Global Payments Inc.

Ladies and gentlemen, thank you for standing by and welcome to Global Payments' fourth quarter and fiscal year 2019 earnings conference call. At this time, all participants are on listen-only mode. Later, we'll open the lines for questions and answers. If you should require assistance during the conference, please press star then zero. As a reminder, today's conference call will be recorded. At this time, I'd like to turn the conference over to your host, Senior Vice President of Investor Relations, Wendy Smith. Please go ahead.

Good morning, and welcome to Global Payments' fourth quarter and full year 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. 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 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 gap measure in accordance with SEC regulations, please see our press release furnished as an exhibit to our Form 8K file 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, Cameron Brady, President and COO, and Paul Todd, Senior Executive, Vice President, and CFO. Now, I'll turn the call over to Jeff.

Thanks, Winnie. We exceeded our expectations in 2019 while delivering one of the finest strategic, operational, and financial results in our history. Our transformational merger with TSYS redefined the industry landscape. In our distinctive focus on software, partners and owned, omnichannel businesses, and faster growth markets, has driven industry-leading performance and generated significant competitive wins over the last 12 months, further validating our pure play payments model. For the full year, we generated strong revenue growth, achieved meaningful operating leverage, and grew adjusted earnings per share 20%. We also processed in excess of 56 billion transactions across our businesses, highlighting our significant scale. These outstanding results were achieved while simultaneously executing in our partnership with Teasys, the largest merger in our history, and I am extremely proud of our 24,000 team members worldwide who made it all possible. We exited 2019 by accelerating performance in the fourth quarter and carrying strong momentum into 2020, exactly as we said we would do. A few metrics. During the peak holiday period, we processed more than 7 billion transactions a high single-digit increase year-on-year despite a shorter calendar season. These results provide us with confidence to now raise our estimate for annual run rate expense synergies from the merger to $350 million within three years, the second time we have increased our expectations in as many quarters. Finally, we delivered the highest adjusted earnings per share growth rate in the fourth quarter that we had generated all year, setting us up nicely for ongoing growth in 2020. Let's review our business performance by segment. Merchant Solutions, which now represents 65% of our company, has made substantial progress aligning go-to-market strategies and our senior leadership team is in place for the consolidated business. Milestones in the quarter included combining our respective technology-enabled and relationship-led sales forces, rebranding our combined integrated payments business as Global Payments Integrated, receiving recognition from J.D. Power for providing an outstanding customer service experience with our call center support, making us the first payments technology company to be so recognized, and re-signing agreements with 15 of Legacy Teasys' 50 largest ISV customers since closing murder. Our integrated business has unmatched breadth, serving more than 4,000 ISV partners across our 70 vertical markets. We continue to have a robust pipeline of new partners following a record year for OpenEdge in terms of partner production in 2019, positioning this business well for future growth. We also expect to begin realizing synergy benefits as we introduce Genius to the OpenEdge ecosystem this year and provide T-SYS partners international access, beginning with Canada. As for our own software portfolio, we delivered strong revenue growth for the fourth quarter and full year as we leveraged our distribution and payments capabilities to scale our solutions in their respective vertical markets. For example, Xenial generated revenue growth well into the double digits in 2019 and is seeing strong demand for its cloud-based point of sale software solution, which is currently in production in 400 locations. We have high expectations for our restaurant business in 2020 with continued rollout of Xenial at the enterprise level, the ongoing success of Heartland Restaurant in the small and mid-market, and the expected substantial rollout of our new digital outdoor menu boards across thousands of franchises in North America. Our Campus Solutions business also executed its largest contract to date outside the United States, signing a new partnership with Concordia University in Quebec. Further, we ended the year having doubled the annualized recurring revenue from our cloud-based analytics and customer engagement platform. Regarding our omnichannel businesses, we successfully executed the rollout of our unified commerce platform, or UCP, in the United Kingdom in the fourth quarter, positioning global payments to seamlessly combine the virtual and physical worlds to serve complex merchant needs. UCP is now live in the United States, United Kingdom, Canada, and Asia Pacific. We are also making great strides in our partnership with Citi to offer payment acceptance services to its multinational banking clients on an omnichannel basis. In December, we activated Citi Bins in the United States, and we will launch pilot production this quarter with the UK, Canada, and continental Europe to begin in the second quarter. Going forward, we expect to leverage our extensive network of financial institution relationships significantly enhanced through our partnership with TSYS to cross-sell our best-in-class UCP solutions. We are also focused on the immediate opportunity we have to enhance the omni-channel experience for all of TSYS' customers with our leading single API solution and worldwide capabilities. Turning to our relationship-led business, we have aligned our distribution channels and are now operating one combined sales force under the Heartland model, As one use case, we are pleased to have significantly expanded our relationship with a large enterprise customer as a direct result of the breadth and depth of our combined products and services. By pairing Propay with our existing functionality, we are able to deliver a distinctive, customized solution set to meet the unique needs of this key partner. We also ended the year with our two strongest sales productivity months across our distribution channels, and delivered solid double-digit growth in payroll and new sales for the quarter as we benefit from the ongoing rollout of our cloud-based platform. Our merchant businesses outside the United States continue to experience strong momentum. We successfully closed the acquisition of Desjardins Merchant Portfolio at the end of December, and integration is proceeding as planned. Leave referrals will commence later this quarter, and we will begin converting existing customers to our platform at the same time. In Europe, we outperformed in the UK once again, despite ongoing weakness in macro consumer spending trends, with new UK merchant sales increasing well into the double digits. We also continue to drive terrific results in Central Europe with IRSA and in Spain with Caixa, and look forward to further expanding our partnerships with these two leading financial institutions, particularly with the breadth of product offerings we now have with CSIS. In Asia Pacific, our omnichannel businesses accelerated growth significantly in the quarter, notwithstanding the ongoing impact of the riots in Hong Kong. Our central education software business in Australia also had terrific performance and is poised for more outstanding growth in 2020, despite the terrible fires that have been ongoing in that country. Turning to our issuer solution segment, which represents roughly 25% of our combined revenue, we achieved record revenues, operating income, and transactions for both the quarter and the full year. We also ended the year at an all-time high number of accounts on file. We renewed existing contracts with several large customers, including one of the biggest commercial card issuers in the United States for both commercial and government markets, as well as Capital One and Rogers Bank. And we also executed a managed services agreement for another existing top 20 client. We signed several new customers, including a new processing partnership with Motive Health. And internationally, we signed a managed services agreement for nationwide debit and an amendment with Virgin Money to move the Clydesdale Yorkshire Bank credit book to TSIS. The issuer business successfully converted the Capital One Walmart portfolio in October, among others throughout the quarter. We also had our enterprise licensed business in the United Kingdom with private bank Sehor & Co. go live with Prime hosting and application management services. This is one of several new business models with Prime as a service, part of our initiative to further expand our Prime proposition. As mentioned previously, we intend to bring our prime business into new markets on a cloud SaaS basis as part of our issuer modernization program. We continue to maintain a healthy conversion pipeline going into the new year, and our prospects for new issuer customers remain robust. In sum, our issuer business is well positioned for continued growth in 2020 and beyond. Finally, Our business and consumer solution segment, which now represents roughly 10% of our business, finished the year with growth accelerating from the third quarter, while execution remains strong. And we are already making significant strides in our differentiated strategy. Specifically, we recently signed an agreement to enter a new joint venture with CaixaBank-owned Money2Pay, which provides prepaid payment solutions to consumers, corporations, governments, and other institutions across multiple markets in Europe. This transaction represents an important first step in our effort to expand and diversify our business into new international markets. The digitization of payments remains an ongoing strategic area of focus, and we completed the integration of our payment solution into the Samsung Pay digital wallet in the fourth quarter, with new account registrations exceeding our initial expectations. We are also executing against a large and rapidly growing B2B opportunity set and we had several notable new wins this quarter, including multi-year new pay card relationships with a top 25 consumer bank. Additionally, based on the positive results of our mid-2019 pilot, we are expanding our distribution of the PayPal-branded prepaid card to all of Walmart's U.S. locations. Looking ahead, the strong momentum we drove in 2019 is set to continue in 2020 as we execute on our pure play strategy and benefit from the realization of the meaningful revenue and cost synergies from our partnership with CSIS. In addition to the $350 million of expense synergies we now expect to realize over the next three years, we also continue to have line of sight toward achieving our goal to deliver at least $125 million of annual run rate revenue benefits over the same period. As I've already mentioned, Our efforts to align our merchant organizations and go-to-market strategy in the U.S. are complete, and we expect to begin realizing revenue synergies in 2020 as we ramp to our target over the next three years. Specifically, we have now enabled Teasys' genius customer engagement platform to support payment facilitation through Propay. With this new capability, our partners across our businesses will be able to improve merchant onboarding, and create complex payment solutions tailored to the needs of innovative and faster-growing markets. Further, we are launching Vital POS in the Heartland distribution channel next month and expect to deliver it to Canada later this year. We are developing self-select capabilities for Heartland, accelerating our plans to enable this new distribution channel by leveraging the capabilities of Propay. Additionally, we anticipate to begin cross-selling Heartland payroll into the legacy T-SYS merchant base in the second quarter. We are also integrating NetSpend's PayCard solution into our payroll platform, significantly enhancing our value proposition in key vertical markets, including restaurants and hospitality. Moreover, we are executing against development roadmaps to deliver products like Genius and Propay to additional geographies internationally and enable T-SYS's legacy customers outside of the United States. To that end, we are already supporting legacy TSYS integrated partners in Canada. Later this year, we expect to launch our analytics and customer engagement platform into the legacy TSYS portfolio. We also anticipate making our own software businesses available to TSYS merchants. While we execute on these cross-selling initiatives to begin generating near-term revenue enhancements, we continue to engage in discussions with bank partners across three continents on issuer processing opportunities for TSIS. We remain optimistic regarding our ability to extend existing relationships by marrying our issuer processing with our acquiring capabilities globally to optimize transaction flows. Of course, these opportunities are in addition to core merchant referral relationship possibilities from existing TSIS FIs and private label retailers to global payments. Lastly, we are actively working on expanding NetSpend's B2B and B2C capabilities into our existing businesses. In addition to the pay card solution I previously highlighted, we are also planning to leverage NetSpend in our gaming business and integrate NetSpend's B2B solution as a funding option for our instant deposit product. All this is in addition to our newly announced joint venture at Money2Pay with our partners at Kaisha Bank, a clear example of our ability to generate synergies through our distinctive relationships. Paul?