Global Payments Inc.

Good morning, and welcome to Global Payments' third quarter 2022 conference call. Our earnings release and the slides that accompany this call can be found on the investor relations area of our website at www.globalpayments.com. 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 the among other matters, expected operating and financial results and statements about the proposed transaction between global payments and EVO payments. These statements are subject to risks, uncertainties, 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 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. Forward-looking statements during this call speak only as of the date of this call, and we undertake no obligation to update them. We will be referring to several non-GAAP financial measures, which we believe are more reflective of our ongoing performance. For a full reconciliation of the non-GAAP financial measures discussed in this call 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 supplemental materials available on the Investor Relations section of our website. Joining me on the call are Jeff Sloan, CEO, Cameron Brady, President and COO, and Josh Whipple, Senior Executive Vice President and CFO. Now, I'll turn the call over to Jeff.

Thanks, Winnie. We delivered record results in the third quarter, consistent with the higher end of our September 2021 cycle guidance on a constant currency basis and excluding dispositions, highlighting the resiliency of our business model and our consistency of execution across market cycles. Importantly, our merchant business again delivered double-digit revenue growth, and our core issuer business continued to produce sequential improvement consistent with our expectations, each on a foreign exchange neutral basis. Internal metrics thus far into October suggest continuing solid performance for the fourth quarter, much as September did versus August and August versus July. It's certainly possible that things could change for the worse given ongoing macroeconomic concerns But that would require an adverse change that we do not broadly see in the current environment. Notably, we are achieving these results while making substantial progress on our strategic and financing initiatives. We received Hart-Scott Rodino clearance in the United States for our acquisition of EVO payments and divestiture of NetSpend's consumer business. And we have now made regulatory filings in all jurisdictions, foreign and domestic, contemplated by the transactions. We took steps to finance the EVO transaction with a successful $2.5 billion fixed income offering in early August at attractive rates, and we undertook a concurrent long-term extension and enhancement of our revolving credit facility. We also completed our $1.5 billion strategic investment with Silverlake and associated transactions. We are proud of the company that we keep, and we welcome Senior Partner Joe Osnos from Silverlake to our Board of Directors. Our issuer business remains on track for continued core growth acceleration into year end, following an acceleration into the third quarter after a robust Q2. Our relationships with many of the most complex and sophisticated institutions globally speak to our competitiveness well into the remainder of this decade. Our issuer conversion pipeline now stands at a record post-merger of 75 million accounts, providing further confidence of our growth trajectory well into the future. What better example than our recent go-live with one of the top 10 commercial banks in the United States, which was a competitive takeaway early after the announcement of our merger. We are delighted that earlier this month we began onboarding and servicing the bank's new consumer and small business commercial accounts on TS2. We expect this partner to be prepared for the conversion of its existing consumer and commercial accounts early next year. This quarter, we also converted the consumer and commercial portfolios for another large U.S.-based bank as a new customer, as well as a large retail portfolio acquired by an existing financial institution partner, both of which were competitive takeaways. And we continue to make great progress with AWS, our preferred issuer technology solutions partner for unique distribution and cutting-edge technologies. We are pleased to announce that we have reached an LOI with a leading global travel technology company who chose TSYS as its issuer solutions partner for its platform across the UK and EU after an extensive RFP process. Once live, this will be our first FinTech customer on prime in the AWS cloud in Europe. We currently have seven letters of intent with institutions worldwide, nearly all of which were achieved through a competitive RFP process and a competitive takeaway. Another seven of our recent LOIs, including five competitive takeaways, have gone to contract since the beginning of 2022, providing further future growth opportunities. Traditional accounts on file increased by $14 million sequentially this quarter, driven by account growth with existing customers, as our strategy of aligning with market share winners continues to pay dividends. and transaction volumes grew double digits in Q3, led by commercial card transactions, which increased 25%, highlighting ongoing recovery trends in cross-border corporate travel and the strength of our long-lasting partnerships. At our investor conference last September, we announced B2B as the fourth and newest pillar of our strategy, meaningfully expanding our target addressable markets. As of this quarter, we are now managing NetSpend's B2B assets as a part of our issuer business, after successfully aligning MiddleTree's capabilities with this segment earlier this year. We are delighted with the momentum we are seeing across our B2B portfolio, which includes technology centered on virtual card solutions, a vast commercial card footprint, massive distribution partnerships with the world's leading financial institutions, data and analytics, market-leading payroll technologies, and access globally to non-bank card rails. Recent B2B highlights include providing virtual commercial account services to banks and FinTechs in partnership with Xtend, reaching a letter of intent with specialty FinTech Eden Bowl to enable commercial expense management and integrated payable solutions, and signing a multi-year commercial card agreement with Santander in the United States as a competitive takeaway. We are also pleased to have signed new virtual card services and AP services in wins with two leading U.S. financial institutions. Additionally, MineralTree achieved a number of milestones, including signing a marquee deal with Grupo Bimbo in the U.S. and Canada, one of our largest B2B bookings to date, generating record-breaking virtual card spend in the month of September, and executing a referral agreement with FinTech Ramp to cross-sell expense management and card on-file capabilities. We're also pleased to have recently enhanced our relationship with Visa to support their branded cards in the payable space. And this is all, of course, before augmenting our B2B capabilities with Evo's leading accounts receivable automation software solutions, including its extensive proprietary integrations to some of the most widely used ERP environments in the market through its PayFabric platform, including SAP, Microsoft, Oracle, Acumatica, and Sage. Moving to merchant solutions, we are pleased to announce in partnership with Google that we have partnered with Genuine Parts Company to deliver innovative cloud-based payment solutions for the extensive Napa Auto Parts domestic distribution network. Leveraging the combined power of global payments and Google Cloud, Napa will streamline commerce operations for its B2B transactions across the United States. We continue to expand our acquiring relationship with Google in North America following the success of our initial launch in Asia Pacific late last year. Volumes are now building in the US market with Google as a customer, and we expect the ramp to continue throughout this quarter. We also anticipate bringing our partnership with Google to Europe next year. Additionally, we remain on track to launch phase two of Google Run and Grow My Business to help our merchants grow faster by connecting additional Google services to our digital platform this quarter. We yet again delivered solid growth in our e-comm and omni-channel business for the third quarter, well ahead of the markets as we have done all year. We continue to benefit from our unique ability to seamlessly blend the physical and virtual worlds in more markets than our peers. And of course, the pending acquisition of Evo and entry into new geographies like Poland and Germany will enhance our target addressable markets. We are excited to have recently reached an agreement to expand our e-commerce partnership with Gucci, a division of French multinational corporate Caring, for acceptance services beyond Europe and into Asia Pacific, where we will deliver a uniform solution and seamless experience virtually for one of the most sophisticated luxury retail brands. Our partnership with Citi via UCP recently went live in Spain, France, and Italy, and we continue to expect to go live in Belgium, Denmark, Finland, Norway, and Sweden prior to year-end. Together, we are currently targeting Citi's largest Treasury and Trade Solutions customers and are excited to announce Citi recently signed one of the world's top social media platforms and one of the world's top e-commerce markets platforms. In our vertical markets portfolio, we saw a significant return to growth in school solutions as expected, and this business delivered substantial improvement in the quarter with the lapsing of pandemic-era subsidies on school lunches. Also, our Xenial business continues to pose solid wins in the sports and entertainment areas with new signings with the Carolina Panthers and the Winnipeg Jets, and our pipeline in this channel remains robust. Lastly, we continue to see strong double-digit growth in our real estate vertical market business, Xego, with our new flexible payments product driving significant demand for our digital solutions. Lastly, I'm delighted to announce that we launched our merchant referral relationship with Virgin Money in the United Kingdom this quarter and are already realizing strong lead flow and new signings from this partnership. We also remain on track to launch Virgin Money's new pay proposition early next year. We did exactly what we said we would do in the third quarter of 2022. Our core businesses continued their track record of extraordinary growth and are well positioned heading into year end. Our strategic investments are tracking the plan, and our new partnerships are right in line with our expectations. We are very fortunate to be in the position that we are in heading into the final quarter of the year. Josh?

Thanks, Jeff. We are pleased with our strong financial performance in the third quarter, which was consistent with our expectations despite ongoing macro concerns. Specifically, we delivered adjusted net revenue of $2.06 billion. an increase of 6 percent from the prior year on a constant currency basis. Excluding the impact of our exit from Russia and the net spent consumer assets, which are classified as held for sale, adjusted net revenue was $1.93 billion, an increase of 9 percent on a constant currency basis. Adjusted operating margin for the quarter improved 240 basis points to a record 45.2%. The net result was adjusted earnings per share of $2.48, an increase of 18% from the prior year on a constant currency basis, which includes absorbing the impact of the exit of our Russia business during Q2. This performance highlights outstanding execution of our differentiated technology-enabled strategy. Taking a closer look at our performance by segment, Merchant Solutions achieved adjusted net revenue of $1.45 billion for the third quarter, a 10 percent improvement on a constant currency basis, and approximately 11 percent excluding the impact of Russia. We delivered an adjusted operating margin of 50 percent in this segment, an increase of 80 basis points year on year on a foreign exchange neutral basis. Our combined U.S. payments and payroll business delivered another strong quarter, led by our integrated channel, which again reported mid-teens growth. And we continue to see strong momentum in our POS software solutions, which grew nearly 30 percent this quarter, on top of over 70 percent growth in Q3 of 2021, as well as our HCM and payroll business, which grew mid-teens in the quarter. Our worldwide e-commerce and omnichannel businesses also delivered growth in the teens on a constant currency basis this quarter, as we continue to see strong demand for our omnichannel solutions across our business. And our vertical market solutions again achieved double-digit growth compared to the prior year, led by strength in our school solutions business and Zego, while bookings trends remain solid across the portfolio. Outside the U.S., despite ongoing headwinds from adverse foreign currency exchange rates and continued COVID-related restrictions in parts of Asia Pacific, the overall macro backdrop remains relatively stable, and we continue to gain share. Specifically, we continue to see strong revenue improvement in key faster growth geographies, including Spain, Central Europe, and Southeast Asia, as we're seeing significant demand for our differentiated capabilities outside the U.S. that are well aligned with shifting consumer needs coming out of the pandemic. Turning to Assure Solutions, this business delivered $489 million in adjusted net revenue, which is a 6% improvement on a constant currency basis from the third quarter of 2021, including NetSpend's B2B assets in both periods. Excluding the impact of B2B, issuer solutions core growth accelerated 20 basis points from the second quarter and was consistent with our long-term targets as we anticipated. Our transaction and account on file revenue grew high single digits and was consistent with the second quarter performance. As Jeff mentioned, our commercial card transactions increased 25% with growth improving throughout the period. Issuer adjusted operating margin of 46.4 percent increased 310 basis points from the prior year, fueled by accelerating growth and also by our focus on driving efficiencies in the business. We are pleased that our issuer team signed two new partners and one contract extension during the quarter. Additionally, as Jeff mentioned, our pipeline remains at record levels as we continue to see good sales activity in all markets for new clients and cross-sell opportunities. This includes the growing list of opportunities we have in collaboration with AWS. Overall, the outstanding results we delivered across our merchant and issuer businesses this quarter serves as a proof point of the wisdom of our strategy and resiliency of our model, while we also continue to maintain significant financial flexibility. From a cash flow standpoint, we delivered 640 million of adjusted free cash flow for the quarter after investing 139 million in capital expenditures. We continue to expect capital expenditures to be roughly 600 million for the full year. On the capital allocation front, we repurchased 6.9 million of our shares for approximately 890 million during the period. Our balance sheet remains extremely healthy, and we ended September with roughly 3.5 billion of liquidity and leverage of 3.1 times on a net debt basis. We made substantial progress on our strategic priorities this quarter, including the related financing initiatives. In August, we successfully completed a $2.5 billion senior unsecured notes offering with a blended yield of 5.5% and an average duration of 14.5 years. It's worth noting that the rates achieved in this offering are well below current market rates. We also completed the $1.5 billion strategic investment in the form of privately placed convertible senior notes with Silver Lake with a 1 percent coupon. As is customary with convertible instruments, we executed a tap call transaction that significantly raised the effective conversion premium to approximately $230 per share. We are delighted to have Silver Lake as a new partner. Our capital structure consists of 100 percent fixed rates currently. We used the proceeds from these offerings to pay down our existing term loan and the outstanding balance on our revolving credit facility. And we simultaneously closed a new $5.75 billion revolving credit facility that provides us with ample financial flexibility. Following the completion of the EVO and NetSpend consumer transactions, which we continue to anticipate closing by the end of the first quarter, we expect our net leverage to be approximately 3.9 times. We expect to return to current leverage levels by year-end calendar 2023, while maintaining our current investment grade ratings. Turning to the outlook for the remainder of 2022, Given the underlying trends we are seeing, our expectations for the core business remain unchanged from our August call. We continue to expect full-year constant currency adjusted net revenue growth of 10 to 11 percent over 2021, excluding the impact of dispositions. On a reported basis, we now expect foreign currency to be roughly a 300 basis point headwind to adjusted net revenue growth for 2022. or an incremental 100 basis points relative to the outlook we provided in August. Including these incremental FX headwinds, the reclassification of NetSpend's consumer assets to held for sale, and the exit of our Russia business, we expect to report adjusted net revenue in a range of $7.8 billion to $7.9 billion for 2022. We are increasing our expectations for adjusted operating margin expansion to up to 170 basis points for the full year, as compared to our prior outlook of up to 150 basis points. Lastly, consistent with our prior outlook, we continue to expect adjusted earnings per share on a constant currency basis to be in a range of $9.53 to $9.75, reflecting growth of 17% to 20% over 2021. We now expect FX headwinds to impact adjusted earnings per share by roughly $0.30 for the full year, an increase of an additional approximately $0.13 from our Q2 call in early August. As a result, we now expect to report adjusted earnings per share in a range of $9.32 to $9.55. albeit at the low end of the range given our exit from Russia and the sheer magnitude of the foreign currency impacts we are absorbing. In summary, we are very pleased with our third quarter performance. Our merchant segment led by our technology-enabled strategy continues to excel, and underlying trends in the business remain strong. Together with the record pipeline, successes of our modernization efforts, and enhanced B2B focus in our issuer segment, we are well positioned for the future. And with that, I'll turn the call back over to Jeff.