The operator welcomes participants to the Global Payments third quarter 2023 earnings conference call. The call will be recorded and the host, Senior Vice President of Investor Relations, Winnie Smith, will begin. She reminds listeners that some statements made during the call are forward-looking and subject to risks and uncertainties. Non-GAAP financial measures will also be discussed and a full reconciliation can be found in the press release and supplemental material on the company's website.

The speaker, Cameron Bready, is joined by other executives on the call to discuss the company's strong third quarter results. Despite a challenging economic environment and a strong dollar, the company exceeded expectations with 9% growth in adjusted net revenue and 11% growth in adjusted earnings per share. The Merchant Solution segment saw strong organic growth, driven by technology-enabled offerings. The integrated business signed 16 new partners and the new Progressive Payment facilitation model demonstrates the company's leadership in this channel.

In the third quarter, the company signed six new profac partners and has over 20 more potential partnerships in the pipeline. The booking trends for their software businesses have also seen strong double-digit growth, with Zego experiencing a 15% increase in bookings. Zego has expanded its partnerships with global real estate and multifamily management companies, as well as signing a new partner in the student housing market. The company's active network has had one of its best booking quarters since the pandemic, with new partnerships in various industries. Their university business, TouchNet, also signed a new partnership and extended an existing one. The company's POS software business continues to see strong demand and has an annual adjusted net revenue of nearly $400 million. They focus on the restaurant and retail industries due to their large international markets and the increasing trend of payment decisions being made at the point of sale.

The company's POS solutions are used by over 80,000 merchant locations globally and cater to businesses of all sizes. They offer customizable solutions that can easily scale to meet the needs of small and large merchants, and provide a seamless combination of software, hardware, and payments for in-person and online transactions. Their entry-level product, GP Pause, is a cloud-based POS solution that offers a competitive starter option for SMB customers with a user-friendly interface and a wide range of features. It can be easily set up and configured within 24 hours, making it a convenient choice for merchants.

GP Pause is available globally through various distribution channels, and has been successfully launched in multiple international markets. In North America, GP Pause is offered through Heartland Restaurant and Heartland Retail, which target small to mid-sized businesses. These solutions include various capabilities such as mobile POS, guest and table management, and AI-driven marketing. GP Pause also offers open architecture and integrations with other software partners. In North America, GP Pause is distributed through a network of local dealers and sales professionals.

Heartland POS software solutions have seen strong growth, and the company expects this to continue with the launch of their next generation offerings in 2024. These solutions are mobile-first and designed to provide omnichannel experiences. For enterprise customers with complex requirements, the company offers Xenial Cloud POS, which includes a complete technology stack for operations such as drive-through, QSR, and sports arenas. Xenial also provides dynamic digital menu boards, kiosks, mobile ordering, and customer engagement solutions. The company serves 26 of the top 50 QSR brands globally and operates the food and beverage and retail environments for complex stadiums.

The company currently serves almost 100 stadium and event venues globally with their point of sale solutions. They have a strong global reach and have achieved double-digit growth in Spain and Central Europe. They also have new partnerships with International Parking Group and Marriott International to offer omnichannel solutions. In their issuer business, they achieved mid single-digit growth with strong transaction growth in their commercial business.

In the third quarter, Global Payments saw an increase in traditional accounts on file due to strong growth with existing financial institution clients and successful conversions of new portfolios. They also completed the migration of accounts for a leading U.S. retailer and reached a new issuer processing agreement with a leading U.S. bank. In the B2B sector, they experienced strong growth with both corporates and financial institutions through their software-driven workflow automation solutions and employer solutions. MineralTree subscription bookings for AP automation software increased by 86% year-over-year, and they successfully integrated EVO's PayFabric software into their merchant business.

In the third quarter, the company saw strong growth in B2B transactions, with an increase in virtual card usage and tokenization. They also saw growth in their PayCard business and achieved new partnerships in Employer Solutions. The company expects to continue capturing share and accelerating growth in the B2B sector in the long-term. Despite a $10 million adjusted net revenue headwind from foreign currency exchange rates, the company exceeded their expectations and delivered a 9% increase in adjusted net revenue.

The adjusted operating margin for the quarter increased by 50 basis points to 45.7%, with a 90 basis point increase when excluding the impact of acquisitions and dispositions. Adjusted earnings per share also increased by 11% or 18% when excluding dispositions. The Merchant Solutions segment saw a 19% improvement in adjusted net revenue, led by technology-enabled businesses and growth in faster markets. The Issuer Solutions segment also saw growth, with a 6% increase in adjusted net revenue and a mid-single digit growth in the core issuer business.

The company saw significant growth in their accounts and transactions, particularly in their commercial card segment. They also completed several conversions and signed new contracts and renewals. Their issuer B2B portfolio also saw double-digit growth, with MineralTree achieving 20% growth and PayCard improving compared to the previous year. The Issuer Solutions segment saw an increase in operating margin, and the company produced strong adjusted free cash flow for the quarter. They aim to convert 100% of adjusted earnings to adjusted free cash flow for the full year.

In 2023, the company expects to maintain its capital investment at $630 million and reduce its outstanding debt by $1.1 billion. They are on track to reach their long-term leverage targets by the end of the year and have a healthy balance sheet with $3 billion in available liquidity. Despite a $40 million headwind from foreign currency exchange rates, they still expect adjusted net revenue to grow by 7-8%. The company also forecasts a 120 basis point expansion in adjusted operating margin and $35 million in cost synergies from the EVO acquisition. The merchant segment is expected to report a 16% growth in adjusted net revenue, while the issuer segment is expected to grow by 5-6% on a constant currency basis, but potentially lower if the US dollar continues to strengthen.

The issuer business is expected to have an expanded operating margin for the year. Non-operating items such as net interest expense and adjusted effective tax rate are also expected. Adjusted earnings per share for the full year are projected to grow by 11-12%, with a potential headwind due to the strengthening of the U.S. dollar. Spending trends and macroeconomic backdrop are expected to remain consistent, but the company is prepared for different scenarios. The business model is strong and can handle any changes in the current environment.

The speaker is pleased with the company's accomplishments in the first nine months of 2023 and believes they are well positioned for strong performance. They have a strong team and use the best technology in attractive markets globally. The speaker then introduces a question-and-answer session, asking for one question and one follow-up per person. The first question is about the split between discretionary and non-discretionary volumes in the merchant business, and the speaker explains that the business is well diversified across both categories with roughly equal representation. They also have a presence in over 70 different vertical markets.

The speaker discusses the current state of the economy, noting that non-discretionary categories are performing well while experience-driven sectors, like restaurants, are also doing well. They also mention that overall consumer spending remains resilient. In response to a question about the potential impact of lower debit interchange rates, the speaker states that any decrease in the cost of acceptance would be beneficial for their business, as most of their portfolio has pass-through pricing. They also mention that any short-term benefits would likely be competed away over time.

The company's consistent strength has been driven by its technology-enabled businesses, particularly its POS and integrated channels, as well as its vertical market businesses. The spread between volume and revenue growth has remained narrow, indicating potential for growth in pricing and value-added services. The company is bullish on the outlook for its restaurant and retail platform and expects consistent growth in the future. The company expects similar performance in the fourth quarter.

The impact of EVO's sale of payments is seen in the current revenue growth. As Global Payments brings more value-added services and software, there is potential for higher revenue growth than volume growth. The company wants to monetize payments through software and expects to see an uplift in payment volume. The recent win in the issuer side was driven by a large partner in the U.S. in the FI channel.

Cameron Bready, CEO of Global Payments, discusses the company's success in the issuer business, which is driven by their feature-rich capabilities and partnerships with market winners. He also mentions their focus on the point-of-sale technology and its impact on the restaurant and retail market.

The company's POS strategy is expanding globally, with plans to bring their GP POS Solution to Canada, UK, Spain, Central Europe, Poland, Ireland, Greece, and Mexico through recent acquisitions. The CEO believes there are great opportunities for growth and they are well positioned to capitalize on them. The stock's low valuation is a concern, but they are focused on using capital efficiently and may prioritize acquisitions over stock buybacks.

The speaker believes that the recent decline in payment stocks is unwarranted and they are focused on driving value for shareholders. They plan to return to a normal capital allocation strategy in 2024 and are currently focused on paying down debt. They are also actively seeking M&A opportunities that fit their criteria and have a full pipeline.

The speaker discusses the balance between M&A and buying back stock and mentions that they will closely monitor this. They also mention that the organic volume growth in the merchant side was 9%, which is consistent with previous quarters and is expected to continue in Q4. There were also FX tailwinds in Q3, but they anticipate less in Q4. EVO's contribution to revenue is also expected to be less in Q4 due to seasonal trends.

The speaker discusses the consistency of execution seen in Q2 and Q3 and expectations for Q4. They also mention a new U.S. client that was won and how it demonstrates the strength of having issuer and acquiring capabilities under one roof. The client is not a top five account, but it is a good win and adds to the pipeline of opportunities for growth in the issuer business.

The speaker, Cameron Bready, was asked about their concerns regarding the current economic environment. He mentioned that they are monitoring the impact of monetary policy decisions, inflation, and geopolitical events such as the ongoing conflict in Europe and recent terrorist attacks in the Middle East. However, he noted that October trends have been positive and similar to those in the third quarter.

The company is monitoring uncertainty and positioning itself accordingly in light of the macroeconomic perspective. They feel good about their current performance, but acknowledge risks such as geopolitical stress, consumer repayment, and inflation. They have a tempered outlook due to the current macro backdrop. The company believes they have built a resilient model that can sustain growth in different macroeconomic environments. They have confidence in growth drivers to sustain attractive levels of growth even if GDP and consumer spending levels are lower in the future.

The company is confident in its ability to grow in most macroeconomic environments, thanks to factors like share gains, software, new product capabilities, and secular growth trends. The business is versatile, with a presence in 41 countries and business in 170 markets, providing stability and durability. The issuer segment has seen core growth acceleration due to on-boardings and a strong conversion pipeline, and the company is confident in its durability, even in the face of potential softening in volume-based revenue.

Cameron Bready and Josh are discussing the durability and growth prospects of the issuer business, which is less macro sensitive but has less upside compared to the merchant business. They expect mid-single-digit growth in the short to medium term, but are making investments to potentially increase growth in the long term. For the fourth quarter, Josh expects Merchant margins to be slightly up year-over-year, while Issuer margins may exceed the high 46% range previously mentioned for the back half of the year.

Josh Whipple, the company's representative, discusses the expected margins for the Merchants and Issuer segments in Q4. He states that for Merchants, they expect flat margins and a modest decline for the full year, while for Issuers, they expect margins to be similar to Q3 and an overall increase of more than 60 basis points for the full year. The company has also reiterated a total company margin increase of up to 120 basis points for the full year. Another analyst asks about retention and bookings in the Merchant segment, and Cameron Bready responds that they are trending well and there is no potential weakness in bookings even in an economic decline.

The speaker discusses the current state of bookings and revenue in the company, stating that they are not heavily impacted by the macro environment due to their focus on the upper S and mid-market opportunities. They remain pleased with their performance and have seen strong booking trends in both the Zego and POS sectors. Retention levels have also remained consistent throughout the year, leading to stable revenue performance. The speaker also mentions that the EVO revenue contribution for the quarter and full year will be discussed by Josh.

The speaker is discussing the FX impact on the company's $490 million adjusted net revenue for the Merchant business. They mention that EVO had approximately $165 million in the quarter and that they are still on track to reach the $490 million figure for the year. They also mention new clients for the Profac pipeline and their motivations for switching to the product, which offers the benefits of payment facilitation without the burden of being a payments company.

The speaker discusses the types of ISVs and partners attracted to the Profac model, which spans various vertical markets. These ISVs typically have specific boarding and funding requirements and may lack the scale and expertise to become registered payment facilitation entities. The Profac model has had six wins in the quarter and over 20 in the pipeline, with ISVs of all sizes and verticals being attracted to its solutions. The speaker also mentions that the company is seeing consistent consumer spending trends in October.

The speaker is discussing the performance of large-cap payments companies and how it compares to the networks. They mention a deceleration in September to October and the differences in business models between the two. The speaker also addresses potential reasons for the slight tick down in volume and emphasizes that there will always be some differences between their business and the networks'. They end by thanking the questioner and ending the call.

The speaker thanks the person for their question about the company's point of sale software. He explains that the company has 300 dealers in the US and Canada who sell the software, and they also have 1,700 sales professionals who can refer sales to specialists. The company compensates all of their sales professionals for referring business. This distribution model has been successful and will continue to be used. In markets outside of the US, the company has a simpler point-of-sale system that is easier to sell.

Global Payments has a strong distribution network and partnerships that allow them to sell their point-of-sale capabilities internationally. They primarily focus on smaller markets and most of their sales professionals are able to sell their GP POS solution. A more specialized salesperson may be needed for more complex sales. The conference call has ended and the speaker thanks the listeners for their interest.

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