Global Payments Inc.

Ladies and gentlemen, thank you for standing by, and welcome to Global Payments' first quarter 2024 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, on your telephone keypad. And as a reminder, today's call is being 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 2024 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 8K filed this morning and our supplemental material 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. We are pleased with our first quarter results, which were ahead of our expectations, as we saw strong execution across our businesses in resilient consumer trends, despite the uncertain macroeconomic environment. Specifically, we achieved 7% adjusted net revenue growth and delivered adjusted earnings per share growth of 8%, or mid-teens adjusted earnings per share growth, excluding the impact of the divestiture of NetSpend's consumer assets. We also expanded margins 40 basis points. Our merchant solutions business again delivered solid organic growth driven by our differentiated capabilities across our partnered ISV, vertical markets, and point-of-sale businesses, as market demand for embedded payment solutions continues to accelerate. Starting with our partner ISV channel, we continue to see strong booking trends in business development results, including doubling the number of new strategic integrated partners we signed this quarter compared to the prior year. We have added nearly two dozen new progressive payment facilitation, or PROFAC, partners since we launched this model mid-last year, and now have several thousand merchants boarded to our hybrid integrated solution. We are also seeing strong demand for commerce enablement and value-added solutions as we are cross-selling into our partners' merchant base, including human capital management and payroll, loyalty and marketing, and analytics and customer engagement solutions, amongst others. Our ability to meet the specific needs of our partners with unrivaled distribution, tailored operating models, a comprehensive suite of products and capabilities, and best-in-class service and support differentiates us in the marketplace and gives us confidence in our ability to sustain growth and expand margins in this business going forward. Our unique value proposition for partners has also allowed us to maintain relatively stable revenue shares over time, while retention rates remain strong. And in the current cost of capital environment, competitors who have historically led with price in this channel are increasingly focused on striking a balance between growth and profitability, which is to our benefit. Turning to point of sale software solutions, we again achieved 20 plus percent growth in the first quarter, adding over 3,000 new locations across our POS platforms. And our focus on delivering additional commerce enablement solutions to our point of sale customers continues to gain momentum. As one example, we saw a nearly 50% increase in the number of new Heartland POS customers leveraging our customer engagement and loyalty solutions this quarter compared to the prior year period. And while in early days, we were encouraged by the initial feedback on the launch of our next generation Heartland restaurant and retail point of sale software, which has been overwhelmingly positive. As a reminder, these next-gen solutions deliver an improved user interface and more intuitive experiences across our iOS and Android-based offerings. They are also designed to be mobile-first, allowing for a best-in-class omnichannel experience. And we couple our complete commerce enablement solutions with distinctive distribution and full local service and support that is unrivaled in the market. We expect these new offerings will begin to contribute to our performance later this year and more meaningfully in 2025. Additionally, GP POS, our general-purpose cloud-based point-of-sale software, is also contributing to the growth we are seeing. We have now launched this solution in a number of international markets, including Canada, the UK, Spain, and the Czech Republic. We are encouraged by the success we're having in bundling POS and other value-added solutions for our merchant customers in these geographies. We also remain on track to bring GPPAWS to additional markets outside of the US, including Germany, Ireland, Mexico, Poland, Austria, and Romania over the next 18 months. Moving to our vertical market software business, today we own enterprise software solutions across seven vertical markets, which collectively generate more than a billion dollars of adjusted net revenue, growing roughly 10 plus percent annually. These include education, both K through 12 and higher ed, communities and events, property management, healthcare, quick service restaurants and food service management, and sports and entertainment venues. In these verticals, owning the entirety of the technology stack is advantageous, as it better allows us to develop highly integrated, vertically fluent software, payment, and other commerce solutions necessary to meet the needs of the market. We focus on these vertical markets, first and foremost, because of the size of the underlying TAMs. For our own software business, we specifically target large addressable spend markets that represent a meaningful component of overall economic activity globally. Second, and core to our thesis of owning software, We target vertical markets with a strong nexus between software and payments, providing us the ability to further enhance software solutions by embedding payments to drive incremental growth and differentiation. Today, all of our software assets are delivering significant transaction volumes that did not exist prior to our acquisition. Third, we like highly fragmented and ideally under-penetrated markets from a software perspective. where we can acquire a player with leading technology and a significant runway to gain share. Lastly, we generally prefer vertical market software where there is international applicability, allowing us the opportunity to export our solutions to markets outside of the U.S. over time. Our ability to deliver more integrated payments offerings in faster growth geographies, where embedded payments are in much earlier stages of development and we have local sales and support, further differentiates global payments relative to competition. Critical to the success of our own software portfolio is maintaining our focus on building and delivering great software so that we can compete on the basis of product functionality and innovation. Global payment supports this priority with extensive experience in onshore and offshore development, and we provide efficient sources of capital to invest in growth. Further, we are able to leverage our global scale to deliver technology and administrative services to our software businesses, allowing them to focus their efforts on differentiation in their business while enhancing their overall scale. And by combining the innovation of our software portfolio with the global reach, efficiency, and extensibility of our payments infrastructure, we're able to deliver a unique proposition for our customers. We saw consistent strong execution in our vertical markets businesses in the first quarter, including delivering double-digit bookings growth across the portfolio. Zego, our property management-focused software business and newest addition, continued to see strong demand for its solutions in the quarter from new customers, while also successfully cross-selling additional products and solutions to several large existing partners, including Endeavor MHC Residential Communities, my homepage property management platform, and apartment management consultants. In the communities and event vertical, ACTIV signed nearly 300 customers this quarter. This includes the City of Waterloo, Bogus Basin Ski Resort in Idaho, Tough Mudder Australia, and Milestone Events Group. Turning to our QSR business, Xenial went live with Cosmics in three additional locations in Texas following our initial launch with the McDonald's new concept in Bolingbrook, Illinois in December. We look forward to continuing to future-proof the Cosmic pilot locations with cloud-based technology ecosystem as they open this year. We also continue to have success cross-selling Xenial technology into the stadium and event venue environments. And we are pleased to have extended our relationship with the Braves by completing the rollout of our technology in 24 retail locations at Truist Park here in Atlanta. Additionally, our higher education business, TouchNet, achieved several notable new international partnerships in the first quarter, including the King's University in Canada and Middlesex University and Cardiff Metropolitan University in the UK. And in April, TouchNet reached an agreement with Sussex University in Brighton. which marks the fifth new university partnership in the UK achieved in the last six months. The UK serves as a great example of our ability to bring our software solutions to geographies outside of the United States. We have had a strong payment proposition in the UK for decades, which we are now successfully leveraging to sell our software solutions as demand for embedded payments and technology is growing in higher education in the region. We also continue to see good momentum in our international markets with stronger secular growth trends in the quarter. Specifically, we achieved double-digit growth in Spain and Central Europe, as well as in Poland and Greece. And our LATAM business continues to be a bright spot as we benefit from the strong secular payment trends in Mexico and Chile. Specifically, we signed a number of large new customers in Mexico during the quarter, including leading insurance company Qualitas, home goods retailer Recubray, and video game retailer GamePlanet, as we leverage our omnichannel capabilities in partnership with Citi Banamex. And in Asia Pacific, we were pleased to have expanded our partnership with Marriott International to offer seamless omnichannel solutions to additional locations and geographies. In January, we announced a new partnership with Commerzbank in Germany, We are pleased to have recently received EU regulatory approval and are launching the new joint venture, Commerce Global Pay, this month. We are already laying the groundwork to deliver a comprehensive suite of innovative omnichannel payments and software offerings, including our GP POS software solutions and our GP TOM technology at scale, providing merchants the capabilities they need to run and grow their businesses more efficiently in the large economy in Europe. Shifting to issuer solutions, we are delighted to have executed two new contracts during the quarter. This includes a new agreement with a large existing FI customer in Europe that significantly expands our debit processing relationship. We also reached a contract agreement with a leading global travel technology company who selected us as its issuer solutions partner for its platform across the UK and EU after an extensive RFP. Once live, this will be our first FinTech customer operating in our AWS cloud environment in Europe. Additionally, we successfully executed eight customer renewals during the quarter. This includes extending our longstanding relationship with Virgin Money in support of its credit card portfolios for a multi-year period. We also successfully renewed our multi-decade relationship with Citizens that spans both its consumer and commercial portfolios and includes a wide range of value-added services, including fraud, loyalty, and digital engagement, amongst other solutions. Further, we executed a multi-year renewal with Scotiabank, one of our premier clients globally. In the first quarter, our issuer team also completed four conversions, and we currently have over 60 million accounts on file in the implementation pipeline, in addition to five active LOIs. Further, we've made additional progress on our issuer modernization this quarter and now expect to have four North American clients piloting multiple modernized cloud services in support of both consumer and commercial portfolios over the next several months. We remain on track to execute dozens of unique cloud issuer platform pilots across additional services, products, and geographies in 2024 and expect to complete the development of our client-facing applications as we prepare for commercial launch next year. Moving to B2B, we continue to drive strong growth as we leverage our capabilities across three focus areas within the overarching B2B market. Software-driven workflow automation, money-in and money-out funds flows, and employer solutions. Our mineral tree business achieved a 30% increase in new bookings during the first quarter, which includes a nearly 60% improvement in new virtual card bookings as adoption continues to accelerate. Additionally, our B2B bookings in merchants increased over 100% this quarter compared to the prior year, as we are beginning to benefit from the integration of Evo's PayFabric platform, and more of this spend shifts towards digital channels. Our employer solutions are seeing favorable trends in the restaurant vertical, including signing a new EWA relationship with Delight Restaurant Group, which operates over 200 Wendy's and Taco Bell restaurants within 8,000 employees. We also achieved a tip pay card partnership with Sunshine Restaurant Partners, the largest IHOP franchisee with over 140 locations in the southeast. We are delighted with the progress we are making to accelerate B2B growth as we continue to unify our offerings and refine our strategy in this space. With that, I'll turn the call over to Josh.