would grow with software acquisition some acquisitions or partnerships. I know EVO has a great track record internationally with different geographies doing JVs. So can you just touch on what you think the focus of the business is going to be going forward now? I mean is it a little of both? Or do you see more emphasis being on one versus the other in terms of international reach and JVs and really dovetailing on that expertise?

Cameron Bready:

Yes, Darrin, it's Cameron. I'll just add a few things. One, if you think about EVO through the lens of our strategy, I'd say, first and foremost, roughly 40% of the business today is technology-enabled. So very much aligned with our view around driving growth in our business through enablement of technology around the globe with software as the leader in that overarching strategy is the first point I would make. The second is a key element of our strategy is having exposure to faster growth markets around the world that helped to drive top line rates of growth that are superior but also gives us an opportunity to bring new technologies to those markets to drive, again, even better rates of growth in markets with strong secular growth trend. And clearly, EVO fits the bill from that perspective as well. And then I would say, third, it does bring us software, particularly in the B2B space, AR automation software and B2B payments capabilities that nicely augment what we already have and allow us to continue to build out a technology-enabled distribution strategy around B2B payments. So it aligns very nicely with the B2C technology-enabled strategy we've been building for many years. So I think EVO in totality really complements many aspects of our strategy today and aligned very nicely with the business we've been trying to build over the last decade.

Jeff Sloan:

Yes. Darrin, it's Jeff. Great question, I'll start and I'll ask Cameron to comment again, too. So first, let me complement Jim and EVO for building just an absolutely rock-solid and terrific business overall, but specifically in light of your question on B2B business. So we are extremely impressed during our diligence with the team and the culture of EVO, but for these purposes in particular, the B2B assets. So if you back up, Darrin, to MineralTree, which we closed last October, we were looking for an accounts receivable software business to complement the MineralTree accounts payable business, which, as I mentioned in my prepared remarks, is running ahead of schedule on breakeven. I think 30%, as Ry said, year-over-year in the quarter just ended June. So we couldn't be more pleased with that. If you think about where we're positioned post TSYS, now post MineralTree, post EVO, so when it ultimately closes, we think we have among the most complete at scale worldwide B2B businesses of anybody out there. But I mean probably something like 2/3 $1 billion of revenue coming from B2B, and we're doing it profitably with commercial card, virtual card issuance were TSYS that's $50 million of those a year, and I think $30 billion of volume pay card. And the other thing we said today is we were successful in not just investing NetSpend's consumer assets, but also in retaining Netspend's B2B assets. So Paycard, EWA parts of those not as I said, effective July 1, we'll have now moved over to issuer to the issuer segment. So I think Jim and EVO really bring us the missing link, as I said, which is we have our own receivables businesses, but we don't have the native integrations and ERP that Jen is so smartly built over the last period of time. And in combination with middle trend everything else we have, I really think positions us distinctively.

Operator:

Your next question comes from the line of Bryan Keane.

Jeff Sloan:

Yes, Bryan, it's Jeff. I'll start. So what I would say is obviously a lot more to come from Jim when they file their proxies, so I don't want to jump ahead of that. But I would just say on my side, look, I've been trying. It took me this long to actually get it over the finish line. I said in the context of the TSYS merger, Bryan, a number of years ago, I tried that one for 20 years spending 2 different careers. So maybe I'm just kind of a laggard at what I do, and it takes me a long time to get things over the finish line. But certainly, it's not for a lack of effort. Maybe it's for lack of accomplishment. But listen, we've known, as you've said, the management team and Jim, in particular, over EVO. They've obviously been a customer of bars for a long time. I've been at Global, myself, 12.5 years and obviously, been a customer that holds duration is too large. So couldn't have a better partner really than those guys and could have a better leadership team than the one Jim has assemble then we obviously, as Cameron said, [indiscernible] strategy in the tech-enabled side and especially as we just mentioned, in response to Darrin's question, the B2B side. So we've been trying this. It's nice that the stars aligned from Jim's point of view and EVO’s point of view in mind and Global. I would say, as we thought about it, we think that now is a great time to do this, and I'll tell you why. First, we think that our expectations for what this business is going to do reflect the current macroeconomic and FX environment. That's reflected in the terms that we announced today. And 30 per dollars a share, we're paying roughly 10x calendar '23. EBITDA with the synergies fully loaded into it. Prior deals that we've done and other people have done in the marketplace are at 11x and 12x just by way of comparison. And look, as a strategic buyer for Jim and for us, a strategic transaction, our synergies don't vary by the macroeconomic climate. We're going to have those synergies kind of in any environment. So I'm really good at the end of the day, that's something that certainly I at Global Payments have been pursuing for many years that we were able to bring it to fruition. I would just tell you that the 2 teams have at least gelled all together. We've been partners for a very long period of time. We couldn't be more delighted with our ability to announce this today.

Bryan Keane :

No, it's an exciting combination. Let me just ask one quick follow-up on the results. On Merchant Solutions, I noticed point-of-sale software growth up 40% year-over-year. Can you talk a little bit about the competitive landscape there? And if you guys are gaining share there because sometimes, I don't know if that business gets high in enough that you guys seem to be doing quite well in the point-of-sale software.

Operator:

Your next question comes from the line of Dave Koning.

Cameron Bready:

Yes, Dave, it's Cameron. I'll start there, and I'll ask Josh to jump in as well with any other comments he'd like to add. So I would say, first and foremost, yes, we talked about the EBITDA synergies being $125 million, that will flow through to EBIT. There's no sort of acute gains being played around D&A. Those are all EBIT savings as well as EBITDA savings for the business. Look, there's a lot of opportunities on the revenue side. I talked about this extensively in the script, I think overlaying our vast distribution capabilities with EVO business is very attractive. The ability to bring our commerce enablement solution, vertical market software POS capabilities into EVO's existing base of customers. I think is very attractive, cross-selling UCP to EVO's enterprise customers for multinational acquiring, I think, is an attractive opportunity. And of course, EVO's B2B solutions and what that does to our own B2B strategy and go-to-market positioning is incredibly attractive as a revenue growth matter. And then, of course, there's a significant amount of overlap in our businesses. So when we look at an opportunity like EVO, there is obviously synergy opportunities and aligning go-to-market strategies in harmonizing our sales and distribution platforms. Clearly, technology will be a significant source of synergy benefits as we put the 2 businesses together, the operating environment, the customer service environments, the ability to leverage our captive offshore in the Philippines and some of what we've been able to do from a servicing perspective to gain scale. I think all of that drives a significant amount of synergy opportunity in the deal I would say that our levels are at or more attractive even than we've seen in the Heartland transaction and the TSYS transaction historically. So we feel very good about the number. I have a lot of confidence in our ability to deliver it over the 2-year time horizon we outlined in the call earlier today and are anxious to get started.

Josh Whipple:

Yes. So what I would say, look, on a constant currency basis, our guide hasn't changed. Our expected growth is still 10% to 11%, which is consistent with our prior outlook. We expect full year adjusted net revenue before dispositions to be $8.48 billion to $8.55 billion, which I commented on in my prepared remarks, after removing the Russia merchant business as well as the second half figures for B and C consumer, we estimate that constant currency revenue would be approximately $8.08 billion to $8.15 billion, and then further, if we adjust to include 200 to 250 basis points of FX headwind for the year, we expect reported revenue to be in the range of $7.9 billion to $8 billion for calendar year 2022, which I mentioned in my prepared remarks, that you can see in our Schedule of our press release.

Dave Koning:

Yes. That's clear.

Dave Koning:

Sounds great.

Ramsey El-Assal :

I had a question on the merchant segment. Margins outperformed our model quite a bit, and yields did as well. Maybe you could take both of those things and sequence and talk about the drivers of margin expansion in the quarter, the sustainability of those drivers as well as what we should expect for yields as we move through the back half of the year?

Ramsey El-Assal :

And a follow-up for me. Can you comment on what you're seeing sort of most recently in your kind of quarter-to-date volumes? And just also give us your thoughts on the potential for recessionary impact on numbers? Are you seeing any signs of consumer spending weakening and what you're seeing in your own book? Or what is your view there?

Jeff Sloan:

Yes. Randy, it's Jeff. I'd say the same thing is true on the issuing side. We continue to see really strong volumes in issuing in July. We see really good commercial card. I think we actually disclosed it in the slide, 35% commercial car growth in the second quarter and look for those of us, and I would say those trends and expectations are very similar to what you heard out of Visa, Mastercard, Pfizer last week. So really pleased with Live, where we are. I've been in on the road. The last kind of couple of months in the U.S., in Canada, in the U.K., twice by the way, and in Continental Europe. And let's be honest, the airports, the restaurants, the hotels, the streets are packed. So you don't even me to tell you that things are in a healthy place.

Robert Napoli :

Congratulations on the acquisition of EVO. You've got a good asset and back together with there, Jeff. Good to see. Just on MineralTree, I guess maybe a follow-up on the B2B business. You called out 30% growth on MineralTree and now that you have the AR assets as well. First of all, is that 30% organic. And what are you seeing you've been able to cross-sell mineral free into your commercial card customer base?

Cameron Bready:

No, I think I covered the well. The only other comment I would add is, just like we see meaningful opportunities in some of our own software businesses, we see a lot of opportunities with our partners as well, sort of working to integrate MineralTree into their existing software suite of solutions across the 6,000 ISV partners that we work with today. So meaningful cross-sell opportunities. I think when we can marry that with AR software as well, that's going to open up even more doors for us and provide more opportunities to drive faster rates of growth across the entire B2B channel.

A –Jeff Sloan:

Yes, Bob, it’s a great question. So I would say, in our business, those things are derivatives of revenue growth. So if you look at what we report and what Josh said this morning, if you’re growing like-for-like revenue, and I think x net spend is something like 11% constant currency revenue growth at Netspend, a lot of that is going to fall to the bottom line because our business is all about how we generate incremental rates of revenue growth. So it’s not surprising to me that we outperformed, maybe double-digit kind of core revenue growth. The second thing I would say, and Cameron touched on this a minute ago is our vertical market software businesses. So for a while that pandemic, we were kind of coming into a recovery in those businesses. As we alluded to in our November call last year, and obviously, our February call, Bob, of this year, those have now returned to comparative growth. So there are a tailwind in the merchant segment that Cameron just mentioned, not a headwind. Not surprisingly, Bob, software businesses come in at a high margin. So our ability to really capitalize on the rates of rebound, I think it was something like 20% or thereabout growth in the second quarter for a brutal market software business in aggregate. Well, you talk about rule of kind of fording in software, we’ll probably rule up 50 and in some cases, well at 60. So not surprising a lot of that stuff is going to drop to the bottom line.

Operator:

Your next question comes from the line of Jamie Friedman.

Jeff Sloan:

Yes, of course, Jamie. So we actually -- I think Paul said this at the time we announced in February, our strategic review. But it's about $100 million, $110 million of revenue. In fact, in the schedules we produce today, I'm going to say it's schedule to, we actually gave supplemental kind of pro formas as to what it would look like. And you also see that throughout. So you actually see what issuer with Pay card and B2B from Netspend and it looks like, and you see what we're selling without it in there. But I'll just quote you for memory, having looked at those schedules quite a bit, it's something like $100 million, $110 million Jamie, of yearly revenue in that business. It's mostly Pay card, but there's also earn wage access and some banking as a service businesses in that business, too. And I think as I said in the prepared remarks, it grew mid-teens on a normalized basis in the second quarter. The reason I say normalized is you had some like stimulus effects kind of last year, Jamie. So you have a little bit of the second quarter, there were still signals coming from the federal government. But mid-teens is what it's grown at. And it's a natural corollary to the assets that we have in issuer B2B, which is to say, virtual card, commercial card, the assets we have in Cameron's business in merchant, in Heartland with payroll. So it's a very nice corollary to those businesses.

Jeff Sloan:

Yes. It's Jeff. I'll start, and then I'll turn it over to Josh. So as I said in my prepared remarks, Jamie, right on track with what we expected. Ex-MineralTree, it was 4% constant currency growth, which is what we're tracking, obviously, with MineralTree, we printed 6. So super happy about where it came out. We think we're on a really good track there. As I said last quarter, we have a record pipeline accounts on file and transactions and commercial all accelerated in the second quarter. And based on what we said about volumes and everything else, I think you're going to see that in the third quarter, too, relative to the second quarter. Josh, want to give a little more color on the rest of the year.

Jeff Sloan:

And Jamie, I would just say in terms of outlook for that business, and I think Josh is exactly right about what we're managing to, most of my trips, especially overseas and outside the U.S. to Canada and to Europe, were with FIs on the issuing side, Jamie, and also obviously, with some of the fintechs on the AWS side. Look, I would say our strategy there is exactly right. The cloud sells, AWS sells, we were worried we first started this, to say, hey, look, what's the path for regulated institutions to move to the cloud. That might have been true 3 years ago when we first started this. I can tell you that's not true now. So now we have a record pipeline, but kind of the shadow pipeline, which is my view as to what the receptivity and where we are has really never been better. So we're in a fortunate position to have abundance of opportunities. We obviously need to wrestle to the ground and bring those to fruition. But I think the future for that business, particularly the B2B assets in it is really bright. Well, thanks, Jamie. On behalf of Global Payments, thank you for joining us this morning.

Operator:

Ladies and gentlemen, thank you for standing by and welcome to Global Payments First Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will open the lines for questions-and-answers. [Operator Instructions] And as a reminder, today’s conference will be recorded. At this time, I would like to turn the conference over to your host, Senior Vice President, Investor Relations, Winnie Smith. Please go ahead.

Jeff Sloan:

Thanks, Winnie. We are pleased to have delivered yet another quarter of strong results that exceeded our expectations heading into 2022, despite incremental macro headwinds throughout the period. Specifically, we achieved record first quarter revenue, margin and earnings per share with solid free cash flow, and our performance again highlights our business resilience and track record of execution. We are especially delighted with our Merchant Solutions performance, which exhibited ongoing momentum as our strategies for differentiated growth are winning in the marketplace. We continue to see favorable new sales trends across our businesses, providing further evidence that we are gaining share, and our results today reflect those gains. The strong bookings we've been reporting in Global Payments Integrated and US payments and payroll drove attractive growth for both businesses during the quarter. And early this year, we combined these two businesses to unlock additional market opportunities and accelerate growth by creating a more streamlined go-to-market strategy and capitalizing on the best of these two high-performing cultures. We are in the early stages of leveraging our Heartland sales professionals, to increase our penetration with GPI partner customers, as well as harmonizing the cross-selling of our commerce enablement solutions across these channels. We're also excited, we have recently launched the co-selling facet of our Google partnership, and we expect our joint go-to-market efforts will drive significant referral and new customer acquisition opportunities for businesses of all sizes. We also expanded our acquiring relationship with Google, which utilizes our Unified Commerce Platform or UCP, to North America, following the success of our initial launch in Asia Pacific late last year. Further, we remain on track to launch the next phase of Google One and Grow My Business to help our merchants grow faster by connecting additional Google services to our digital platform later this year. Speaking of our leading omnichannel platform, Global Payments is excited to announce a new partnership with Brooks Sports to modernize its payment acceptance capabilities in the UK and across Europe. In addition, we are pleased to be expanding our partnerships in Asia Pacific, including with Hilton, to incorporate new payment features and functionality as well as with the Swatch Group across multiple brands and regions. We're also increasing the scope of our agreement with ChargePoint, the world's largest network of EV charging stations in North America and Europe, beyond our existing card present relationship to now include e-commerce. Our partnership with Citi via UCP that spans North America, the UK and Continental Europe continues to gain traction. And we are currently targeting approximately 300 of Citi's largest Treasury and Trade Solutions customers. We also continue to add new geographies through our partnership, including recently launching in Italy, Spain, Ireland, the Netherlands and Germany. And we expect to be live together in a dozen European countries by year end and will launch 7 additional countries in Europe by early 2023. Across our merchant businesses, we are unique in our ability to combine software harbor and payments across in-person mobile and online channels. As one example, our POS software solutions generated revenue growth of nearly 50% in the first quarter as we continue to see great traction with our verticalized solutions, particularly in restaurant and retail as well as across the Vital platform, which we plan to bring to key International markets, including the UK, Spain and Central Europe later this year. Our vertical markets portfolio delivered strong double-digit growth with a 36% increase in bookings, and we expect these businesses will remain a tailwind for our Merchant growth going forward. In our stadium and events vertical, we have now gone live with our Xenial cloud point-of-sale solutions in Mercedes-Benz Stadium as part of our partnership to enable its multichannel commerce ecosystem. In Enterprise QSR, we successfully completed the rollout of our POS solution with Dutch Bros and will soon be expanding our relationship to include additional software offerings to support the brand's robust growth. We also remain on track to complete the rollout of our Xenial Cloud POS solution to all Denny's and Long John Silver's restaurants prior to the end of calendar year 2022. Further, it's worth highlighting that we signed a new agreement with Focus Brands to deploy Xenial's digital menu board solution across its Auntie Ann's, Carvel, Cinnabon, Jamba Juice, McAlistair Deli, Mode Southwest Grill and Schlotzsky's Deli franchises. Our AMD business delivered another quarter of strong bookings growth of nearly 35% and eclipsed a significant milestone with the number of active physicians and providers utilizing the platform, surpassing 50,000 for the first time. And TouchNet delivered the best new sales quarter in its history, which includes the signing of the University of British Columbia, its largest single International deal ever. Early success in our newest vertical market, real estate, also continued in the first quarter with Zego delivering record new bookings for the period. As we discussed at our September investor conference, we continue to benefit from ongoing innovation in our ecosystem, including Buy Now Pay Later or BNPL technologies. We launched our BNPL as a service marketplace in the first quarter to augment our 140-plus alternative payment methods portfolio exactly as we said we would. Our marketplace allows merchants to provide solutions across multiple BNPL providers in their target markets through a single integration point, expanding our alternative payments offerings on a regulated, compliant and responsible basis while supporting merchant enablement and consumer choice. In combination with our BNPL initiatives through our market-leading issuing business that target financial institutions and retailers, we expect to drive significant growth beyond the 2 billion transactions that we already enable through BNPL annually. Late last year, we announced that we have reached an agreement to extend and expand the scope of our longstanding relationship with PayPal, which leverages our unparalleled e-commerce technology footprint across North America, Europe and Asia Pacific for a multiyear period. And I'm happy to report that we expect to be live with PayPal this quarter in new geographies and additional verticals and will support the cryptocurrencies for the first time, expanding our target addressable markets. Additionally, we are pleased to announce a strategic alliance with ACT, a trusted digital asset platform that enables consumers to buy, sell and hold a range of digital assets. We will be supporting a range of use cases starting with enabling cryptocurrency redemption and customer loyalty programs offered by our bank card clients, expanding our Banking as a Service offerings to include cryptocurrency, and ultimately leveraging issuing technologies for linking virtual, debit, credit and prepaid solutions. We're also excited to announce a broad collaboration with ACT in multinational payment acceptance. Moving to Issuer Solutions. We are thrilled to announce that CaixaBank has recently signed a letter of intent to memorialize the selection of Global Payments as its technology partner for its card issuing businesses. This is the largest potential new customer signing for our issuer business since 2013 and would double our implementation pipeline to its highest level in our history, providing opportunities for accelerated growth over the next several years. In conjunction with our announced partnership with Virgin Money and other recent wins, our relationship with CaixaBank complements our debit strategy and positions Global Payments as a leading debit technology provider across Europe. Virgin Money is a significant competitive takeaway, and we successfully completed the migration of the Virgin Money credit portfolio to our platform in February. And it is our first use case, combining issuing and acquiring capabilities to offer transaction stream optimization solutions, which we expect to go live in the next 12 months. We're also proud to have successfully achieved significant multiyear renewal agreements with UK-based Metro Bank as well as with Ireland-based Permanent TSB, which are two other long-standing TSYS issuer customers where our partnership stands both debit and credit portfolios. Further, we continue to benefit from our strategy of aligning with market share winners. We expect to add another significant portfolio to our record conversion pipeline upon the closing of a sizable acquisition by one of our largest North American-based clients that is expanding in the United States. Simply put, we are winning in our Issuer Solutions business, because we are selling more market-leading technologies to scale leaders through more distinctive and defensible distribution channels in more markets than we ever have previously. Our unique collaboration with AWS is tracking as planned with 10 modernized services now built and available in the cloud. We've already successfully executed over 100 client migrations to our modernized issuer platform and recently announced a partnership with Mastercard to include authorizations, clearing and settlement in the cloud. And we anticipate CaixaBank to be among the first large financial institutions to go directly to the cloud with us by the end of 2023. Together with AWS, our preferred cloud provider for our Issuer business, we now have 39 active prospects in the pipeline, 11 of which are neobanks, fintechs and startups. We also currently have eight letters of intent with institutions worldwide, four of which are competitive takeaways. We are currently participating in several active 100% cloud RFPs with large institutions and retailers globally. Our fully functional modern issuing payment stack operating globally at scale differentiates us in the market. Simply put, the public cloud sells. As we look to further capitalize on our ability to combine accounts payable SaaS technologies with our best-in-class capabilities into market-leading B2B solutions, we're now managing MineralTree as a part of our Issuer Solutions business. As we discussed at our Investor Conference last September, we believe that we already possess one of the largest B2B businesses at scale globally and that our commercial card and virtual card efforts within our Issuer segment are the linchpins of our overall B2B strategies. When viewed in that light, MineralTree's capabilities are a perfect fit for that business. We're delighted that MineralTree's momentum continued this quarter, including 60% growth in virtual card spend for the period and achieving the highest virtual card spend month in its history in March. Bookings grew in excess of 20% this quarter, and MineralTree successfully extended key financial institution relationships with Bank of the West and Fifth Third Bank and went live with Finance of American companies, a large enterprise customer signed late last year. It's worth highlighting that our MineralTree products have now been entered into the AWS co-selling program, which will allow us to accelerate growth with our accounts payable solutions into both the middle market as well as larger enterprises. Our focus on growing our B2B solutions business continues to be successful. We have expanded our agreement with Cracker Barrel to include an EWA partnership across its more than 660 stores in the United States. This adds to our existing Paycard solution relationship and increases our opportunity set with their eligible employees by more than 200%. Also, we recently renewed Paycard partnerships with Big Lots, large travel stops and country stores and Cumberland Farms, collectively spanning over 2,500 locations in more than 47 states. We could not be more pleased with the investments we've made in our strategy that have enabled our resilience during the pandemic and driven the outsized growth we've achieved over the last eight years since we began running the company. At the same time, we seek to continue to refine our portfolio by simplifying the composition of our businesses and focusing on our core corporate customers, including merchants, software partners, technology leaders, corporates and financial institutions. As part of that initiative, last quarter, we announced a strategic review of our Netspend consumer business to sharpen our focus on our B2B assets. I am pleased to report that we have made progress and that there is significant interest in Netspend's set of direct-to-consumer solutions. We look forward to providing additional details on our plans for these assets in the future as events unfold. Before I turn the call over to Paul, I express my deepest concerns regarding the devastating situation in Ukraine. We recently closed on the sale of our United Card Service business in Russia. And we take some solace that we've done what we can to responsibly support our team members and that we've been providing financial and humanitarian support to those impacted. We do not have any operating businesses in Ukraine. This has been a difficult time for all of our team members, customers and partners across the region. Ultimately, our values and culture provided the road map for our decision-making. Paul?

Jeff Sloan:

Thanks, Paul. I am pleased with our performance during the quarter, which has us on track to deliver record results for 2022. We raised our cycle guidance in September 2021. And our expectations for the rest of the year remain, despite the unprecedented incremental headwinds we've absorbed in the last couple of months. We enter 2022 with substantial momentum, and our first quarter results and guidance provide further support for sustained share gains. Our targets for this year highlight the wisdom of our strategies, while deepening our competitive moat regardless of the environment. Looking ahead, we are focused on maintaining our momentum by continuing to capitalize on the trends of digitization, commerce enablement, software differentiation and omnichannel prevalence, which we discussed in depth at our Investor Conference in September. Winnie?

Operator:

[Operator Instructions] Your first question comes from the line of Darrin Peller from Wolfe Research. Your line is open.

Jeff Sloan:

Yes. Thanks, Darrin. I think you're spot on in your question. We couldn't be more pleased with the performance overall, but especially in our Merchant business. So let's just start with where you started on the reopening question. As we said, we're very excited this quarter that our vertical markets business has returned to growth relative to 2019, not just relative to 2021. We had, as I think we said in our prepared remarks, high 20s growth in our vertical markets business. Our bookings actually accelerated to mid-30s growth, Darrin, in the first quarter. So actually, our performance has accelerated in a number of the businesses that Cameron can describe within vertical markets. In terms of reopenings, Darrin, there had been more recent laggards, example include active and K-12 have also returned to growth. So we feel really good about kind of where we are there. And as we said in our prepared remarks, we think that's really going to be a tailwind for our business this year and thereafter. Addressing your second question before I turn it over to Cameron to give a little bit more color. Listen, I think as a strategy matter, I think we are very pleased with the resilience of our Merchant business kind of across the board. We've been saying in our Investor Day in September and again reiterated today that a number of elements of our merchant business, including, in particular, our Global Payments Integrated business, which we described the combination of that with our US Payments and Payroll business this morning, that business just reported another double-digit growth quarter in the first quarter of 2022. That business, Darrin, is essentially at the same quantum of revenue as it would have been had there been no pandemic, really, in the first place. So I think as a strategy matter over the next number of years. We have tailwinds from the vertical market segment. As I described a minute ago, and as we said for the last number of quarters, our GPI and our broader Payments and Payroll business here in the United States really haven't lost a step from 2019 despite the pandemic. Cameron, do you want to give a little bit more color?

Darrin Peller:

Okay. That's really helpful. Very quick follow-up for Paul, if you don't mind. Just on the margin side, what gave you the conviction to raise it by this time around? And what's the cadence of it through the year? Thanks again, guys.

Darrin Peller:

Okay. Thanks, again, guys.

Operator:

Your next question comes from the line of Ramsey El-Assal from Barclays. Your line is open.

Cameron Bready:

Yeah. Ramsey, it's Cameron. Maybe I'll start and I'll ask Paul and Jeff to chime-in. I would say April trends thus far have been pretty good, and I'd say relatively consistent with what we saw in March. So the short answer to your question is, we're not really seeing, I would say, any inflationary pressure, putting pressure on the consumer to a point that is changing behavior and slowing down the overall level of spend in the market. So as you know, generally, with an inflationary environment, we're going to benefit as volumes continue to tick up, reflecting obviously that price inflation and the overall cost of goods and services that consumers are purchasing to the point, obviously, where there ends up being demand destruction that might offset that. We're not seeing that yet. I think April is trending, I think, consistent with our expectations thus far.

Jeff Sloan:

Yeah. Ramsey, it's Jeff. It's an terrific question. So let me just start with the wins that we've already announced, because they have a very significant debit elements. So, if you go back to the fall of 2021, the Virgin Money win, we've already converted the credit portfolio. But the piece that's coming in the remainder of this year really is the debit portfolio. So that's a very significant win for us. And as I mentioned in the prepared remarks this morning, we expect to have our relationship along the lines of the digital wallet with Virgin Money, which is going to be very much an environment where we can offer non-bank card rails, I think ACH as well as debit. We expect that to be up and running within the next 12 months, as I said this morning. If you combine that with what we announced with CaixaBank, in February, and now we signed a letter of intent recently, Caixa is one of the largest debit issuers across Europe. We had a bunch of renewals that we also announced this morning, which also are debit-centric, again, in Europe. That all supports the statement we said this morning in our press release and also in our prepared remarks that we do expect to be among the largest debit processors across Europe before you even really get into additional co-sell opportunities with AWS. Let me just start there, Ramsey, because that addresses the first part. On the second part of what you asked about, we announced that we had LOIs and pipelines with a number of FinTech startups and neobanks. With AWS, I think 39 was the number of active prospects that we announced this morning. I think the opportunity there really is in the virtual card side along the lines of debit, particularly with AWS, Ramsey. So in addition to everything I just mentioned with more traditional institutions, which will make us one of the leading debit technology providers anyway. If you think about the virtual cards that we talked about in September, plugged into that what we announced this morning with BACT on the virtual card issuance side, with cryptocurrencies plug into that, the relationship with AWS and the 11 prospects in the pipeline on neobanks, FinTechs, start-ups, those tend to be, Ramsey, virtual card-centric, and those tend to be, in particular, debit-centric as it relates to virtual cards. So I do think over the next 12 months to 36 months, we're going to see a very significant expansion on the issuing side of our debit business. AWS has a really serious role to play there, but so is BACT and really, to be honest, sort of the traditional financial institutions that we've been announcing not just this morning but the last number of months.

Jeff Sloan:

Thanks,

Jason Kupferberg:

Thanks, guys. Good morning. I just wanted to start on the merchant side as we think about the cadence of growth in the second quarter, specifically thinking about it quarter-over-quarter. I mean, seasonally, I know you would typically see maybe mid single-digit or so kind of quarter-over-quarter growth. And, I guess, if we think about this year's second quarter, you're going to benefit a little bit, arguably, from the fact that Omicron impacted Q1 to some extent. But then you've got Russia and FX, I guess, that kind of go the other way. So make sure our expectations are calibrated properly in terms of how you're thinking about the quarter-over-quarter growth rate in merchant for Q2, assuming that the macro stays relatively stable.

Cameron Bready:

I think that covers it pretty well. If you look at the cadence of growth in 2021 versus 2020, obviously, in the first quarter, we grew 4%. In the second, we grew 41%. So naturally, you're going to have a very different comp as Paul highlighted earlier. But to his point, obviously, we expect the Merchant business overall to grow double-digits for the full year. And we expect every quarter to be in the double-digit range, obviously, Q1 being the high watermark because of the easier comp.

Jeff Sloan:

Yeah. Jason, thanks. It's Jeff, and I'll start and I'll ask Paul to talk a little bit about the cadence. So we expect the implementation of Caixa to begin at the end of 2023. So it will have some impact in 2023, but that's really the start of it. And obviously, given the size of that, we'll continue into 2024 and beyond. As we said in our prepared remarks, it's the largest single letter of intent sign we've had since 2013 and effectively doubles the size of our implementation pipeline. The other thing I mentioned in our prepared remarks that the 56 million cards and the implementation pipeline does not include other things we hope to announce in the second quarter call. And I referenced one of those in my prepared remarks, which is the acquisition by a North American Bank of a large US bank, which we expect to have as well. Just to be clear, that's not in the 56 million. So we hope we're in a position when we head into the back half of the year that as we burn through the implementation pipeline, which Paul will talk about in a moment. As we burn through that, we're actually replenishing it and keeping it relatively constant at the record level or thereabouts as it is today. Paul, you want to talk about it?

Jeff Sloan:

Yeah. I'd just add, Jason, what Paul just said that commercial card, which Paul called out in his prepared comments, saw improvement in March versus February, February versus January, obviously, as Omicron waned and corporate business travel returned. We expect that to be much like Visa/Mastercard improving as 2022 goes on. So in addition to the record implementation pipeline, we do see tailwinds coming in commercial card, which really for the last two years or so, Jason, up until kind of February and March was like a headwind.

Jeff Sloan:

Thanks very much.

Dave Koning:

Yeah. Hey, guys. Nice job. And maybe if I can just start out by just the pricing and yield environment. It seems like maybe we're getting into a little better place just with interchange adjustments, maybe your own ability to price, maybe software growing faster than merchant. Like, could we actually see yield start to tick up in coming quarters?

Dave Koning:

Great, thanks. And maybe just a follow-up, just a really high level. You've talked about high-teens EPS growth over time. It feels to me like, if anything, as the time goes on, you probably feel as good or better about that high-teens growth. I mean is that fair kind of as we kind of reflect on this quarter in April, like things are as good as ever, long term is greatly intact?

Paul Todd:

Yes. I would just say we kind of hit on it in the last couple of questions, is just the improving picture. Certainly, on the merchant side, we've talked for several quarters about the tailwind of vertical markets coming back and being an additive kind of growth dynamic. And then, as I just commented on the issuing side, between what we're seeing this year as a progressively stronger growth picture and this pipeline size, as Jeff commented earlier, is the biggest pipeline we've had in really a long time in that business. And then, you kind of couple that with just even as of this morning raising our margin guidance and the things that we're doing on the cost side gives us that kind of additive confidence that, yeah, that EPS cycle guide is in really good shape, and we've got tailwinds relative to the things we've talked about this morning.

Jeff Sloan:

Thanks, Dave.

Operator:

Your next question comes from the line of George Mihalos from Cowen. Your line is open.

Paul Todd :

Yes. So as it relates to the impact of MineralTree, we were roughly flat on a constant currency basis ex MineralTree. And so obviously, being at the roughly 1.5% growth, that's kind of the right way to think about the MineralTree impact and roughly kind of the right way to think about it for the full year, although we've got some additional adverse FX that comes into play. So that pulls that down. But roughly about 1% or so of benefit as it relates to MineralTree. And then as it relates to commercial card, we still haven't reached back to kind of exceeding the 2019 levels on commercial card. We did, as Jeff said, saw a progressive kind of growth picture and particularly so between March and February kind of the step-up in the growth rate in our commercial card business as it relates to kind of sequential. But as it relates to 2019, we're still not at those 2019 levels. And certainly, as we sit there and look at the overall segment, what we were pleased with is that the overall normalized growth rate of that business from our accounts on file and kind of transactional revenue being solidly in that kind of mid or almost high mid single-digit growth rate. And just putting it all together, when you look at it kind of ex the managed services and some of the non-recurring were kind of solidly in that mid single-digit growth rate for the quarter.

Cameron Bready :

Yes. George, it's Cameron. I'll jump in there. I think you have that mostly right. Obviously, Europe was a bright spot in the quarter the growth rate was in the high 20% range. Obviously, we've got a little bit of a tailwind from Bankia that we acquired in the latter part of 2021. But overall, organically, it was well into the 20% range from a growth standpoint as the recovery continues to progress kind of across the European footprint. As it relates to 2019 levels, the U.K. is positive, which is good and remains positive, had a very strong quarter. Spain continues to really be the bright spot, along with our joint venture with Erste Bank in Central Europe. Those two businesses are growing at very attractive rates. As we've seen the pandemic accelerate, obviously, the digitization of payments across those two markets to a pretty extensive degree. So those businesses, I think, stand out, again, from a performance standpoint, position in Europe, I think, they have a very strong year overall as the recovery continues to progress. Asia actually went backwards a little bit in the first quarter, and that's completely attributable to the lockdowns in the Greater China markets, in China in particular. So we did see Asia be a headwind to growth. Asia grew overall about 3% in the quarter. Some of that was obviously a negative currency environment. And some of it obviously was attributable to the lockdowns. As that market again hopefully reopens, as we move into the latter part of the second quarter and into Q3, we expect it to get back to more of a double-digit growth rate, which is our anticipation for the region. But obviously, we did have to absorb a little bit of headwind in the first quarter given the continued sort of COVID impacts across the region.

Cameron Bready:

Thanks George.

Timothy Chiodo:

Great. Thanks for taking my question. I wanted to dig in a little bit on Global Payments Integrated, so the partner business. I believe in the past and pretty recently, you disclosed roughly 6,000 software partners. Just want to talk a little bit about where that number has come from, where it's grown from, how many partners you've been adding on average per year? And then, the follow-up is more around the mix of those and the types of services they're taking. How many are doing online and in-store? And then, maybe the penetration of additional embedded financial services across those. Thanks a lot.

Timothy Chiodo:

Great, Cameron, I really appreciate that the update on GPI. Thanks a lot.

Paul Todd:

Thanks, Cameron.

Trevor Williams:

Great. Thanks. Good morning. I just want to clarify on the full year guide. Paul, you walked through the puts and takes relative to when you first gave it last quarter. Just on the macro assumptions aside from the FX impact, is there any change to what you have built in for consumer spending for the rest of the year? And correct me if I misheard it, it sounds like you're still expecting progressive improvement throughout the year? Can you just remind us there what sort of macro trajectory is built in to track to the low end, the midpoint and the high end of the guidance? Thanks.

Trevor Williams:

Okay. Perfect. No, that's really helpful. And then just as a follow-up, on Issuer, I was just curious on the pricing and competitive environment, particularly in the US, I mean, with where the implementation pipeline is, the Caixa win, and clearly, you guys have a lot of momentum in the business. But in the US, there's been some narrative in the market just around some of your big competitors starting to get a little bit more aggressive on pricing. So I was just curious to get your updated view on the competitive environment in the US and how the repositioning of the business with the AWS partnership, how that fits into kind of how you've seen the market evolve there over the last couple of years. Thanks.

Trevor Williams:

That’s great. Thanks, Jeff.

Ashwin Shirvaikar:

Hey, Jeff, Cameron, Paul. Thanks for taking the question, good to hear from you. I was wondering if you could talk to what specifically commercial card normalization would add to your expectations through the course of the year, if you could talk about that?

Ashwin Shirvaikar:

Got it. Got it. And then just a clarification with basically unchanged revenues where you're absorbing a lot of different factors, but higher margins. The EPS offset, is that completely on interest expense? I might have missed that. Or if you could walk through some of the below-the-line items.

Ashwin Shirvaikar:

Okay. Got it. Thank you.

Operator:

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Operator:

Ladies and gentlemen, thank you for standing by and welcome to Global Payments Fourth Quarter and Full Year 2021 Earnings Conference Call. [Operator Instructions] And as a reminder, today’s conference will be recorded. At this time, I would like to turn the conference over to your host, Senior Vice President, Investor Relations, Winnie Smith. Please go ahead.

Jeff Sloan:

Thanks, Winnie. We delivered record fourth quarter and full year 2021 results that exceeded our expectations, highlighting the resilience of our business model. We achieved record transactions across the business in the fourth quarter, including a new peak during the holidays despite the incremental impact of COVID-19 variants. And we expect another record year in 2022 based on today’s guidance with strong revenue growth, margin enhancement, earnings to free cash flow conversion and leverage capacity. We accomplished a great deal over the course of 2021 as we continued to advance our differentiated strategies for growth. This includes our partnership with Google to deliver innovative and seamless digital services to all manner of merchants worldwide, the expansion of our collaboration with AWS, our preferred issuer technology solutions partner for a unique distribution and cutting-edge technologies; our successful acquisitions of Zego and MineralTree to advance our software leadership position with unmatched worldwide payments expertise; a strategic alliance with Virgin Money and our first use case post-merger combining issuing and acquiring capabilities; and our partnership with Mercedes-Benz Stadium to enable its multi-channel commerce ecosystem. And we are carrying that momentum into 2022 as we successfully executed on our goal to redefine the future of digital commerce, extending our lead, continuing to gain share and deepening our competitive moat. Specifically, we are delighted to announce that we have been chosen by CaixaBank as the finalist company in their selection process for a technology partner for its European card issuing business comprising nearly 30 million cards. We expect to finalize contract negotiations over the coming weeks. Caixa is the largest domestic bank in Spain, serving tens of millions of households and a full range of business clients across multiple countries in Europe. This latest achievement is yet another example of the enhanced revenue opportunities derived from our merger with TSYS just over 2 years ago. When this goes live, as anticipated in the back half of next year, we expect this initiative to be among the first legacy direct-to-cloud transformations in card issuing technologies among major financial institutions and it will be the first entry of TSYS into the highly attractive Iberian marketplace. Together with our recently announced partnership with Virgin Money, we believe Global Payments will then become a leading debit technology provider across Europe. We are also excited to announce that we are embarking on a multiyear partnership with Mastercard to modernize and accelerate card payments in the cloud across authorization, clearing and settlement. We are on this journey to drive ecosystem change and to help our clients bring differentiated value to the market. This is yet another example of how we are progressing the payments landscape with leading technology partners and bringing the next generation of modernized AWS cloud-enabled payments to customers. Our durable relationships with some of the most complex and sophisticated institutions globally speak to our competitiveness well into the remainder of this decade. It’s worth highlighting that our issuer business signed multiyear contract extensions with several of our largest customers over the last 12 months, including Citi, CIBC, Barclays and Banco Carrefour. And our strategy of aligning with market share winners was also successful in 2021. Recent examples include Barclays’ purchase of the Gap card portfolio as well as Capital One’s purchase at BJ’s Wholesale Club card base. We have 34 active prospects in the pipeline with AWS, 11 of which are fin-techs, neobanks and startups. And we are pleased to announce that we are live with our first joint takeaway together with AWS, a leading global financial institution in a single large market in Asia and we expect to expand this prime instance to several additional markets over time. We also reached an agreement for our first legacy Global Payments issuer customer, KB Bank in the Czech Republic to move to our TSYS Prime platform in the fourth quarter, another revenue synergy from our merger. Finally, of the 9 LOIs we have in our Issuer Solutions business today, 5 are competitive takeaways. In addition, we recently had another new customer win move from LOI into production that was also a competitive takeaway. We have been successful in expanding our target addressable markets in 2021 beyond AWS as we diversify and broaden our distribution. We announced new strategic partnerships last year with PwC and 10x Banking. 10x Banking is a next-generation cloud-native platform designed to bring forward a new way of banking with faster product development and a lower cost to serve. We are proud to announce a new collaboration with ecolytiq to bring sustainability as a service to fintech startups, neobanks and traditional institutions. This partnership provides consumers with a personalized view of their impact on the environment, driven by their payment transaction activities. This technology enables corporate clients to align their digital banking strategies with consumers and supports ESG commitments by delivering sustainable product options and experiences. Further, we are delighted to announce a partnership with Xtend through our new distribution channels. We will provide B2B virtual commercial account services to banks and fintechs with Xtend serving our infant virtual card issuance product. Through relationships like ecolytiq and Xtend, we were able to support a full spectrum of solutions across emerging use cases. And while we have been providing market-leading technologies for buy now, pay later, or BNPL, initiatives for decades, we continue to innovate and deliver installment payments products as BNPL demand grows. This includes expanding our combined installment solutions with Visa and signing a global referral agreement with Mastercard. And through our partnership with leading technology companies, private label branded retailers and many of the world’s largest issuers we will be able to provide our customers with a complete ecosystem of BNPL capabilities on a regulated, compliant and responsible basis. It’s worth highlighting that in 2021 alone, TSYS enabled over 2 billion BNPL transactions and issued 55 million virtual cards with more than $31 billion in volume. Turning to our merchant business, we are pleased to report the release of the first phase of our Google Run and Grow My Business product that integrates Google’s solutions with our innovative capabilities in our digital portal environment during the fourth quarter as planned. We continue to expect to launch the next phase to help our merchants grow faster by connecting additional Google services, including online ordering, retail inventory and reservations to our digital platform later this year. Google is also now a live merchant customer in Asia-Pacific and we expect to launch Google as a merchant customer in North America by the end of this quarter. We continue to deliver a full suite of vertically fluent solutions across dozens of markets worldwide. For example, our enterprise QSR business delivered bookings growth for its cloud POS services in excess of 50% in 2021 and went live with new marquee customers like Denny’s, Long John Silver’s and A&W Restaurants. We also continue to expand with existing brands, including Bojangles, Water Burger and CKE, which today leverage a combination of our innovative end-to-end solutions. We delivered more than 300 million omnichannel restaurant experiences in 2021, up 50% versus 2020 and indicative of share shift due to the pandemic and market share gains. By way of comparison, we enabled 19 million omnichannel orders in 2019 prior to COVID-19. Our AMD business generated revenue growth of over 30% in 2021 and in excess of 35% for the fourth quarter compared to 2019. And that momentum is poised to continue with bookings growth of 40% in the fourth quarter and 26% and for the full year over 2020. I am particularly proud that AMD’s telemedicine solution enabled 2.5 million provider visits over the last year, marking an 85% increase from 2020. And to put it in perspective, that is up from the roughly 100,000 telemedicine visits facilitated annually prior to the pandemic. We are also delighted to have hit the ground running in one of the largest and most attractive verticals in 2021 in real estate. Zego delivered near 20% bookings growth for the full year, enabled by its continued success with existing enterprise customers like ACC and Thalhimer and by expanding with new partners like Managed America and Equity LifeStyles, one of its largest new customers to date. Zego’s payments penetration into its base also reached an all-time high last year under our stewardship. As we discussed at our 2021 Investor Conference, we are the beneficiaries of technological innovation, continued share shift and market share gains, including QR codes, digital wallet, safe for commerce, and of course, BNPL. Speaking of BNPL, in addition to the agreements we already have in place with leading solutions providers, including Affirm and Tua in the United States and [indiscernible] in Asia Pacific. We are launching our BNPL as a service marketplace this quarter to augment our 140 plus alternate payment methods portfolio. Further, our new partnership with Virgin Money highlights our ability to deliver non-bank card account-to-account transfers through our digital solutions, capitalizing in our market leading merchant ecosystem, which already provides one of the largest NFC acceptance networks globally. In September, we highlighted that we win by leading with technology and innovative solutions across our merchant portfolio. And the fourth quarter provides further evidence of our differentiated strategies. We delivered record bookings in the fourth quarter of ‘21 for our Global Payments Integrated and U.S. payments and payroll businesses, each of which grew 20% year-over-year. Our e-commerce and omni-channel business grew on an accelerated basis in 2021. Our ability to seamlessly provide the full spectrum of payment solutions drove new wins this quarter, with large multinational Mary Kay across 6 countries in Europe and Asia and with ESW or eShopWorld, a leader in direct-to-consumer global commerce in the United States with further global expansion on the horizon. And over the course of 2021, we also reached new partnerships with Google, Uber Eats and Uber Rides, Foot Locker, Hunter Douglas and the Swatch Group, while extending and expanding the scope of our longstanding relationship with PayPal. Finally, we added B2B as the newest pillar of our strategy in 2021. We are already making significant strides with MineralTree since the closing in mid-October. This includes doubling virtual card spend in the fourth quarter and completing 9 new deals in the healthcare vertical, including with know-how dental and biometrics. This quarter, MineralTree also renewed its agreement with NI or National Instruments, successfully executed an implementation with Mexico-based foodservices company, Grupo Bimbo, and launched its Supplier Central portal, which allows for seamless payments acceptance for suppliers to support greater digital adoption. We are pleased to have successfully invested $2.5 billion in M&A since early 2020, consistent with our four strategic pillars. We also have returned $3.7 billion of capital to shareholders since that time. And our record cash flow generation and solid balance sheet position us with ample firepower to continue to execute on our priorities. At the same time, we seek to refine our portfolio by simplifying the composition of our businesses and focusing on our core corporate customers, including merchants, financial institutions, software partners and technology leaders. As part of that initiative, we have commenced a strategic review of our Netspend consumer business to sharpen our focus on our B2B assets. While Netspend’s direct-to-consumer business is an attractive set of solutions with a favorable profile, there is limited overlap between that customer base and our traditional clients. Having largely completed our integration with TSYS corporately, made the pivot towards B2B and incorporated Netspend’s B2B assets into our thinking. We believe now is the appropriate time to commence this review of Netspend’s consumer business. As we said at our investor conference in September, we have a full suite of B2B assets, including a market-leading commercial card offering, virtual card issuance at scale, payroll, pay card, earned-wage access and now accounts payable cloud SaaS with MineralTree. We complement these offerings with a unique collaboration with AWS. We are very proud of all that NetSpend and our valued team members have accomplished under TSYS’ ownership over the last 8 plus years. We believe that we have created significant value since the close of our merger by expanding internationally, accelerating digitization and driving significant operational efficiencies. We also provided much needed faster payments to millions of consumers during some of the most challenging periods of the pandemic. Revenue, margin and contribution were all records at NetSpend in 2021. Simply put, we have achieved our goals. Paul?

Jeff Sloan:

Thanks, Paul. I could not be more proud of all that we’ve accomplished in 2021 despite the incremental challenges we faced throughout the year, and our outlook is for an even brighter 2022. As we highlighted in September, we are today a top quartile SaaS company, the leading issuer technology provider and program manager multi-nationally with unique partnerships, the largest e-com acquirer with an unmatched virtual and physical presence, and we deliver all these things with tremendous breadth across developed and attractive emerging markets. Our record results in 2021 and our expectations for 2022 reaffirm the wisdom of these strategies, the trends of digitization, commerce enablement, software differentiation and omnichannel prevalence driving our performance will start to catalyze our growth throughout 2022 and in the years ahead. Winnie?

Operator:

[Operator Instructions] And your first question comes from the line of Darrin Peller from Wolfe Research. Your line is open.