Global Payments Inc. — 2024 Q1
Transcript
Each turn shows the speaker, their inferred role, the section, and that turn's net sentiment (×1000).
Ladies and gentlemen, thank you for standing by, and welcome to Global Payments First Quarter 2024 Earnings Conference Call. [Operator Instructions] And as a reminder, today's call is being recorded.
Good morning, and welcome to Global Payments First Quarter 2024 Conference Call.
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 and resilient consumer trends despite the uncertain macroeconomic environment.
software-driven workflow automation, money-in and money-out funds flows and employer solutions. Our MineralTree 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.
Thanks, Cameron. We are pleased with the financial performance we achieved in the first quarter, delivering adjusted net revenue of $2.18 billion, an increase of 7% from the same period in the prior year. Adjusted operating margin for the quarter increased 40 basis points to 43.5%. Excluding the impact of our acquisition of EVO Payments and dispositions, adjusted operating margin increased 80 basis points, highlighting ongoing consistent execution across our businesses. The net result was adjusted earnings per share of $2.59, an increase of 8% compared to the same period in 2023 or mid-teens growth, excluding the impact of dispositions.
Thanks, Josh. I am proud of the results our team delivered in the first quarter. While we are closely monitoring what continues to be an uncertain macroeconomic environment, we were pleased to continue to see stable trends in April. Importantly, we have also now lapped all 3 of the transformational transactions we completed in 2023.
Thanks, Cameron. [Operator Instructions] Thank you. Operator, we will now go to questions.
[Operator Instructions] Our first question comes from the line of Bryan Keane with Deutsche Bank.
And congratulations on the solid execution here. I guess, I just wanted to ask on thinking about simplifying the organization, Cameron. What -- is there a lot of assets potentially that you could divest? Are they small? Large? Just thinking about that. And then what would you do with some of the proceeds, I know stock buyback would be really accretive here versus M&A.
Yes, Bryan, it's a fair question. I think from my standpoint, I'm really looking across the business and making sure that in all the markets, whether they're a vertical market or a geographic market that we're operating in today, we have the right scale. Or to the extent we don't have scale today the way that we would like, that we have a path to be a scale player over a period of time.
Got it. Got it. And then as a follow-up, Josh, just maybe the breakout of EVO as contribution to revenue and organic, just thinking about the volume numbers. I think 16% was the total reported number, but I don't know if there's a pure organic number there.
Yes. Bryan, what I would say is we're about a year into -- a little over a year into the integration. So we're really operating the business as one. But I think if you think about the EVO business, it's growing right in line with what we're expecting for Merchant to grow for the full year in the 9% -- the 8% to 9% range, and that kind of gets us to the core Merchant growth in that 8% range. So that's kind of how we're thinking about it and that's kind of the contribution as it relates to EVO in the overall business.
Yes. And Bryan, I would just add on the volume comment, the overall volume growth was in line with the revenue growth. And if you strip out EVO, it's going to be the same on the sort of core business. So in that 7%, 8% range relative to the 8-ish percent growth that we highlighted ex EVO.
Our next question comes from the line of Darrin Peller with Wolfe Research.
Cameron, maybe we could just start with you giving us a little bit more color on the underlying -- the growthiest parts of the Merchant business. And what you're seeing to give you confidence in that 7%, 8% being sustainable when we think about 30% increase in Merchant partners or the POS growth 20%. Maybe just help us understand what you're seeing in terms of giving you conviction that, that holds up throughout the year. Obviously, these increases and partners is a good sign.
Yes. Thanks for the question, Darrin. Look, I think we called out several metrics in our prepared comments today that gives us confidence around the growth we're seeing, particularly in the software-oriented aspects of the business. And as we've highlighted a couple of times already today, that is the focus strategically for us going forward and we continue to deploy more assets, more resources, investment against those strategies.
So Darrin, what I would say is, as it relates to just our general Merchant margins, these were consistent with our expectations in the first quarter. And we continue to go ahead and see that sequential improvement while executing on synergies, continuing to run the business and investing in EVO's technology and platforms in the new markets that we weren't previously in.
And Darrin, I would just add two points maybe to wrap up that conversation. One is, obviously, we see a demand overall for embedded payments growing, not just here in the U.S. but globally. So clearly, as we think about how we're positioning our business and how we want to orient our go-to-market strategies and how we want to emphasize investment in the business, it's really going to be geared towards continuing to drive to be able to capitalize on that longer-term trend in the marketplace. It's point number one.
Our next question comes from the line of Tien-Tsin Huang with JPMorgan.
Good, clean results here. I thought maybe, Cam, if you don't mind me asking the settlement on the credit side, and of course, [ that's going to ] change. I know there's no direct impact for you, but your thoughts on surcharging and what that might mean. And in general, could we see sort of this helping the pricing environment in general for you and the group?
Yes, Tien-Tsin, I would say -- and I don't mind you asking at all. I mean, obviously, our perspective remains what it has been for many, many years, which anything that really lowers the cost of acceptance in the industry, by and large, is good for us. So -- and good for the industry more broadly.
Great. And then on the Issuing side really quickly, any call-outs on the renewals with respect to pricing? And are you seeing implementations happening on time? I know there's been a little bit of a slowdown in IT spending on the bank side. I know you still have one in AWS, but anything you're seeing there?
Yes. All good questions there. I would say everything on the Issuer side is tracking sort of exactly according to our plans. Our implementation pipeline for 2024 is well on track. We had a successful first quarter around implementations and have a full year of busy activity as we have a number of implementations that we expect to execute over the course of the year.
Terrific.
And then to your last question on...
Capital One-Discover.
Yes, Capital One-Discover. Yes, not a lot more I can say, obviously, as we sit here today. The only comment I would make is largely consistent with what we said previously, which is we have a long track record with Capital One, almost 2 decades now. We just renewed our agreement with them on a multiyear basis.
Our next question comes from the line of Dan Perlin with RBC Capital Markets.
I wanted to just maybe get you to elaborate a little bit on the commentary around the upside surprise that you guys saw in the quarter, in particular around what was happening in the U.S. growing high single digits. It sounded like that was one of the areas that kind of caught you off guard on the positive side, and I'm just wondering what were some of the more specific key drivers there because it feels like we've been highlighting more international stuff than what's going on in the U.S. for a while.
Yes, Darrin -- sorry, Dan, it's Cameron. I wouldn't say -- I don't know that I would call it out as a surprise so much as it's more macro driven in the sense that the macro is probably on balance a little more constructive than we would have anticipated kind of coming into the year.
That's great. Just a quick follow-up on, I guess, really balancing cost synergies and then the investments that are necessary. So those -- there seems to be a lot of questions around how much investments you guys have to make in kind of the current period, in '24, in particular, to achieve some of the revenue growth targets that you've set out, and this is true for kind of EVO, but also just overall in Merchant.
Yes. I mean, I can't -- I don't want to get too far ahead of myself as it relates to 2025 and beyond. But I would start by saying we're always sort of balancing kind of our desire to invest in the business and wanting to see, obviously, the benefits of the top line growth flow through to margin and margin expansion in the business. But we recognize the Merchant business' operating margins kind of in the high 40% level, which is a fairly attractive level of margin -- overall margin quantum for the business overall.
Our next question comes from the line of Dave Koning with Baird.
Great job this quarter. And I guess my first question, within Merchant, you kind of talked about organic volumes growing high single digits, organic revenue high single digits, so pretty similar. Maybe can you discuss kind of the puts and takes kind of between there like mix, pricing, new products? And would you expect revenues to grow above volumes just as you proliferate kind of software and new products over time?
Yes, Dan (sic) [ Dave ]. It's a good question. I would say it's really hard to get into all drivers within the Merchants business just given the number of geographies we're in, the number of different lines of business we're in, et cetera.
Yes. Got you. And then just a quick follow-up. Merchant margins, I know tons of investor questions around that. And it's gotten better each quarter since EVO, the year-over-year decline has gotten better. Is Q2 going to be up year-over-year now that EVO will be anniversaried?
No. What I would say is, again, I would follow kind of the same trajectory that you saw us coming out of the year. We saw 30 basis points of improvement coming out of Q4. So you expect them to be approximately flat in Q2. That's how I would shape it.
Got it.
And then, of course, to get to the overall guide for the year, they would be up in Q3 and up in Q4, kind of getting to that overall up 30 basis points for the full year period.
Our next question comes from the line of Trevor Williams with Jefferies.
Great. Yes, I wanted to follow up on Merchant margins as well and just the impact from EVO. Clearly, there's been an impact just EVO coming on at a lower margin profile. And Josh, you referenced some of the reinvestment in EVO's technology outside of the U.S. Can you just give us a sense for where you're at in terms of that process of reinvestment? Anything you could quantify in terms of what impact that has had on margins? And then as we work through the year and the synergy realization ramps, should we see a higher flow-through from the synergy realization?
Yes. So what I would say is it's a bit of a balance as we think about the reinvestment into the business and the technology platform as it relates to those pieces of technology that are in markets that we're currently not in. So really, Trevor, it's a bit of a balance there.
And Trevor, it's Cameron. The only thing I would add to that is, obviously, there are certain markets that EVO operated in that we did not when we acquired them last year. And we have a very, I think, deliberate approach in terms of how we think about availability, reliability and stability of the technology environments that we operate in these markets.
Yes. And the only other comment I would make is if you think about the business generally, it's over $9 billion in revenue, margins mid-40s. So expanding margins 50 basis points on a year-over-year, I think, is very respectable.
Great. And then on Merchant revenue, Cameron, it sounds like trends in April have been relatively consistent with Q1. I mean, should we interpret kind of the Q1 growth rate as 8% organic? Maybe there's about 1 point or so of benefit from leap year, so kind of the go-forward core growth rate looking at kind of 7% as kind of the normalized Q1 and that's what April has been consistent with?
Yes, I think that's a fair interpretation. I mean, the way I would position it is we think, if you exclude the impact of EVO, the nonanniversary portion of EVO, we're going to grow Merchant in that 7%, 8% for the year and I think we remain on track to do that. Obviously, there was a slight benefit in Q1 from leap year. That's not overly impactful in the grand scheme of things, but we're still squarely in that kind of 7%, 8% range for the balance of the year as we sit there today.
Our final question this morning will come from the line of Will Nance with Goldman Sachs.
I think a lot of mine have been asked already, but Cameron, maybe I wanted to ask about the 30% increase in U.S. Merchant partners that you had in the slides today. Maybe you can just expand a little bit on that number and provide a little more context. I think there's been obviously a lot of focus around the integrated business and the rate of ISV additions in that business.
Yes, happy to. So look, we have a variety of different partners in our business and I think it's important to kind of start with that overarching context. When we talk about new partners in the business, these are new relationships that we have in the business that generate incremental volume, incremental lead flow and incremental opportunity for our Merchant business going forward.
Got it. Super helpful. And then I think you also mentioned that you're starting to see some progress on the rollout of the revenue synergies in the EVO footprint.
Yes. I think the areas of opportunity continue to be largely consistent with the things we've highlighted historically. One is bringing our capabilities, our solutions to the EVO markets that we were not operating in historically. And we see tremendous opportunity around GP POS, GP tom as well as our customer engagement suite, analytics and customer engagement platform and some of the other value-added solutions we can bring to bear on those markets. And we're already seeing good uptake in demand around that.
Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.