Global Payments is holding their second quarter 2023 earnings conference call and have reminded participants that any forward-looking statements made by management are subject to risks and uncertainties. They have also cautioned against placing undue reliance on these statements, and will be referring to several non-GAAP financial measures.

In the second quarter, Global Payments reported 7% adjusted net revenue growth, expanding adjusted operating margins 100 basis points, and 11% adjusted earnings per share growth. The performance was driven by the company's software-centric strategy and their ability to deliver solutions across diverse geographic markets. Cameron Bready, President and CEO, and Josh Whipple, Senior Executive Vice President and CFO, are also on the call.

This paragraph discusses the company's integrated payment strategy, which makes up 40% of their merchant solutions adjusted net revenue. It also highlights the success of their integrated ISV business, which achieved record sales this quarter and signed 33% more integrated merchants than in the previous quarter. The company's success is attributed to their streamlined and simplified offerings for partners, as well as their three distinct integrated payment models that can be customized for specific vertical markets and merchant bases.

Global Payments offers a full payment facilitation and progressive payment facilitation model, both of which provide access to leading payments technologies and compliance and regulatory requirements. The company also provides a higher level of service than their peers, as well as a comprehensive suite of value-added solutions such as human capital management software, payroll, loyalty, tailored marketing solutions, BNPL, and call center support. This is why Global Payments is able to achieve sustainable high rates of growth at attractive margins.

The vertical markets business saw double digit growth this quarter, driven by the success of Zego, Xenial, and school solutions. Zego has seen success in student housing and is partnering with TouchNet to capture a greater portion of the student payments value chain. Xenial is now the partner of choice for the three largest players in the food service management space, and Active recently signed the City of Toronto, its largest ever win in the community vertical. The primary mode of competition in these markets is at the point of sale, and the company goes to market through an ecosystem of owned POS software solutions with two distinct operating platforms.

This paragraph discusses the success of the company's cloud-based software solutions, which are custom designed, built, and branded with a modern look and feel. The company has seen 20% growth in its POS business and is expecting further growth with the launch of its next generation POS platform. Its solutions are vertically fluid, providing feature-rich capabilities that integrate seamlessly. The company also has technology-enabled ecommerce and omnichannel capabilities, with roughly 30% of its business being ecommerce. Additionally, the company has recently signed a partnership with EasyPark Group, a global provider of digital parking services.

In the quarter, EVO contributed to the company's strong performance and the company is on track to deliver at least $125 million in run rate synergies. In terms of growth, double digit growth was seen in Spain, Central Europe, and Asia Pacific, while mid single digit growth was seen in issuer. The company signed new relationships with large retailers in Asia Pacific and extended relationships with 118 118 Money in the U.K. and a large financial institution partner in the U.S. Additionally, Deutsche Bank announced a new issuing partnership with Lufthansa for its Miles & More MasterCard.

The company has achieved success in its competitive RFP process and its collaboration with AWS, allowing for direct-to-cloud conversions. This has positioned the company to provide market-leading technology solutions in more markets than ever before. In the B2B market, the company is seeing strong growth in software-driven workflow automation, money in and out fund flows, and employer solutions. The company's AP and AR workflow automation solutions, including integrations with leading ERP environments, are seeing great momentum, and the MineralTree acquisition has resulted in the company's best bookings quarter since the acquisition.

MineralTree and EVO software have combined to create a single AP/AR solution with rich data and analytics for midmarket customers. Additionally, virtual card use is expanding, enabling $47 billion in spend over the last 12 months. Employer solutions such as pay card, earned wage access, and expense management have seen new partnerships, and human capital management and payroll solutions have achieved high teens adjusted net revenue growth and mid teens new sales growth. A similar strategy is being pursued for B2B.

Cameron highlighted the success of the company's technology-enabled businesses and their factor growth markets, which led to an impressive 17% improvement in adjusted net revenue for the second quarter, resulting in adjusted earnings per share of $2.62, an 11% increase from the same period in the prior year. Despite macroeconomic uncertainty, the company was able to exceed expectations and deliver strong financial performance.

In the second quarter of 2022, the issuer solutions business had 5% constant currency growth in adjusted net revenue and a 46.7% adjusted operating margin, a 300 basis point increase from the prior year. Additionally, traditional accounts on file increased by $10 million sequentially and transactions grew double digits, led by commercial card transactions. Finally, the adjusted free cash flow for the quarter was $543 million.

Global Payments has a healthy balance sheet with over $2.5 billion of available liquidity and a leverage position of 3.7 times. They have reduced their debt by $650 million and established a $2 billion commercial paper program. Capital expenditures are expected to be $630 million in 2023 and they plan to repurchase 2 million shares for $200 million. They are raising their financial outlook for the year and expecting reported adjusted net revenue to range from $8.660 billion to $8.735 billion, reflecting growth of 7% to 8% over 2022.

The company is expecting an increase in adjusted net revenue growth of 16% for the year, with a modest decline in reported adjusted operating margin for the merchant business. They are also on track to realize $35 million in cost synergies this year and have executable plans to achieve the run rate expense synergy target of at least $125 million within two years.

EVO is expecting to gain revenue synergies of $10-$15 million and issuer solutions are expected to have adjusted net revenue growth of 5-6%. Additionally, the adjusted operating margin for the issuer business is expected to expand by up to 60 basis points. Net interest expense is expected to be roughly $550 million and the adjusted effective tax rate is expected to be in the range of 19-19.5%. Adjusted earnings per share for the full year is expected to be in a range of $10.35 to $10.44, representing growth of 11-12% over 2022. Excluding dispositions, adjusted earnings per share growth is expected to be 16-17% for 2023.

Global Payments is enthusiastic about the opportunities in front of them with their technology-enabled strategy, world-class team, and global presence. As the new CEO, Cameron Bready is focused on pursuing the key pillars of the strategy set forth in September 2021 and making it easier to do business with Global Payments by providing innovative and distinctive solutions that integrate seamlessly and exceptional service.

Cameron Walsh, the new CEO of Global Payments, is focused on three main goals: maintaining a relentless focus on execution, setting the standard for execution in their space, and ensuring Global Payments' culture is second to none. He believes that this consistency of execution will differentiate them from their competitors, drive value creation, and benefit their constituents. He is confident that their exceptional team will drive sustainable growth and performance.

Cameron Bready, speaking on behalf of the company, states that the company's outlook for the rest of the year reflects a relatively stable macro environment, but they are prepared for a possible softening of the macro environment and consumer spending. The guidance range proposed by the company would accommodate a modest slowdown in economic activity, but that is not their base case. They expect a relatively stable macro backdrop in the back half of the year, similar to what was seen in Q2 and July.

Josh Whipple and Cameron Bready discussed the quarterly color given on the February earnings call, with revenue growth in the 8-9% range, margin expansion of 100 basis points, and EPS growth of 9-10%. Bready then discussed their philosophy on pricing, noting that they have been more consistent than some of their peers, but that they have seen some of their competitors being more aggressive on pricing.

Cameron Bready and Ramsey El-Assal discussed the drivers of the healthy margin expansion in issuers. Bready mentioned that the pricing philosophies they have utilized over a long period of time have served them well in terms of ensuring they are getting paid fairly for their services. He also noted that if the macro softens, they have levers in their quiver to optimize price in a way that would provide a tailwind for the business. El-Assal asked for more details on the drivers of the margin expansion, to which Bready deferred to Josh to answer.

Cameron Bready responded to a question from Jason Kupferberg about organic merchant volume growth in the second quarter and organic revenue growth expectations in merchant for Q3 and Q4. He mentioned that they saw 300 basis points of margin expansion in Q2 due to their shift to more technology-enablement and strong expense management and that margins would be in the high 46% range. He said that they expect organic revenue growth to be closer to 9%, but could potentially tick up to 10%.

EVO contributed roughly 11% to organic volume growth in the second quarter, with a slight headwind from fuel. The outlook for organic revenue growth and volume growth in the back half of the year is 9-10%, with the potential to drift closer to 10%. Cameron Bready also mentioned that B2B is in the mix for future M&A activity, with MineralTree having record bookings in the quarter.

The speaker is discussing how they plan to use M&A to support their strategy, specifically in the B2B market. They have segmented the market to provide clarity and to focus their efforts. M&A will also help them with their software strategy, gaining exposure to faster growth markets, and augmenting scale. As they get leverage back to their targeted ratio, M&A will come back into focus and they will pursue it in a disciplined fashion.

Cameron Bready explains that the diversity of their vertical market exposure has allowed them to experience stable volume growth in comparison to the rest of the industry. He further states that this is due to their lack of exposure to travel, which has seen a decrease in volume.

Cameron Bready states that it depends on the vertical market they are trying to target whether they should partner or own. He believes that they should choose the model that best positions them for success and growth and expansion in that market. He also mentions that the ISV channel is sustainable and doing well, implying that partnering could be a viable option.

Cameron Bready and Darrin Peller discussed the company's focus on integrated software and their decision to partner or own in vertical markets. Cameron noted that the partner model has been a fantastic growth engine for the business and he is bullish long-term on the partner model. He also stated that it largely boils down to what opportunities are available and what will give the company the best path to growth and success in the verticals they are targeting. Dan Perlin asked if the company should be able to decouple their revenue growth from volume growth.

Cameron Bready explains the software sales strategy of Global Payments which is to sell software and monetize payment flows. He believes that this will lead to consistent trends of volume and revenue growth. He then goes on to explain the profac model which is unique to Global Payments and is a hybrid model which involves taking on incremental compliance and underwriting risk.

Profac is a payment facilitation model that offers ISV partners all the benefits of a payment facilitation model without the pain of managing their own charge-backs, cash accounts, and reporting. This model is attractive because it provides the best of both worlds, allowing ISVs to reap the benefits of payment facilitation without the need to build payment infrastructure.

Cameron Bready discussed the success of the integrated side of the business, noting that the verticals with the greatest success are those with non-discretionary spend, and that mid account conversion was up 33% year-over-year in the second quarter. He also commented that the company is ambivalent between partner and owned models from a pricing and margin standpoint.

The speaker is discussing the three models that the company offers to ISV partners: payment facilitation, direct integration, and a profac model. The speaker states that the company is economically neutral in each of the models and that the model chosen depends on the partner's objectives and go-to-market strategies. The speaker emphasizes the importance of choosing the right model for the partner in order to maintain the company's margins.

Cameron Bready states that there has been consistent growth across direct integrated and payfac models over the last couple of years. He does not believe that all ISVs will become payfacs and many have gone back to direct integrated models or the profac model. He believes that there will be a balanced portfolio across these three channels and payment facilitation is not the silver bullet for every ISV.

Cameron Bready explains that the growth in the company's POS business is due to their vertical-specific ISV model, which provides a moat of competition. They have cloud-based software that is vertically fluent, which is driving the 20% growth in POS this quarter. This trend has been growing over the past couple of years.

Cameron Bready and Josh discuss the success of the EVO acquisition and how it has been a catalyst for growth in the merchant business. They are both excited about the potential of the business as they have had the company under their belt for several months.

Global Payments is excited about the opportunity to bring its capabilities to the EVO markets, such as ecommerce, point of sale software, data and analytics, and loyalty platforms. These new solutions will provide a strong catalyst for growth in the markets, and the potential is greater than originally anticipated.

Cameron and Josh discussed the opportunities for growth in EVO's business, such as leveraging their UCP platform to expand relationships with multinational customers, and increasing their B2B acceptance and AR solutions. They also noted that they are trending well in terms of cost synergies, and expect to realize $35 million in cost synergies in 2023, with the goal of achieving $125 million in cost synergies by the end of 2023.

Cameron Bready states that Global Payments has a competitive advantage over the market due to its scale, revenue, and ability to provide a wide range of commerce enablement and other solutions. He believes that this will allow them to think differently about revenue share and revenue splits. He also expresses confidence in the team's ability to exceed expectations in the future.

Global Payments' CEO Cameron Bready thanked participants for joining the Q2 earnings call and highlighted the company's success in sustaining growth rates in the integrated payment solutions channel due to its ability to drive better economic outcomes with partners, offer attractive offerings, and provide white glove and merchant support.

This summary was generated with AI and may contain some inaccuracies.