Global Payments Inc.

Ladies and gentlemen, thank you for standing by and welcome to Global Payments third quarter 2023 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' third quarter 2023 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, among other matters, expected operating and financial results. These statements are subject to risks, uncertainties, and other factors, including the impact of 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 also 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 8-K filed this morning and our supplemental materials available on the investor relations section of our website. Joining me on the call are Cameron Brady, President and CEO, and Josh Whipple, Senior Executive Vice President and CFO. Now, I'll turn the call over to Cameron.

Thanks, Winnie, and good morning, everyone. Thank you for joining us today. We delivered strong third quarter results that were ahead of our expectation, despite what continues to be an uncertain macroeconomic environment and a much stronger dollar than forecasted when we provided our outlook back in August. I am very proud of this performance and our teams globally for their ongoing consistency of execution. On a consolidated basis, we reported 9% adjusted net revenue growth and adjusted earnings per share growth of 11% for the quarter. This includes a roughly 700 basis point headwind to adjusted earnings per share growth from the divestiture of NetSpend's consumer assets, which we completed last quarter. We also expanded adjusted operating margins by 50 basis points. Focusing first on our merchant solution segment, we again delivered strong organic growth in the third quarter, consistent with our second quarter performance, driven by ongoing momentum in our technology-enabled offerings. which collectively represent roughly 65% of our total merchant adjusted net revenues. Our software-centric businesses across our partnered, owned, and POS strategies continue to drive a meaningful share of growth in the business. Starting with our integrated business, we achieved strong growth and record new bookings again this quarter, signing 16 new integrated partners, a 33% increase from the prior year. These booking trends underscore confidence in our ability to maintain consistent growth in this business going forward as our differentiated capabilities continue to resonate with the ISB market. Our new Progressive Payment Facilitation, or PROFACT, model is a prime example of our leadership in this channel. We signed six new PROFACT partners in the third quarter and have more than 20 additional opportunities in the pipeline, reflecting strong demand for this new offering. We also saw strong double-digit performance in booking trends this quarter across our own vertical market software businesses. Zego, our newest addition to this business, continues to see solid demand for its solutions with bookings growth of 15% in the quarter. Notably, Zego also expanded the scope of existing partnerships to include additional payment solutions with global real estate management firm Harbor Group, and multi-family management company, ResProp, while furthering its expansion in the student housing vertical by signing an additional partner, Domas Student Living. An active network had one of its best-looking quarters since the pandemic, including new partnerships with YMCA of Vancouver, Altera Mountain Company, the New York Triathlon, and the Sydney Half Marathon. Additionally, our university business, TouchNet, signed a new partnership with Langara College in Vancouver, and extended a relationship with the Texas State University system. As for our POS software business, we again delivered 20 plus percent growth in this channel as we continue to see strong demand for our solutions and benefit from releases of new product enhancements. Collectively, adjusted net revenue for our POS business is approaching $400 million annually and is one of the fastest growing channels of our business. Today we offer complete cloud-based POS software and commerce enablement platforms targeting three distinct segments of the market with solutions that are purpose-built for key verticals, primarily restaurant and retail. We focus on these verticals for several reasons. One, they are large addressable markets. Two, they are international in scope. And three, because more and more payments decisions are being made in connection with the point of sale in these markets. Our POS solutions are used by over 80,000 merchant locations globally, enabling businesses of all sizes, from SMBs to enterprise customers, to run and grow more effectively. Our products easily scale from simpler solutions for a single location to complex environments for large merchants with multi-unit and multinational requirements. Across our POS platforms, we seamlessly combine software, hardware, and payments for in-person, mobile, and online environments, providing for great customer experiences. And we deliver all this in customized configurations that specifically address the unique software and payment requirements of our customers. Our solutions are designed to grow with a customer's business. We leverage a common technology stack that enable customers to easily add functionality as they expand. This allows us to serve the small end of the SMB market and scale with merchants, increasing software revenue along the way. Importantly, this differentiates us from many of our competitors who attempt to address small and large and general and vertically specific use cases with the same single offering. And we couple our complete commerce enablement solutions with distinctive distribution and full local service and support that is unrivaled in the market. Our entry-level product or general purpose cloud-based point-of-sale solution is branded GPPAWS. This offering provides a highly competitive starter solution for SMB customers who want a simple and intuitive system with a robust feature set. GPPAWS delivers an expansive set of mobile POS capabilities and commerce enablement tools. These features can be tailored to the specific requirements of the merchant business on the vertical market and geographies they serve. Importantly, GPPAWS is essentially self-service from beginning to end. From onboarding to full configuration of the functionality, a merchant can easily enable our software and begin accepting payments in less than 24 hours. We offer GP POS globally through a variety of regional and wholesale distribution channels. In the last year, we successfully launched our GP POS technology in numerous international markets, including Canada, the UK, Spain, and Central Europe, and expect to further expand to Poland, Germany, and Ireland over the next 12 to 24 months. We couple our innovative GP POS solution with local presence and support capabilities, as well as our longstanding FI partnerships in these markets. A powerful combination our competitors simply cannot replicate. In North America, we have distinct vertically specific restaurant and retail focused cloud-based POS solutions, Heartland Restaurant and Heartland Retail. We leverage our Heartland direct channel to target SMB and mid-market customers with these solutions. typically those serving two to 20 locations, but can scale to customers with significantly more locations. The vertically fluent capabilities we offer customers include mobile POS and pin-on-glass solutions, guest and table management, order and kitchen management, pricing matrices, discounting functionality, cash discount programs, predictive analytics, AI-driven marketing and loyalty programs, and human capital management and payroll solutions. And we deliver this seamlessly as a cohesive commerce enablement platform, all from the point of sale. Our solutions also offer open architecture and have integrations with dozens of software partners, which allows our customers to enable various delivery services, accounting applications, inventory management software, and other disruptive technologies. Again, all accessible at the point of sale. We have two primary distribution channels for these solutions in North America. The first is our local dealer network, representing nearly every major metro market in the U.S. and Canada, where we have over 300 partners who provide sales support and service. The second is our local sales professionals across the U.S. and Canada, who are solution-oriented domain experts and serve as relationship partners to our customers. We have seen strong growth in our Heartland POS software solutions and expect the momentum to continue on the heels of the launch of our next-generation offerings in early 2024, which will deliver an improved user interface and more intuitive experiences across our iOS and Android-based solutions. Our next-gen POS is also designed to be mobile-first, allowing for a best-in-class omnichannel experience. Completing our suite of POS capabilities, we have solutions for specific vertical enterprise customers, which have the most complex requirements in operation and technical environments. At this end of the market, we offer our Xenial Cloud POS enterprise solution, offering scalable, secure, and real-time services for the world's largest quick service restaurants, food service management companies, and sports and entertainment venues. The Xenial POS ecosystem provides an API-first approach to in-house and partner integrations for the most sophisticated enterprise customers. Whether supporting a multi-lane drive-through, QSR, or a large sports arena, Xenial provides the complete technology stack required to run these operations, all fully integrated at the point of sale. This includes dynamic digital menu boards, kiosk and mobile ordering solutions, kitchen management solutions, AI-based drive-through solutions, and customer engagement, to name a few. And we are proud that Xenial is also leading the way in delivering the drive-through of the future technology for its enterprise QSR customers. We're proud to serve 26 of the top 50 QSR brands with our technology on a global basis. With respect to entertainment venues, Xenial operates the food and beverage, suite, and retail environments for some of the most complex stadiums in the world. In these environments, food service management providers rely on our technology to deliver best-in-class customer and fan experiences. We currently serve almost 100 stadium and event venues with our solutions globally. We went in the market by solving complexity for our customers, whether that is multi-unit requirements or multinational expansion or the convergence of physical and virtual environments. From delivering core feature functionality required by small merchants by a mobile solution to providing greater levels of functionality in a simple register to a full featured software platform, we provide our customers with the ideal point of sale technology tailored to their specific needs. And we couple our best-in-class commerce enablement capabilities with more distinctive and diversified distribution streams and service at scale worldwide that our competitors really can't match. As a result, we remain very enthusiastic about the growth prospects for our POS business globally moving forward. Speaking of our global reach, it is worth noting that we achieved strong double-digit growth in Spain and throughout Central Europe in the quarter. While Poland, Greece, and Ireland, which we entered via our acquisition of Evo, were also bright spots in Europe. We're also excited to announce a new agreement with International Parking Group to support payments for its smart parking solutions on an omnichannel basis across the UK and Ireland, as well as the US and Canada. In Asia Pacific, we are thrilled to have recently signed a new partnership with Marriott International and will begin offering seamless omnichannel solutions this quarter in select hotel locations across the region. Turning to issuer, we achieved mid-single-digit growth consistent with our expectations and longer-term targets once again this quarter. Transaction growth remained strong throughout the quarter, led by our commercial business, highlighting ongoing improvements in cross-border corporate travel. Traditional accounts on file increased by approximately 11 million sequentially as we continue to benefit from strong growth with our existing large financial institution clients and the ongoing execution of our conversion pipeline. This quarter, we successfully completed conversions of two new portfolios acquired by large existing FI partners through M&A, further supporting our strategy of aligning with market share winners. Further, we recently completed the migration of the first wave of accounts for a leading U.S. retailer for one of our largest partners as part of a co-branded relationship. And earlier this month, we migrated CAD, the credit card joint venture between Scotiabank and Chile's largest retailer, Sencasud, representing our first issuer customer in the market. We are also pleased to have reached a new issuer processing agreement with a leading U.S. bank during the third quarter. SFI is a longstanding global payments merchant partner, and the strength of our relationship provided the foundation for expansion of our partnership to include our leading issuer technology solutions. Notably, this partner will also leverage our next-gen analytics platform via the AWS cloud as we continue to see great progress with clients enabling our modernized services. We also signed a multi-year extension with two large standing FI partners during the third quarter. Shifting to B2B, we continue to drive strong growth with both corporates and financial institutions as we leverage our capabilities across software-driven workflow automation solutions, money in and money out funds flow capabilities, and our broad suite of employer solutions. Starting with workflow automation, MineralTree's subscription booking for its AP automation software increased an impressive 86% year-over-year this quarter. We are also pleased to have successfully integrated EVO's PayFabric software into our merchant business, which provides our new and existing U.S. customer greater AR automation capabilities. Regarding B2B funds flows, as we discussed last quarter, virtual card adoption continues to expand, contributing to the strong growth in commercial transactions. We're also seeing an acceleration in virtual cards being tokenized and provisioned in mobile wallets, which is further catalyzing growth. Additionally, our B2B bookings and merchant solutions doubled in the third quarter relative to the prior year, while new merchant B2B payments volume increased by more than 50% from last year as we continue to progress the EVO integration and harmonize our go-to-market strategy. Moving to employer solutions, our pay card business signed a new partnership with hospitality staffing firm Exclusive Services and renewed its existing relationship with Flynn Restaurant Group, the largest restaurant group in the U.S. We also achieved a new EWA partnership with KFC franchisee JRC Restaurants. Lastly, our software-driven human capital management and payroll solutions business delivered growth of more than 20% in the third quarter. B2B offers an attractive growth opportunity for our business and represents a core element of our strategy going forward. As we continue to unify our offerings in this space and refine our strategy, we expect to continue to capture, share, and accelerate growth in B2B over the long term. With that, I'll turn the call over to Josh.