Global Payments Inc.

Ladies and gentlemen, thank you for standing by, and welcome to Global Payments' first quarter 2021 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, Senior Vice President, Investor Relations, Winnie Smith. Please go ahead.

Good morning and welcome to Global Payments first quarter 2021 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. These statements are subject to risks and certainties and other factors, including the impact of COVID-19 and economic conditions on our future operations that could cause actual results to differ materially from our expectations. Certain risk factors inherent in our business are set forth in filings with the SEC, including our most recent 10-K and subsequent filings. We caution you not to place undue reliance on these statements. Four 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 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.globalpayments.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 delivered our best performance since the end of 2019 because of our focus on technology enablement coupled with excellence in execution. Our results demonstrated strong sequential momentum from the fourth quarter of 2020 and improved monthly throughout the first quarter of 2021. We are encouraged by the overall run rates we are seeing in the business. We exited the first quarter in a better position than we entered it. We are delighted to have to return to growth in the first quarter of 2021. We were able to deliver revenue, margin, and earnings per share growth despite facing difficult year-over-year comparisons as the pandemic did not begin to impact our business until mid-March 2020. None of this would have been possible without the dedication of our exceptional team members, and we thank them for their commitment to our customers, our communities, and each other. And we continue to expand our competitive mode. We are pleased today to announce two strategic acquisitions for approximately $1 billion in total that further our software-driven, technology-enabled strategy and deepen our presence in the most attractive markets globally. We expect to continue to gain market share and extend our lead. In combination with the roughly $1 billion in share repurchases we've effected since returning to our capital allocation strategy at the end of last year, we continue to balance appropriately reinvestment in the future growth of our business with efficient return of capital. First, with our agreement to acquire Zego, we enter one of the largest and most attractive vertical markets worldwide. Real estate is the quintessence of the type of market that we see. Sizable, global in scope, fragmented, and ripe for further software, digital commerce, and payments penetration. And COVID-19 has accelerated the underlying changes that make this $6.5 billion target addressable market so attractive. Zego is a leading software and payments technology company with significant scale delivering a comprehensive, real estate technology platform to 7,300 customers, representing more than 11 million residential units in the United States. Xego's digital omnichannel solutions support property managers and residents throughout the real estate lifecycle, from leasing and onboarding to work orders, utility management, resident communications, renewals, offboarding, and, of course, payments. Through its integrated payments offering, Zego processes approximately $30 billion in payments annually in a market with a volume opportunity that exceeds $1 trillion. The company delivers its full value stack through a cloud-native SaaS platform to enable seamless digital property management and best-in-class resident engagement and omni-channel experiences. It is a highly scalable and predictable flywheel with compelling recurring revenue, strong retention rates, booking trends, and lifetime customer value returns with double-digit organic revenue growth. Importantly, we have significant opportunities to accelerate Zego's growth. We intend to leverage global payment scale and digital expertise to further payments penetration into Zego's base, generate incremental property and software partner referrals to our more than 3,500 sales and sales support professionals, expand its footprint outside the United States, and generate meaningful cross-selling opportunities into its vertical market, including innovative products we already deliver into our merchant business, like payroll, data and analytics, and reputation management. We could not be more excited about further capitalizing on the convergence of software and payments, and we look forward to welcoming Xego team members to global payments. Second, we are excited to have reached an agreement to our ERSA joint venture to purchase Worldline's Payone business in Austria, consisting of roughly 8,000 primarily SMB merchant customers in Ursa Bank's home market. We entered Austria through organic market expansion of our continental European joint venture roughly 18 months ago. This pending acquisition enables us to bring our distinctive distribution and market-leading technologies at scale to yet another attractive market. In addition to these strategic accomplishments in early 2021, we also produced a solid first quarter of results across our existing businesses. First, in our merchant segment, we delivered significant sequential improvement fueled by our technology-enabled focus and the conversion of last year's share and bookings gains into revenue. And we generated these results while absorbing ongoing lockdowns in Canada and renewed restrictions in selected markets in Europe and Asia-Pacific. Some highlights in the first quarter of 2021 include record new sales in our global payments integrated business in March and our U.S. relationship-led business for the quarter, record revenue growth at GPI for the quarter well in excess of pre-pandemic levels, record bookings at Xenial for our cloud-based restaurant POS software and solutions, and continued sequential acceleration in our omnichannel businesses. It is worth highlighting that volumes accelerated throughout the quarter a trend that has continued into April. Key customer wins include Subway, CKE Restaurants, A&W Foods, and Bojangles. It's also notable that several of these businesses that were most impacted by COVID-19 saw substantial sequential growth in revenue and bookings in the first quarter as our home market entered recovery. For example, Active and Gaming achieved significant improvement as better macro trends, strong execution, and solid bookings over the course of 2020 benefited performance in 2021. In fact, we have continued to see positive booking trends across our software portfolio as the ability to deliver a full value stack is increasingly becoming table stakes in the markets we serve. We also made considerable progress on the partnership with Google that we announced in February. We expect to board Google as a merchant customer in select Asian markets in the third quarter, with North America to follow shortly thereafter. We have initiated our co-sale program and are beginning to see referrals from Google on a number of their enterprise cloud clients. We anticipate launching our Run and Grow My Business product that integrates Google solutions with our innovative capabilities in our digital portal environment in the fourth quarter of this year. And we have launched our co-innovation efforts to develop new commerce enablement tools for our emerging customers. Second, our issuer business continues to benefit from strong relationships with market leaders, and we are excited to announce today that we have entered into a multi-year renewal with Barclays Consumer Bank in the United States. Barclays is one of our largest customers globally, and we provide a range of processing and support technologies for both Barclays consumer and commercial credit card portfolios. We look forward to working with Barclays to enable a best-in-class customer experience with unparalleled levels of security and resiliency for its newest partner, a gap in its portfolio of accounts, yet another competitive takeaway. Partnering with issuers that are gaining share in the marketplace is a key element of our strategy. We were also pleased to have signed agreements with Mission Lane and UMB Financial, with the latter being a competitive takeaway in which the prior processing relationship had spanned decades. In collaboration with AWS, UNB will adopt our cloud-based data and analytics platform, which we also successfully deployed during the quarter for a multi-country customer in Latin America. We continue to capitalize on the broad and deep pipeline we have the good fortune to have in our issuer business. Today, we have 12 letters of intent with financial institutions worldwide, six of which are competitive takeaways. Turning to AWS... We expect to go live with our first joint takeaway with a multinational financial institution in Asia by the end of the year. Our cloud prime instance is now up and running currently in that market in preparation for the launch. We have another dozen active customers in our pipeline of AWS, up from four at the end of 2020. Third, our business and consumer segment delivered record revenue growth. I am very proud that NetSpend once again facilitated the rapid distribution of stimulus funds to customers most in need. Since late December 2020, we have processed more than 2 million deposits accounting for over $3.5 billion in stimulus payments disbursed by the IRS to American consumers. And this was done days in advance of many of our traditional financial institutions and financial technology peers. In combination with the 2020 stimulus payments, we have dispersed more than $5 billion in aid to customers through the first quarter of 2021. The pandemic-accelerated move toward cashless solutions is also benefiting NetSpend. For example, we are seeing rapid adoption of our tips solution, and we reached a new agreement with Flynn Restaurant Group for its Pizza Hut and Wendy's franchise locations, which will drive additional pay card and potential tips opportunities across a combined footprint of more than 1,000 restaurants. We also launched our cashless stadium card linked to a digital wallet with the Phoenix Suns at the Phoenix Suns Arena. These achievements serve as proof points of our differentiated strategy that includes product extensions into the P2P, B2B, and B2C segments. I could not be more pleased with all that we accomplished across our businesses this quarter. In March, we returned a year-over-year growth in each of our three segments, and the underlying trajectories are tracking toward our long-term goals just as we predicted they would, despite the impact of ongoing restrictions and lockdowns in some of our markets outside the United States.