The operator introduces the Global Payments' second quarter 2024 earnings conference call and reminds participants that the call will be recorded. Senior Vice President Winnie Smith then provides a cautionary statement about forward-looking statements and discusses the use of non-GAAP financial measures. She also provides information on where to find the company's earnings release and supplemental materials.

The CEO, Cameron Bready, is pleased with the company's performance in the second quarter, with 6% adjusted net revenue growth and 12% growth in adjusted earnings per share. The company's focus on being the preferred partner for commerce solutions has resulted in high single-digit organic growth in merchant solutions, driven by integrated software and point-of-sale businesses. The company's progressive payment facilitation solution has led to a 30% increase in new ISV partner signings and a 40% increase in active merchants. The company is confident in its competitive positioning and is investing in its capabilities to maintain its leadership position.

The company is differentiating itself by meeting the specific needs of its partners and offering additional embedded commerce capabilities. They are seeing an increase in average annual revenue opportunities with new merchants by cross-selling solutions. The B2B acceptance solutions are in high demand, especially with the PayFabric platform. The company saw a 50% increase in new ISV partnerships in the second quarter. In vertical markets, there was double-digit growth in software bookings, particularly in education, real estate, and healthcare. The company has formed a new partnership with the second largest school district in the U.S., bringing their total partnerships with the top three school districts in the country.

The real estate business has formed new partnerships with YES Communities and expanded existing relationships with other companies. They have also launched a new residential pay-outs product and seen growth in their Point of Sale software business. They have partnered with Diamond Baseball Holdings and multiple UK football clubs to provide commerce technology solutions. They have also supported various sporting events in Europe with their Point of Sale and payment solutions.

In addition to their success in the food service management industry, the company has also seen growth in their POS software for the restaurant and retail verticals. They have achieved a high attach rate of their embedded commerce solutions with new customers and have seen a significant demand for their loyalty and marketing tools. The company has also released a next-generation POS software with improved user interface and mobile first design, which is expected to contribute to revenue in 2025. They have also expanded their POS offerings to markets outside of the U.S., with a full commercial launch in Germany next month and plans to launch in other international markets in the next 12-15 months. Their joint venture in Germany, Commerce Global Pay, has also had a successful start.

The company is seeing strong growth and opportunities in leveraging relationships with corporate and private customers of Commerce Banks. They are also experiencing growth in their Pan-European solutions, particularly in the EV charging sector. The company made two small acquisitions in Europe to improve their strategic positioning, including Takepayments, a provider of payment solutions to SMB merchants in the UK. This acquisition allows the company to diversify and expand their direct distribution capabilities and cross-sell their commerce enablement solutions. The second acquisition was of a technology development company that they were previously partnering with to drive their terminal on mobile offerings. The company has a strong pipeline of new business in the UK market, particularly in the hospitality and unattended verticals.

The company has seen strong demand for their mobile terminal and has brought the technology in-house to unify their offerings globally. They have also had success in cross-selling value-added services and have a large implementation pipeline and active LOIs. The company has renewed their relationship with NatWest and launched a partnership with Outpayce. They are also seeing a modest deceleration in transaction volumes, largely driven by commercial card activity.

The company is making progress on their issuer modernization program and expects to launch client-facing applications next year. This will increase their market and enable fintechs to use their applications. In the B2B segment, they are seeing good trends in new bookings for AP automation software and virtual card spend. They have also signed new customers for their employer solutions and renewed partnerships with existing clients. Bob Cortopassi has been appointed as the President and COO of Global Payments and is expected to contribute to the company's future success.

The company had a strong financial performance in the second quarter, with adjusted net revenue increasing by 6%. The growth was driven by the Merchant Solutions segment, with notable strength in the U.S., Europe, and LATAM regions. The company also saw positive trends in its vertical markets portfolio. However, there was a slight headwind from unfavorable foreign currency exchange rates and weakness in the macroeconomic environment in Asia Pacific. Adjusted operating margin increased and adjusted earnings per share also saw a 12% increase compared to the same period in 2023.

In the second quarter, the Merchant segment saw improved operating margin due to the ongoing synergy plans related to the EVO transaction. The Issuer Solutions segment also showed growth of over 4%, with an increase in traditional accounts and completed implementations. However, there was a slight deceleration in transactions, particularly in commercial volumes, due to macroeconomic uncertainty. The AP automation software in the Issuer B2B portfolio had healthy growth in the mid-market segment.

In the second quarter, the company's Paycard solution faced challenges due to the current economic conditions, but there is a promising new sales pipeline. Despite a difficult comparison to the previous year, Issuer Solutions saw an increase in operating margin. The company also had strong adjusted free cash flow, with a higher conversion rate from adjusted net income. Capital expenditures were in line with long-term targets and the company repurchased shares. Their leverage position is expected to be in the low 3s by the end of the year and they have a healthy balance sheet with ample liquidity.

The company's total debt is mostly fixed with a low average cost. They are optimistic about the second half of the year, expecting 6-7% growth in adjusted net revenue and an expansion in operating margin. In the merchant business, they anticipate 9% growth for the full year, with some headwinds from foreign currency exchange rates offset by an acquisition. For Issuer Solutions, they expect 5-6% growth, but may be at the lower end due to currency exchange rates and a slowdown in commercial card transactions. They still anticipate an expansion in operating margin for this segment.

The company expects net interest expense to be $500 million and the adjusted effective tax rate to be 19%. They anticipate adjusted earnings per share to be in the range of $11.54 to $11.70, reflecting growth of 11% to 12% over the previous year. The company is focused on simplifying their business and becoming a leader in commerce solutions. They will share more details about their plans at an investor conference in September.

The speaker, Cameron Bready, responds to a question about the split between discretionary and nondiscretionary volumes in the company's merchant business and the exposure to credit and debit. He states that the portfolio is well diversified across various verticals, geographies, and revenue streams, making it resilient in the face of an uncertain macro environment. He remains confident in the model and believes it is well positioned for the future. The questioner follows up with a second question.

Cameron Bready, CEO of NMI Holdings, discusses the impact of ProFac on the company's ISV TAM (total addressable market). ProFac fills a need in the market for clients who need payment facilitation capabilities but are not large enough to handle all the responsibilities of being a payment facility. This has allowed NMI to sign on smaller ISV partners and compete effectively in the market. The company is focused on sustained growth and investing in capabilities to meet the specific needs of ISV customers. On the earnings call, analysts asked about the impact of ProFac on NMI's business and Bready highlighted the success and growth of the integrated business.

The speaker asks about the growth in merchant volume, which was 6% in the quarter. The speaker notes that this was a slight decline from the previous quarter and asks about the reasons for this. The speaker also asks about the increase in merchant margins in the quarter and whether the company is confident in achieving the full year guidance of up to 30 bps. The speaker also asks about the potential impact of cost synergies from the EVO acquisition on achieving this goal. In response, the speaker states that the decline in volume may have been influenced by leap year and the macro environment, but overall the volume and revenue growth are still within a point of each other. The speaker also mentions that the increase in merchant margins was better than expected and expresses confidence in achieving the full year guidance, with the potential for additional cost synergies from the EVO acquisition contributing to this goal.

The speaker is responding to a question about margin expansion in the merchant business. They are pleased with the outcome and note that despite absorbing Takepayments, it accounts for only half of their margin. They performed better than expected in the second quarter and attribute this to strong execution and growth in areas with attractive margin profiles. They are targeting 30 basis points for the year and expect to see a 50 basis point expansion in the back half of the year. This will skew towards Q4 as synergy is built.

Cameron Bready, CEO of a merchant business, discusses the growth potential of the ISV channel, which is where the market is heading due to the intersection of software and payments. The company has been investing in integrated and vertical market software strategies to stay ahead of this trend and ensure they are well positioned for future growth. Bready emphasizes the importance of payment decisions being made through the software used by SMBs, and the company's goal is to continue benefiting from this trend.

The speaker discusses the company's plans to improve efficiencies and margins in the second half of the year, with more details to be revealed at an upcoming Investor Conference. They mention opportunities to streamline and simplify the business, which they believe will unlock value and lead to further investments and improved returns. These plans are not reflected in the 2024 outlook, but are expected to have an impact in 2025 and beyond. A question is then asked about the potential spillover into 2025.

Darrin Peller, an analyst, thanks the company for their strong performance in the quarter and asks about the drivers of growth and margin in the merchant business. Cameron Bready, the company's CEO, responds by highlighting their focus on the intersection of software and payments in the SMB space and the importance of their ISV and point-of-sale software strategies. He also mentions the potential for further discussion on the business in September.

The company's healthy technology-led businesses are driving growth and contributing to overall margin expansion. Traditional payment markets may not grow at the same pace but have stable growth rates and higher margins, providing cash for investment in more growth-oriented businesses. International markets are also contributing to margin expansion. The company benefits from being a large-scale player and is focused on expanding into markets where it is already a scale player or has the potential to become one in the future.

The company is reevaluating their presence in certain markets and will provide more information in September. They feel confident about their conversion rate of 100% for the year, excluding the R&D tax credit. The strong free cash flow was due to growth in the business, lower interest expense, and changes in working capital. They have provided more details on their adjusted free cash flow and are highly focused on improving it in the future.

In the paragraph, the speaker discusses the company's recent success in improving their conversion rates, quality of earnings, and quality of adjusted free cash flow. They also mention their direct sales channel and their plans to reorient it towards selling technology-enabled solutions, specifically point-of-sale software. Despite being referred to as "legacy," the direct distribution channel remains productive and has driven growth in new bookings.

The company has been successful in selling traditional payment solutions, but is now focusing on omnichannel and technology-enabled strategies. They plan to reorient distribution towards these areas in the future, but acknowledge that it will take time. The outlook for the merchant segment is moderated due to FX rates, but the recent acquisition of Takepayments is expected to offset this. Overall, there are no major changes in the outlook beyond these factors.

Cameron and Josh discuss the company's confidence in their earnings guide for the second half of the year, with expected margin growth and merchant revenue in the 7-8% and 9%+ range, respectively. They also mention the positive momentum in new partner signings in the ISV channel and the constructive competitive environment for revenue share agreements.

The speaker explains that while competitors may offer aggressive rev shares, their company is able to differentiate itself by offering a breadth and depth of capabilities in traditional integrated payment facilitation and embedded commerce solutions. This allows for a more constructive partnership and competitive rev share without always meeting the high watermark. The speaker also mentions that they will provide a full update on the company's strategy and investments at the upcoming Investor Day.

The speaker looks forward to giving an update on their company's strategy, initiatives, and performance at an upcoming investor conference. They will also discuss efforts to streamline and simplify the business, improve the customer experience, and drive better returns. The speaker emphasizes the importance of free cash flow generation and return on capital. The questioner asks about the success of embedded commerce.

Cameron Bready explains that the success of their solutions is due to a better selling strategy that encourages sales professionals to attach value-added services to the payment experience. This has been particularly successful with their integrated partners, who are attracted to the commerce enablement and embedded commerce solutions. On the direct side, they are seeing strong attach rates for customer loyalty and cross-selling efforts for human capital management and payroll.

The company has been successful in implementing a strategy to enhance the payment experience for clients and is now focusing on adding more commerce enablement solutions to further enrich relationships and differentiate from competitors. They plan to continue reducing debt and maintain a 3 times leverage point in the second half of the year.

The company has been generating 50% to 65% incremental margin on revenue growth for many quarters, but after acquiring EVO, the margin decreased to the 40s. However, this quarter, the margin has stepped back into the range of 50% to 65%, which is a good indication for the future. The company is still working on realizing synergies from the EVO acquisition and investing in the business, but they were pleased with the 30 basis points of margin expansion in the second quarter. They are targeting 30 basis points for the full year and expect to see further margin expansion in the future. The company's margin profile in merchant is now close to 50%, making it easier to expand margins in the future.

The company is focused on driving margin expansion in the merchant segment and has been successful in doing so. They have made investments to share technology environments and are seeing positive results. Merger and integration costs have been decreasing and are expected to continue to do so. The company's quality of earnings has improved and they expect it to continue to do so.

Tien-Tsin Huang from J.P. Morgan asks about the positive merchant volume spread and if it will continue in the second half, specifically regarding the growth of the software and integrated side. Cameron Bready responds that while they hope to see continued revenue growth, they don't want it to become uncorrelated with volume as their investments in Point of Sale and embedded commerce solutions are not purely tied to volume. Tien-Tsin Huang then asks about the issuing side and if there has been any change in demand or activity due to litigation and new developments from Visa.

Cameron Bready, a company executive, says that they feel good about their position in the short to medium term with their business in Tien-Tsin. They are executing well and have a strong pipeline of accounts and potential contracts. They have also seen new opportunities emerge, such as partnering with Amadeus. However, long-term growth will depend on their modernization efforts, which are on track to be completed by the end of this year. This will allow them to offer new solutions and tap into new markets and use cases for their services.

The speaker discusses the company's plans to improve their capabilities and solutions in order to better serve their clients and unlock new opportunities. They are looking forward to implementing these changes in 2025 and beyond. The call concludes with the speaker thanking the participants for their interest in the company.

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