Global Payments Inc.

Ladies and gentlemen, thank you for standing by and welcome to Global Payments 2019 Second Quarter Earnings Conference Call. At this time, all participants are in listen-only mode. Later, we will open the lines for your questions and answers. If you should require assistance during the call, please press star then zero on your touchtone telephone. And as a reminder, today's conference is being recorded. At this time, I would like to turn the call over to your host, Vice President and Best Relations, Winnie Smith. Please go ahead.

Good morning, and welcome to Global Payments' second 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 about expected operating and financial results and the anticipated merger with TSIS, including the strategic rationale and financial benefits of the transaction, among other matters. Forward-looking statements 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 of the date of this call, and we undertake no obligation to update them. Some of the comments made refer to non-GAAP financial measures, such as adjusted net revenue, adjusted net revenue plus network fees, adjusted operating margin, 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 FCC regulations, please see our press release furnished as an exhibit to our Form 8-K 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. Please note that today's presentation is neither an offer itself, the solicitation of an offer to buy securities, or solicitation of a property vote. The information discussed today is qualified in its entirety by the registration statement on Form S-4 and joint proxy statement, as well as any amendments to those documents that Global Payments and TSIS have filed or may file with the SEC. 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.

Jeff Sloan Thanks, Winnie. We are delighted to have delivered double-digit organic growth once again this quarter, driven by strength in our technology-enabled businesses. This performance, coupled with outstanding execution across our markets, also resulted in adjusted earnings per share growth of 17% and adjusted operating margin expansion of 100 basis points. This quarter's adjusted net revenue plus network fees growth also marked an acceleration from a terrific first quarter, and we produced these results as our team simultaneously advanced our transformational merger with Teasys. These outstanding accomplishments serve as further proof points that the successful execution of our strategic objectives continues to deliver consistent, industry-leading financial outcomes. We are focused on providing innovative payment solutions to our customers across our distinctive distribution channels and diversified geographic footprints. and our partnership with TSYS will significantly enhance the scale and scope of our technology-enabled, software-driven ecosystem globally. I will provide an update on the significant progress we have made with TSYS in a moment, but first I would like to cover a few of the key milestones we achieved across the three pillars of our strategy this quarter. Starting with our integrated and vertical markets businesses, we yet again delivered sustained, strong organic growth our partnered software business performed well as our new ISV partners are exceeding our expectations and contributed to the mid- to high-teens top-line growth we delivered in this channel. And the competitive differentiation of our integrated payments technologies continues to drive new wins. Notably, we signed a new agreement with TogetherWorks, which provides a management platform for a group of 22 innovative SaaS companies with solutions that span multiple vertical markets, including fundraising, recreation, and fraternal organizations. TogetherWork's annual payments volume opportunity is currently $4 billion and growing, and we look forward to working with our new partners. As for our own software assets, we also achieve strong results across the portfolio as we leverage our distribution and payments capabilities to scale our leading SaaS solutions in their respective vertical markets. Starting with Active Network, booking trends for its core products remain consistent, continuing the solid trends we have recently seen in the business. We were pleased to sign our largest ever international camp and class manager relationship this quarter. Advanced MD also had another great result, including its best quarter to date for referrals to OpenEdge, as our streamlined interface and leading product suite is driving strong adoption of our payment solution by physician practices. Turning to SciComm, we successfully deployed our kiosk solution to over 200 Tim Hortons locations in Canada over the last few months and will roll out to an additional 500 locations by year end. We have also started to deploy our kiosks across Burger King franchises in the United States. Our kiosk solution allows restaurants to reduce labor costs improve order accuracy, and increase sales through marketing and upsell opportunities. Moving to our e-commerce and omnichannel businesses, we are making significant progress with our new Unified Commerce Platform, or UCP, which provides a single omnichannel payment solution worldwide through one API. Specifically, we made our UCP API available for testing globally at the end of the first quarter. and we just released our new chargeback management API this month. We are now live with full omnichannel payments across our new infrastructure in Canada and Asia Pacific. We remain on track to complete the rollout of the new platform to all of our global markets by the end of the year, uniquely positioning global payments to seamlessly combine both virtual and physical worlds to serve complex merchant needs. Several of our most sophisticated multinational clients are streamlining their payment operations by integrating to our new platform, and it's already driving new marquee wins. Specifically, in conjunction with our partner, Caixa, we are expanding our relationship with Spanish clothing retailer, Desigual, across four continents for both in-store and e-commerce payments. Desigual will leverage our new platform to allow their customers to seamlessly shop across channels globally. Additionally, we are delighted to have recently expanded our relationship with the premier French luxury retailer into more than two dozen markets worldwide. This customer will similarly leverage our platform to meet evolving consumer demand and to simplify and centralize their payment operations. We are also pleased to have recently reached an agreement to expand our omnichannel partnership with one of Canada's largest retailers into a new online marketplace offering. Lastly, we've established a new e-commerce win in Asia with Star Cruises. We have a long-standing relationship across Hong Kong, Singapore, and Malaysia, and we are excited to expand our partnership beyond the physical point of sale to provide a full omni-channel solution. Finally, we continue to deliver outstanding results in our faster growth markets. Regarding our newest geographies, we are making excellent progress with HSBC in Mexico since our launch in January 2019. Our leadership team is in place, as is our new facility in Mexico City, and we are continuing to ramp our sales and support organizations. We are already seeing growth accelerate to double digits organically in this market and remain enthusiastic regarding the long-term opportunities for this business and across Latin America as we bring leading technologies into these new markets. We also announced the expansion of our joint venture with Ersta Bank into its home country of Austria last quarter, and we are now working to scale our business to capitalize on the favorable secular trends in this market by leveraging our distinctive partnership, exactly as we said we would do. HSBC, Ersta, and Inversa, which recently agreed to join Caixa and us as a strategic partner in Brazil, are some of the largest, most complex, and sophisticated financial institutions, or FIs, globally. We are proud of the company that we keep, and we could not be more pleased to partner with these leading institutions, highlighting the differentiation, durability, and extensibility of our position as the partner of choice to leading multinational FIs. Turning to our biggest strategic milestone for the quarter, we were delighted to announce our agreement at the end of May to combine with TSYS in a landmark transaction for our industry. This partnership creates the preeminent, pure play, payments technology company at scale, focused on SMBs and leading FIs in the most attractive markets globally. The merger accelerates our technology-enabled, software-driven payment strategy and positions our merchant business as the leading provider of integrated payments and e-commerce and omnichannel solutions globally. Further, the addition of issuer solutions dovetails with our strategy, providing mission-critical software and processing services for card issuing customers worldwide, increasingly in the cloud and on a SaaS basis. This business is ranked number one in market share in the United States, Canada, the United Kingdom, Ireland, and China, and number two, across Western Europe. No peer has a business at that scale across those markets, which will bear substantially on our revenue synergies. The combination will also provide us exposure to additional faster growth geographies and enhances our scale in markets overseas where both companies operate today. Combined, we will have a physical presence in nearly 40 countries globally and will do business in over 100. The highly complementary nature of these leading payments-focused businesses provides for significant revenue enhancement opportunities. First, inside the United States, we will meaningfully enhance the value proposition for T-SYS's customer base of more than 800,000 merchant locations across over 50 vertical markets, with our software solutions, analytics capabilities, and unified commerce platform. We will reciprocate by cross-selling TSIS products, like Vital POS for Retail, into global payments merchant base. TSIS will also add more than 500 sales professionals and will more than double our domestic financial institution base of referral partners. In sum, we will have the preeminent U.S. merchant business focus predominantly on SMBs. Second, outside the United States, the expanded breadth of our combined 1,300 FI partnerships also provides large untapped opportunities for new issuer and merchant referral relationships. T-SYS more than doubles our existing FI base globally. And we have already had FIs express interest in our ability to cross-sell issuing into acquiring partnerships as well as the reverse. in just the two months since we announced the murder. It is worth noting that Global Payments is fully operational today in 31 markets outside the United States, something our legacy peers with recent corporate exits lack now and for the foreseeable future. In that context, it will be quite some time before purchasers of those businesses will be able to effectively cross-sell issuing and acquiring services. As we also mentioned at the time of our transaction announcement, we expect our merger to open further avenues for inorganic growth internationally, given our unique positioning. Third, we believe the combination of our issuing and acquiring businesses globally will enable us to emulate the benefits of debit network ownership technologically without the need to actually own a debit network in any geography, generating superior return opportunities We will therefore be uniquely positioned to develop new products at scale on a worldwide basis, including multinational domestic and cross-border on-us routing, enhanced loyalty and analytics schemes, more effective merchant and issuing joint sales strategies, and strong customer authentication, or SCA, approvals internally. On that last point, we expect our e-commerce businesses to benefit from higher authorization rates via our own proprietary SCA that will be uniquely available to Global Payments. Fourth and finally, we expect TSYS's consumer solutions business to provide us with new B2B, B2C, and P2P capabilities and opportunities in new geographies. As just one use case, we believe we can bring NetSpend into new markets based on Global Payments' existing acquiring partnerships outside the United States. And of course, here in the U.S., we expect NetSpend's pay card products to help substantially expand the target addressable markets for Heartland's payroll solutions. As to the merger itself, we have made great progress and are now tracking ahead of our previously announced plans and expect to close the transaction as early as the beginning of the fourth quarter. We also successfully closed on our new credit agreement on July 9th. an important milestone in establishing the new capital structure for our combined company. Our integration planning is underway, and based on preliminary work, we have even more confidence in the expected synergies and accretion targets that we outlined in May. We could not be more excited about the future as we bring together two premier payments companies with strong businesses, management teams, and cultures that will generate significant opportunities and long-term value for our employees, customers, partners, and shareholders. Now I'll turn the call over to Cameron.