Global Payments Inc.

Ladies and gentlemen, thank you for standing by, and welcome to the Global Payments 2019 First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will open the lines for your 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 Payment's first quarter 2019 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 filings, including our most recent 10-K and any subsequent filings. 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 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, CFO, Senior Executive Vice President and CFO. Now, I'll turn the call over to Jeff.

We are delighted to have delivered yet another quarter of outstanding results, further demonstrating the differentiated nature of our business model. We generated double-digit organic growth in each region in the first quarter of 2019, expanded adjusted margins by 110 basis points, and grew our adjusted earnings per share 19%. Our success in generating consistent industry-leading results is enabled by the multi-year investments we have made in distribution and technology to ensure our payments solutions are distinctive and defensible. We have built a competitive moat with a scale ecosystem across our markets that gives us confidence in our ability to sustain growth and remain at the forefront of innovation. And we are balanced across the core elements of our strategy. A mix of software, partnered and owned, market-leading e-commerce and omnichannel solutions, and exposure to faster growth geographies. Let's start with our partnered software business, led by OpenEdge. Growth accelerated at OpenEdge in the first quarter, and we produced one of our best top-line quarters in several years. As we highlighted in our fourth quarter call, OpenEdge signed a record number of new ISV partners in 2018, which is helping drive momentum in 2019. We're off to a solid start with our newest partners and have already closed with 122 municipalities through our relationship with Tyler Technologies and approximately 1,000 chiropractic offices through our partnership with ChiroTouch. We also completed our integrations with ASI and Gather Technologies and will launch with both partners this quarter. Not all integrated is created equal, and the proof is in our results as we continue to realize strong growth in this channel and extend our lead versus our legacy competition. As for our own software assets, we achieved very good results across the portfolio in the first quarter. Active's bookings trends remained favorable, and we enhanced our relationship with Ironman and added two new large community partners in the quarter. Advanced MD, or AMD, also generated robust bookings growth in the quarter, while referrals to and from OpenEdge have increased substantially year-to-date. AMD has increasingly streamlined its interfaces with OpenEdge to simplify the user experience and we're making it easier for patients to make payments at point of service for co-pays and outstanding balances. Additionally, AMD is deepening its practice relationships by now offering the Heartland payroll module as part of its bundled solution. Our ability to effectively cross-sell highlights the enhanced alignment among our sales teams in just a few short months since the acquisitions. we are leveraging our distribution and payments capabilities at AMD to scale our solutions and accelerate growth in one of the largest addressable vertical markets in the United States. And, consistent with our core edge operating strategies, we have made progress on enhancing AMD's technology, regulatory, and compliance environments by extending our best practices to their businesses. We believe that the market is beginning to take note of our distinctive solutions that span the full value stack. For example, a recent sell-side survey of acquiring industry participants concluded, first, that payments companies owning vertical-specific software was the preferred strategy to enhance market share, and second, that that trend toward ownership was increasing over time. In fact, the same survey highlighted restaurants, education, and healthcare as as the leading verticals for payments and software integrations, and today we own solutions in all three. Key to the success of our strategy is diversity of distribution, and we believe that our results reinforce the survey's conclusions regarding the superiority of our model. Take, for example, the restaurant and food service vertical, which is one of our largest markets. That market is the quintessential example of the type of segment we target. It is sizable, worldwide in scope, defensible, and one in which owning the entire value stack is critical across all segments of the market. Global Payments provides leading cloud-based software and payment solutions that are scalable and customizable for any size restaurant, from the taco truck to Taco Bell. Each of our restaurant solutions serves as a gateway into the extensive ecosystem of products and capabilities in our portfolio, as merchants in this market are increasingly looking for a single platform to manage every aspect of their growing businesses with zero friction, and increasingly in the cloud and on a SaaS basis. To gauge the scope of our competitive differentiation, it is worth spending some time describing our payment and software solutions based on how the market is principally segmented, that is, by the size of customer. Starting with the food truck or small caterer, we provide best-in-class mobile-based point-of-sale solutions for all types of car payments through Heartland Mobile. Built for both iOS and Android operating systems, the interface is intuitive and easy to use with simple menu entry and reporting. With self-select onboarding, food truck operator can be up and running in less than 24 hours. At the same time, we provide full, high-touch support for those customers that need it, which is unique to global payments at this end of the market. Further, we can deliver email and text invoicing, analytics, marketing, and lending, among other services. These solutions position Heartland Mobile as as one of the most extensive small merchant offerings available in the United States and Canada today. Moving up the restaurant vertical in size, we recently released the feature-rich Heartland Register to single-location coffee shops, bakeries, or basic counter service establishments. The Register is our newest point-of-sale solution with straightforward order entry and fast check-out. In addition to functional requirements like a receipt printer and cash drawer, the application includes an extensive suite of business solutions like email marketing, analytics, capital, and instant deposits, to name a few. The breadth of cutting-edge products and high-tech functionality we are introducing at this level of the market is unique and precisely why we are winning. Our breadth of distribution in this segment is unrivaled as is the 24-7-365 support we offer our customers at this size of the market. Heartland Register will be broadly available in the United States both online for self-select merchants and for purchase through our Heartland sales professionals. For the more complex restaurant with up to 100 locations, we deliver highly customized vertically fluent software to 135,000 establishments via our cloud-based Heartland Restaurant solution. This includes sophisticated kitchen management, mobile and online ordering, unattended kiosk, and pay-at-table functionality with remote management across multiple locations. Additionally, Heartland Restaurant currently has integrations with over 100 software partners, with many more in process. This open architecture allows our customers to tap into delivery services, accounting applications, inventory management software, and other disruptive technologies at the point of sale. Also seamlessly delivered on the same platform, SaaS features like payroll, employee scheduling, analytics, email marketing, as well as lending make this a comprehensive solution our legacy competitors simply cannot match. This leading product suite is sold to our heartland sales professionals and our long-standing network of over 300 dealers. Other cloud-based competitors lack the depth and breadth of our distribution assets, and our dealer channel coupled with new industry-leading products are key competitive advantages for global payments. Finally, at the enterprise level, our combined Xenial SciComm platform provides a complete, end-to-end SaaS solution for quick service restaurants, or QSRs, and food service management companies globally. Specifically, in the front of house, our software capabilities include point-of-sale systems, dynamic digital menu boards, kiosks, and mobile ordering. For the middle of house, we provide multi-location kitchen, drive-thru, and inventory management solutions. And finally, our back-of-house offering includes data analytics, loyalty, customer engagement, as well as payroll scheduling and procurement. We have a rich pipeline of new products in our queue. For example, we are currently testing artificial intelligence, or AI, to help enhance the drive-through experience, which generally represents two-thirds of sales at QSRs. Specifically, We are constructing the drive-through of the future with our leading QSR customers, utilizing technologies such as exterior digital menu boards, voice recognition, and mobile interfaces. At just one use case, we expect to be able to offer customized menu recommendations derived from past order data and indicated preferences generated by AI. We believe there is significant demand for us to expand the pie with our leading customers offering further opportunities to accelerate growth. Our ability to serve as a comprehensive solution provider for the cloud-based software and payments needs of some of the most complex franchises in the restaurant vertical is unique in the industry, as our competitors are primarily legacy, on-premise providers or limited in offering scope, typically providing front-of-house or point-of-sale solutions only. we are proud of the company we keep. And today, our list of customers includes 21 of QSR Magazine's top 40 ranked brands, including Burger King, Taco Bell, Tim Hortons, and Wendy's. As we continue to combine Xenial and SciComm, we have already been able to successfully cross-sell the Xenial customer engagement solution to two large SciComm enterprise customers. Additionally, We are in discussions with a large Xenial customer to expand our partnership to the middle of the house with SiteCom Chef, our kitchen management system. It is also notable that the Xenial point-of-sale solution has won four of its last five RFPs. We are also excited about the scope of our business in the food service industry, a new $2.5 billion TAM across 650,000 locations worldwide. that we entered with a SciComm acquisition. Compass and Sodexo are two of the largest providers of corporate food services globally, and we are pleased to serve both in multiple geographies. We look forward to deploying additional technologies, including kiosks and mobile ordering, into their corporate customers as well as adding new geographies. Stay tuned. With both our QSR and food service management partners, we further differentiate our competitive position with an established worldwide footprint with our solutions currently deployed across 62 countries in the Americas, Europe, and Asia. We are leveraging our international reach and leading partnerships to bring our technology solutions to additional faster growth markets, not only in the restaurant vertical, but across our entire software-driven payments portfolio. We also seek to further capitalize on our leading technologies distribution capabilities, and unmatched footprint by expanding into new geographic areas. To that end, we are pleased to announce that we are expanding our partnership with IHRSA into its home country of Austria later this month. We expect favorable secular trends in this market in combination with our distinctive partnership and innovative software and e-commerce and omnichannel offerings to drive strong growth for our joint venture in Central Europe once we have scaled our business. Expansion of our existing partnerships into new markets, such as Mexico and soon to come Austria, highlights the durability of our global relationships and just how different our value proposition is from our legacy peers. Across our businesses, we have made substantial investments in technology and partnerships over the last half decade, creating a distinctive, differentiated, resilient, and defensible business model that adapt scale globally where scale matters. Over the past year, we have provided our detailed views of market segmentation, our go-to-market strategies, and competition by category for our largest businesses, including integrated and vertical markets in March of 2018, e-commerce and on a channel this past October, and now the global restaurant and food service management markets. We trust these reviews provide a firm sense of why and where we are winning every day globally. We're very pleased with our first quarter of 2019 and our trajectory for future growth, both of which are the best indicators of our ongoing confidence in our differentiated strategy. With that, I'll turn the call over to Cameron.