Global Payments Inc.

Ladies and gentlemen, thank you for standing by, and welcome to Global Payments 2018 Fourth Quarter and Year-End 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. And as a reminder, today's conference will be recorded. At this time, I would like to turn the conference over to your host, Vice President, Investor Relations, Winnie Smith. Please go ahead.

Good morning, and welcome to Global Payments' fourth quarter and fiscal year 2018 conference call. Before we begin, I'd like to remind you that some of the comments made by management during today's conference call contain forward-looking statements, which are subject to risks and uncertainties discussed in our SEC filing, including our most recent 10-K and any subsequent filing. These risks and uncertainties could cause actual results to differ materially. We caution you not to place undue reliance on these statements. Forward-looking statements during this call speak only as of the date of this call, and we undertake no obligation to update them. Some of the comments made refer to non-GAAP measures, such as adjusted net revenue, adjusted net revenue plus network fees, adjusted operating margins, and adjusted earnings per share, which we believe are more reflective of our ongoing performance. For a full reconciliation of these and other non-GAAP financial measures to the most comparable GAAP measure in accordance with SEC regulations, please see our press release, Furnished as an Exhibit, to our Form 8K filed this morning and our Trended Financial Highlights, both of which are available in the Investor Relations area of our website at www.globalpaymentsinc.com. Joining me on the call are Jeff Sloan, CEO, and Cameron Brady, Senior Executive Vice President and CFO. Now, I'll turn the call over to Jeff.

Thanks, Wendy. 2018 was an outstanding year for global payments strategically, operationally, and financially. We generated the highest adjusted net revenues plus network fees, adjusted operating margin, and adjusted earnings per share in our company's history. We also continue to execute on our technology-enabled, software-driven payment strategy, further widening our competitive mode. In addition, we deliver double-digit organic constant currency growth and strong margin expansion across our markets each quarter, while also producing the fastest rate of earnings per share growth for the year that we have yet achieved. These results exceeded the raised cycle targets we outlined at our investor conference last March, as well as the initial 2018 guidance we provided at this time last year. Further, we are especially pleased that we were able to build upon the success of our 2017 results, which had set a record for our performance at that time. We have a consistent track record of delivering on our commitments, and 2018 was no exception. Turning to the fourth quarter specifically, we maintained the strong top-line momentum we experienced all year, again delivering double-digit, constant currency organic growth. Notably, we witnessed peak holiday transactional volumes during the quarter, led by our U.S. direct and e-com omnichannel businesses. We also expanded adjusted operating margin by 80 basis points and produced adjusted earnings per share growth of over 24%, rounding out a fantastic 2018. Results this quarter and year were again fueled by our unwavering focus on the three pillars of our growth strategy and broad-based strength across our technology businesses. As a reminder, we expect technology-enabled distribution to represent 60% of our revenue and drive a significant portion of our growth by the end of 2020, with a balanced portfolio across owned SaaS, partnered software, and e-com and omnichannel assets. We made substantial progress against this objective in 2018, and our results highlight the successes our strategic initiatives have produced to date. As it relates to our software-driven payment strategy, we meaningfully enhanced our portfolio during 2018 with the addition of two marquee vertical market businesses, SCICOM, and Advanced MD. It is worth noting that we have a long track record of integrating technology businesses over many years, while also retaining and motivating leadership and accelerating growth. Beginning with APT in 2012, followed by PayPros in 2014, and Heartland in 2016, we have proven our ability to sustain momentum in technology enablement. Our investments have created a differentiated, defensible, resilient, and more predictable model. And we fully expect to do the same going forward as we continue to advance this strategy. The integration of SciComm with Xenial is well underway. We are already going to market with combined solutions, and initial customer reception has been overwhelmingly positive. One early data point. We recently signed a large coffee chain with more than 300 locations in the Pacific Northwest to our existing roster of 50,000 quick service restaurants or QSRs. The restaurant vertical is the quintessential example of the type of market we target. Sizable, worldwide in scope, distinctive, recession resistant, and relatively insulated from disintermediation, especially at the QSR level. Through the combination of Xenial and SciComm, The end-to-end SaaS capabilities we offer to every customer segment of the vertical uniquely position us as a one-stop shop for software, mobile, and payment services in this $4 billion target addressable market worldwide. Our footprint is broad and diverse, spanning restaurants and food service management providers across 60-plus countries. More to come on our market-leading suite of tech solutions in our first quarter of 2019 call. Turning to Advanced MD or AMD, referrals by its specialized sales force to OpenEdge increased 50% year-on-year in the month of January alone, while the team also made hundreds of referrals to Heartland Payroll in the first 60 days post-close. At the same time, the Heartland sales organization has begun leveraging existing relationships with physician practices in the communities they serve to bring new customer opportunities to AMD. The proof is in the performance, and AMD had terrific sales results in the fourth quarter with bookings up nearly 50% year over year to the highest level in its history. As we expected when we announced the transaction in August 2018, the outlook for this business could not be brighter. Finally, Active also had strong bookings momentum once again in the fourth quarter as it continues to acquire new logos and expand business with existing partners, building on a very strong sales performance in the back half of 2018. It's been a year and a half since we partnered with Active, and the business is on track with the financial expectations we outlined at the time of the deal. The fantastic results we have delivered across these assets demonstrate that our approach to managing software businesses is highly effective and bolsters our confidence in our software strategy as we enter 2019. How have we achieved such progress across these businesses? It starts with our disciplined approach to acquisitions and our unwavering focus on identifying opportunities that align strategically and culturally while also allowing us to generate attractive returns. Once we close an acquisition, we follow a core and edge approach to integrating and operating those businesses. Let's take the second one first. Our edge businesses continue to do what they do best, which is ensuring their software solutions maintain market leadership position. The management teams we retain know their customers, understand the product needs of their markets, and are equipped to make the best decisions to drive innovation and improve functionality. Global payments support these priorities at scale with extensive experience in onshore and offshore development, and we provide efficient sources of capital to invest in growth. At the core, we also leverage our capabilities to expand and monetize the payments opportunities transactionally that are inherent in these businesses on a local and global basis. In addition, we provide support through scale technology infrastructure and architecture, compliance and information security, just to name a few. Lastly and importantly, we bring worldwide distribution and significant cross-selling opportunities with localized product offerings and a global sales force to accelerate standalone growth. By marrying our distribution capabilities with their technologies, we are better equipped collectively to enhance rates of sustained growth and scale the combined businesses more effectively. Moving to our partnership business at OpenEdge, I am delighted to report that we signed a record number of new ISV partners in 2018. Notable wins include ChiroTouch, a leading chiropractic practice management software solution, and Tyler Technologies, a software leader in the municipality and local government vertical. And I'm pleased to announce that this momentum has continued into 2019 with the recent signing of one of our largest partners to date in ASI, a leading provider of software solutions to member-based nonprofit organizations worldwide. This partnership highlights the competitive differentiation of our integrated payments technologies In combination with our single API capabilities across our markets, ChiroTouch, Tyler, and ASI are all examples of recent competitive wins for OpenEdge, reinforcing our superior growth proposition in the most attractive vertical markets in integrated payments. Finally, we continue to add VISTA equity portfolio companies as partners, including most recently with PowerSchool in the educational market. PowerSchool provides an innovative K-12 education technology platform fueling school operations, classroom management, student growth, and family engagement. We remain excited about the pipeline of future opportunities in VISTA's portfolio. The second pillar of our strategy, our worldwide e-commerce and omni-channel businesses, continued its track record of strong growth in the fourth quarter. Adjusted net revenues plus network fees for this business have more than doubled over the past three years. Last quarter, we detailed our unique ability to deliver high value-add solutions globally in the virtual and physical worlds for our core SMB customers as well as for sophisticated multinationals. And with the rollout of our unified commerce platform later this month, we'll be able to provide a single payment solution worldwide through a sole instance of one API. We expect some of the largest and most complex omnichannel customers globally to code to this specification, which would drive higher acceptance and lower fees globally. The third element of our strategy is our ongoing commitment to expanding our presence in faster growth payments markets with attractive fundamentals. To that end, we are delighted to announce the official launch of our joint venture in January with our long-standing partner HSBC in Mexico. We are already beginning to leverage our best-in-class sales capabilities, and we expect to bring leading technologies to Mexico in future periods as we have successfully done worldwide. This new partnership highlights the durability and the continued expansion of our relationships with some of the most complex financial institutions globally, a key competitive point of differentiation for global payments. The success of our existing bank joint ventures in markets like Central Europe with Ersta Bank and Spain with CaixaBank makes us the partner of choice for the most sophisticated financial institution counterparts. One final thought on recent industry trends. Technology is transforming our industry, and we believe that we are at the forefront of leading that change. Externally, we go to market with a balanced mix of owned SaaS and partnered software assets with substantial exposure to trends in e-commerce and omni-channel businesses against the backdrop of faster growth payments markets. Internally, we utilize cloud-based SaaS technologies across nearly all of our infrastructure, from sales management to data analytics to finance, accounting, and human resources. In fact, we believe we are the largest user of Google Cloud in financial technology globally as just one point of reference. Over the last five plus years, we've invested more than $2 billion organically in our technology environments, complemented by substantial investments in inorganic partnerships. Competitors without the technological and financial capacity to make those types of investments will increasingly find themselves on the outside looking in and will remain consistent share donors. And they will find their alternatives to be less attractive as time goes on. With that, I'll turn the call over to Cameron.