The speaker welcomes the participants to the Global Payments' fourth quarter and full year 2023 earnings conference call. She reminds them that the call will be recorded and provides instructions for asking questions. The host, Winnie Smith, introduces herself and reminds listeners that some statements made during the call may contain forward-looking information. She also mentions that the company's financial results are subject to risks and uncertainties and refers to their SEC filings for more information. Non-GAAP financial measures will also be discussed during the call.

The speaker discusses the company's fourth quarter and full year 2023 results, which exceeded expectations. They credit their teams for outstanding execution and highlight their financial performance, including high single digit revenue growth and increased earnings per share. They also mention strategic progress, such as the acquisition of EVO Payments, which aligns with their goal of expanding into integrated payments and B2B capabilities.

The integration of our company has been successful and we are on track to meet our goal of $135 million in annual expense synergies. We are excited about the opportunities to cross-sell our products to EVO's customer base and have completed important divestitures to simplify our business model. In our merchant business, we are focusing on a software-centric approach and have seen success in our vertical markets, including new partnerships with sports teams and event venues. We have also renewed and expanded our services with stadiums in the United Kingdom.

Global Payments has been selected as the preferred point-of-sale and kiosk partner by Sodexo, a leading food service management company. They have also gained new customers in their education and active network businesses, as well as achieving record bookings with new partners. Their new progressive payment facilitation model, profac, has been successful in attracting new partners, including notable companies in various industries. These trends demonstrate the company's confidence in their ability to maintain consistent growth in the future.

The company's point-of-sale software business experienced strong growth due to demand for their solutions and new product enhancements. They expect to launch their next-generation software platforms this quarter. The company also benefits from their exposure to attractive global markets, particularly in Spain, central Europe, and Latin America. Their issuer solutions division completed 11 customer conversions and added over 50 million accounts, with a strong pipeline of new business and 13 multi-year renewals and new customer agreements in 2023.

The bank has a longstanding partnership with Global Payments, which has allowed for growth in issuer technology solutions. They have expanded into new markets, such as LatAm, through partnerships. The bank's modernization efforts have resulted in two clients using cloud solutions, with plans for more in the future. In the B2B sector, the bank has seen demand for software-driven work flow automation, money-in and money-out funds flow, and employer solutions. They have successfully integrated PayFabric software into their merchant business and have seen strong growth in virtual card adoption globally. B2B bookings in merchant solutions have also increased.

Global Payments has seen positive growth in their employer solutions, including their payroll business and partnerships for paycard and EWA solutions. They have also announced a joint venture with Commerzbank in Germany to launch a comprehensive suite of payments and software offerings. In North America, they are on track to launch new restaurant and retail offerings that have received positive feedback.

The company's new retail POS solution allows for expansion into additional retail verticals and aligns with their growth objectives. They have also been selected to power a new concept from McDonald's and have executed renewal agreements with two of their flagship clients in the issuer business.

In the fourth quarter, Capital One renewed its partnership with the company for both its consumer and commercial credit portfolios in North America, and Navy Federal also extended its relationship for consumer and value-added services. This shows the company's successful strategy of aligning with successful markets. The company expects similar consumer spending trends in 2024, but acknowledges potential risks to the global economy. The company's financial performance in the fourth quarter and full year was strong, with a 7% increase in adjusted net revenue and a 90 basis point improvement in adjusted operating margin. This was achieved while completing multiple transactions to accelerate the company's strategy.

In the fourth quarter of 2023, the company achieved adjusted net revenue of $2.19 billion, an increase of 8% from the same period in the previous year. Adjusted operating margin also increased by 30 basis points to 44.8%, with 100 basis points of margin expansion excluding EVO payments and dispositions. The merchant solutions segment saw adjusted net revenue of $1.67 billion, with double-digit growth in software-centric businesses and faster growth geographies such as Spain, central Europe, Poland, and Greece. However, there was weakness in the U.K. and Canada. Adjusted operating margin for the merchant segment declined by 60 basis points due to the acquisition of EVO, but improved by 40 basis points excluding EVO and dispositions. The company has achieved 25% of their targeted expense synergies from EVO and expects to reach their goal of $135 million in annual run rate expense synergies within two years.

The issuer solutions business of the company saw a growth of 6% in adjusted net revenue, with mid single digit growth in the core issuer business. This was driven by volume-based revenue and an increase in traditional accounts. Issuer transactions grew high single digits, with commercial card transactions increasing low double digits. The issuer B2B portfolio also saw growth, with MineralTree achieving record bookings and pay card showing improving trends. The adjusted operating margin for the quarter was 47.3%, in line with the previous quarter but lower than the previous year due to a difficult comparison. The company also saw strong adjusted free cash flow for the quarter and the year.

The paragraph discusses the financial performance and outlook of the company, including a 100% conversion rate of adjusted net income to adjusted free cash flow for the full year, a reduction in debt and strong liquidity. The company also expects reported adjusted net revenue growth of 6%-7% and an expansion of adjusted operating margin in 2024, driven by a shift towards technology enablement. The merchant business is expected to report 9%+ growth for the full year, including the impact of recent acquisitions and dispositions.

In 2024, the merchant business is expected to have a 30 basis points increase in adjusted operating margin, with a slower expansion in the first half due to the ramp up of EVO synergy realization. The issuer business is expected to see 5-6% growth in adjusted net revenue, with mid-single digit growth in core issuer and low double digit growth in MineralTree and Netspend's B2B businesses. Adjusted operating margin for the issuer business is expected to expand by up to 50 basis points, but this may be offset by faster growth in lower margin B2B businesses. The first half of the year will see some impacts from the acquisition of EVO and divestiture of gaming and Netspend's consumer assets. Non-operating items such as net interest expense, adjusted tax rate, and capital expenditures are also expected to remain in a similar range as previous years. Adjusted free cash flow is expected to be around 100%, excluding the impact of a timing change for recognizing research and development tax credits.

In 2024, the company plans to return to a more balanced capital allocation approach and has increased their share repurchase authorization. They also plan to reduce their debt and expect adjusted earnings per share to grow by 11% to 12%. The CEO is excited about the opportunities in front of the company and remains focused on executing their strategies, simplifying their business, and amplifying their investments.

The company is focusing on initiatives that will differentiate their business and improve scale and margins. They may also exit certain lines of business to focus on growth opportunities. They want to make it easy for customers to do business with them and are investing in technology to provide better experiences. They will maintain their focus on execution and are simplifying their technology and operating environments to become more efficient. They are committed to continuous improvement and increasing the speed and nimbleness of their business.

The company is committed to using generative AI to improve their products and services, increase efficiency, and combat fraud. They have already made progress in implementing generative AI and have a center of excellence to coordinate its adoption. They are also focused on maintaining a strong company culture. The call will now open for questions.

In the conference call, Bank of America analyst Jason Kupferberg asked about the company's guidance for 2024, specifically for the merchant piece. CEO Cameron Bready responded that their expectation is for 7-8% organic growth, but they are being slightly more cautious due to potential risks to the consumer. If the consumer remains strong, they may be towards the higher end of the range, and if there is weakness, they may be towards the lower end. This aligns with the analyst's thinking and reflects a tempered view of the macroeconomic environment.

The speaker addresses the possibility of portfolio pruning and M&A activity in the company. They state that they are being cautious about consumer expectations for the year and are focused on simplifying the business. They also mention that any potential M&A deals must fit strategically, culturally, and financially, and should be competitive with the option of buying back stock. The company remains open-minded about potential deals, whether they are smaller tuck-in opportunities or larger scale acquisitions.

Cameron Bready discusses the company's deliberate approach to M&A and the need for competitive return expectations. He also mentions the possibility of portfolio pruning in 2024 and the company's focus on investing in areas with scale, differentiation, and growth prospects. He notes that updates will be provided if decisions are made. In response to a question about the current competitive environment, Bready acknowledges the challenges but also highlights opportunities for the company.

The speaker is confident in the company's position in the U.S. market, particularly in the integrated business and point-of-sale solutions. They are also excited about the potential for growth in the POS space and vertical market software businesses. The company is investing in these areas and believes they have a competitive advantage in the U.S. market. Overall, the speaker is optimistic about the company's position in the competitive landscape.

The speaker discusses how pricing has become more rationalized due to rising rates and competitors focusing on profitability. They are bullish about their competitive position in markets outside the U.S. due to their capabilities in point-of-sale, mobile, and commerce enablement. They plan to host an investor day to provide more information on their business and potential growth rates.

The company is expecting 7%+ revenue growth and 14%+ earnings per share growth, reflecting a more conservative view of the macro environment. They believe these targets are sustainable over time. The company is also factoring in a tempered outlook for 2024. When asked about M&A and tuck-ins, the company did not provide specific details but mentioned that their guidance includes some margin expansion, potentially from synergies with EVO and operating leverage.

Cameron Bready and Josh discuss the impact of M&A on margins and capital allocation. They state that there will not be any significant M&A in the near future and that they are taking a cautious approach to margin guidance for 2024. They mention the importance of investing in the business for long-term growth, particularly with the integration of EVO.

The speaker explains that the company's focus is on investing in the business to drive growth and improving margins. Excluding the impact of EVO, margins for the year are expected to be up by 75 basis points and merchant margins by 60. The company is also focused on balancing margin expansion with reinvestment in the business. The speaker adds that margins for the merchant segment are expected to improve as synergies ramp up. The company has also increased its authorization for buybacks, indicating a potential for more capital returns in the future.

During a conference call, Josh Whipple and Cameron Bready discuss the company's capital allocation plans for 2024, with a focus on reducing debt and potentially utilizing share repurchases. Darrin Peller asks about the timing and impact of the Commerzbank joint venture, to which Bready clarifies that it is a distribution partnership and not an acquisition of an existing portfolio.

The company has formed a joint venture with Commerzbank in Germany, which will allow them to grow and scale their business in the country. Commerzbank is a strong partner with a strong market position, particularly in the small and medium-sized merchant market. The company is also seeing signs of stabilization in the U.K. market, but they will not comment on market rumors about their product capabilities.

The speaker discusses the company's performance in the U.K. market and their efforts to bring new products and solutions to the market. They also mention signs of stabilization in the market. In response to a question about free cash flow conversion, the speaker notes that the company has been pleased with their performance and credits it to their strong product capabilities. They also mention that merger add-backs have decreased in recent quarters and may continue to decrease in the future.

The company's conversion rates have been in line with expectations and are expected to follow a similar trajectory in 2024. Add-backs are expected to decrease and GAAP earnings to improve. The first quarter may be slightly below the expected range due to anniversaries, but the second and third quarters are expected to be in the 11-12% range, leading to 11-12% EPS growth for the year. The merchant growth guide is expected to be in line with forecasted volumes.

Cameron Bready, the CFO of Global Payments, discusses the potential lift in pricing and the forecast for merchant growth after the EVO and gaming sale. He states that volumes are expected to track in line with revenue growth and that pricing will continue to reflect the value and service provided to customers. This is consistent with their philosophy of not being the low cost provider and delivering differentiated value to clients. There are no major changes in pricing for 2024, and the focus is on executing their long-standing philosophy. A follow-up question is asked about the vertical solutions business.

Cameron Bready discusses the company's approach to potential investments, stating that they are deliberate in deciding where to own software assets and where to partner. They prioritize vertical markets with large addressable spend and a strong nexus with payments, and also look for opportunities to leverage their investments across the broader Global Payments portfolio. Additionally, they focus on vertical markets with international applicability.

The speaker discusses the success of taking software solutions to markets outside of the U.S. and the potential for driving growth and differentiation in those markets. They also mention their consistent mindset of investing in software and the potential for accelerating top line growth in the merchant sector through point of sale software investments.

The company's point of sale strategy and international markets are expected to drive growth in the next few years, along with increasing use of omnichannel payments. The CEO has high expectations for the point of sale business and believes it will be a key lever for growth. The company also has strong market positions and partnerships in international markets, which are less competitive than the U.S. market. The increasing use of omnichannel payments is expected to provide a tailwind for the business.

The speaker was asked about the stability of yields in the issuer business and if there were any trends in renewal terms. The speaker did not disclose specific pricing information but mentioned that they were happy to renew two major customers and that it was reflected in the business's growth forecast. They also mentioned investing in modernization and enabling clients to consume capabilities more easily, which they believe will lead to future growth for the issuer solutions business.

In 2024, Global Payments plans to commercialize solutions through various pilots and expand into new markets to accelerate growth. The company is pleased with the progress of these projects and is confident in sustaining current growth rates. The goal is to open new revenue channels for the issuer business. The speaker thanks everyone for joining the call and wishes them a happy Valentine's Day.

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