Q3 2020 Global Payments Inc Earnings Call
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.
This time I would like to turn the conference over to your host Senior Vice President Investor Relations. When Smith. Please go ahead.
Good morning.
And welcome to global payments third quarter 2014 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 uncertainties and other factors, including the impact coming Nike.
Hi conditions on the future operation that could cause actual results to differ materially from our expectations certain.
Certain risk factors inherent in our business.
Fourth in filings with the SEC, including our most recent 10-K and subsequent filings.
We caution you not place undue reliance on these statements.
Were 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 may refer to non-GAAP financial measures such as adjusted net revenue adjusted operating margin 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 regulation. Please see our press release furnished as an exhibit to our form 8-K filed this morning, and our trended financial highlights both.
Like are available at the Investor Relations area of our website at Www Dot mobile payment Inc. Dot com.
Joining me on the call our guest flow CEO, Chairman Brady, President and COO and Paul Todd Senior Executive Vice President and CFO now I will turn the call over to Jeff.
Thanks Wendy.
We delivered third quarter results that substantially exceeded our expectations because of our differentiated strategy technology enablement to drive digital growth.
Each of adjusted net revenue adjusted operating margin and adjusted earnings per share significantly outperformed the targets, we put in place post the pandemic outbreaks.
And we continue to gain share relative to our markets we.
We thank our team members for their hard work and dedication to our customers to each other and to the communities in which we live and work during the most difficult times.
We are particularly pleased with the significant level of operating margin expansion that we generated in the quarter.
These results validate the actions we took at the beginning of the outbreak of COVID-19, both in timing and quantum as.
As a result, we are delighted to have return to earnings growth in the third quarter 2001.
Our expectations are for continued progress in the fourth quarter provide meaningful momentum heading into 2021.
We were also pleased to continue to make substantial progress on our strategic goals. This year, extending our lead in deepening our competitive moat.
Year to date, we entered into a landmark collaboration with Amazon Web services Harper.
Our preferred provider of cloud services for issuer business.
Across the 60% threshold of our business coming from technology enablement a goal we set in March 2018 for year end 2020.
And purchase an additional 29% of our joint venture in October with commercial banks in Spain and Portugal.
Who are the most attractive domestic markets in Europe.
And we did all this during a once in a century pandemic, while meaningfully expanding market share by signing marquee competitive takeaways, including truest, the six largest bank in the United States and by extending relationships with some of the largest most sophisticated and complex financial institutions worldwide, including HSBC.
BC TD Bank and Wells Fargo.
Turning to our merchant business, our technology enabled portfolio consists of three roughly equally size channels.
Our omnichannel hardware software and own software vertical markets businesses collectively represent nearly 60% of merchant revenue.
Our relationship led businesses make up the remaining portion it continue to differentiate themselves in the markets. We serve based on the strength of our technology offerings.
Starting with our market, leading omnichannel capabilities, we are unique in our ability to offer local sales and operational support at scale physically in 38 countries and to provide services cross border virtually into 100.
That's still and reach particularly in many of the hardware served markets. We operate in today is a significant competitive advantage.
Volumes in this channel grew in the mid teens during the third quarter compared to the prior year, excluding travel and entertainment.
With changing consumer preferences as a tailwind we believe it will sustain higher levels of growth in our omni channel businesses on an ongoing basis coming out of the pandemic.
As channel shift in market share gains continue.
Our ability to seamlessly provide the full spectrum of payment solutions drove new wins this quarter with large multinationals, including Yves Saint Laurent Alexander Mcqueen in Fedex, each of which spans multiple geographies.
Additionally, we recently signed a new multiyear partnership with Uber in Taiwan to provide payment solutions for both overrides and Uber meets the Labor agreement was one is result of the strength of our domestic capabilities.
We were also excited to expand our current relationship with global storage solutions company pods beyond North America, and Canada into Australia.
We went live with Citi in Canada. This quarter on a unified Commerce platform are you CP and we are now pursuing customers jointly across North America, and the United Kingdom.
We are also pleased to announce that we have agreed to expand our partnership with city across Continental Europe, and we expect to launch those new you CP markets in the first half of 2021.
Global payments integrated GPR high return to growth in the third quarter because of the unrivaled breadth of our partnership portfolio with over 4000 iops fees in the most attractive vertical markets.
Prior to co design team, our integrated business consistently delivered double digit organic revenue growth through market share gains and terrific ongoing execution.
Through our merger with thesis, we meaningfully increased the scale of the partner portfolio and enhanced our capabilities with additional assets like genius and propane.
The strength of our combined integrated offerings allow this business to achieve its budgeted new sales forecast for the third quarter with new partner production, increasing over 70% versus 2019.
Notable new wins include partnerships with CDK global a leading provider of automotive software solutions to more than 20000 dealerships around the world as well as with sand Hills, a large private often software provider focused on the industrial equipment and machinery market.
We also signed Pentair a leader in software solutions for field service providers, including Pentair is around 17000, plus dealers. In addition to independent service companies.
Our own software businesses represent the remaining roughly 20% of our technology enabled merchant revenue.
And our leading SaaS solutions in healthcare higher education, and quick service restaurant or QSR has been more resilient in the current environment.
Even in our businesses as a more impacted by the pandemic, including active and our K through 12 primary education and gaming businesses, we're seeing sequential improvement, giving us increased confidence for 2021.
Our strategy of delivering the full value stack in key verticals continues to produce deeper richer and more value added relationships with customers and is becoming table stakes in the markets we serve.
Our enterprise QSR business continued its success with deals online ordering and delivery solutions, which has now enabled more than 62 million orders greater than $1 billion in sales in 2012.
We also completed the rollout of our cloud based SaaS point of sale solution with Dutch rose.
We are currently installing our Pos solutions in all long John Silver's locations in the United States.
And we have now integrated our genius payment solutions from thesis into our new offerings.
Significantly expanding our cross sell capabilities.
Today, we lead with technology and innovative solutions across all of our merchant businesses.
This includes our relationship channels, where we continued to see strong sales performance fueled by our suite of differentiated products and solutions for example, in our Heartland business nearly two thirds of new sales or technology, driven, including our leading Pos software and online ordering solutions.
We have seen strong demand for these offerings during the pandemic heart.
Harlan delivered record new sales performance in the third quarter.
And while we continue to focus on new technologies and markets. We have not lost sight of our long standing partnerships with some of the largest most sophisticated and complex financial institutions worldwide.
We are delighted to announce that we have renewed our relationship with HSBC in the United Kingdom for merchant services.
This comes a little over a decade after we entered that market with our joint venture.
We also recently executed a new merchant referral agreement with CBC in Canada, a partnership that began right before our IPO in early 2001.
Extended relationships in Europe, with HSBC and in Canada, What's the IVC closely follow the expansion of our partnership with Acacia Bank in Spain and Portugal.
We are thrilled to have closed in early October on the agreement to purchase an additional 29% upon mircea increasing our ownership stake to 80%.
Our exclusive referral relationship now extends through 2043 years after the initial joint venture date.
We are humbled by the confidence that our partners place in US every day.
Regarding our issuer business, we announced last quarter, a transformational and go to market collaboration with Amazon Web services array Ws Super.
To provide an industry, leading cloud based issuer processing platform for customers, regardless of size location or processing preference.
This is a game changer for three reasons first it.
And level, the playing field by bringing leading edge technologies previously available only to new entrants to financial institutions and retailers of all sizes worldwide.
Second it triples, our target addressable market by extending our geographic footprint and transforming our technologies to attract new market entrants, while dramatically expanding our distribution assets with a WSS salesforce globally on a unique basis.
Third it brings significant benefits to our customers and their consumers by enabling frictionless digital experiences and assays commerce environment.
Our collaboration with data use is already bearing fruit.
We are pleased to announce our first joined competitive takeaway.
A financial institution customers in Asia currently with a legacy competitor to be boarded on our cloud based solution in 2021.
We also have recently been awarded new business with a large domestic financial institution in Europe on a cloud basis.
Our issuer technology transformation is now fully underway and on track.
As we continue to gain share through our unique collaboration.
We will capitalize on the broad and deep pipeline, we have the good fortune to have in our issuer business.
We currently have 11 letters of intent with financial institutions worldwide seven of which are competitive takeaways.
In the last 18 months, we've had 33 competitive wins across North America and international markets.
These market share gains are occurring right now in the midst of a pandemic and prior to full implementation of our cloud native solutions within the U.S.
All of this is of course in addition to significant renewal agreements that we execute this past quarter, including with TD Bank Wells Fargo and is not yet in Europe.
We're also pleased to announce that we have secure long term extensions with harvest bank as well as with Banco popularity of Puerto Rico and now we have finalized an agreement with scotiabank to convert its Canadian consumer credit card and loan accounts.
Our business in consumer segment delivered high single digit growth achieving record third quarter revenues in a challenging macro economic economic environment and well after the April stimulus.
This business also substantially expanded operating most so bye.
The planned focus on expense management and execution since the merger.
The shift to cashless solutions is benefiting us across the business and consumer portfolio.
With customers remain active longer and utilizing more of our products.
As just one example, we are seeing rapid adoption of our test solution with a number of customer locations using us for a disbursement of fivefold since the beginning of the pandemic.
We also signed a new strategic relationship with Austin Football club the newest MLS franchise, and we are working with the team in the stadium stability cashless payment account and processing ecosystem, while also leveraging brand sponsorship opportunities.
We closed on our new joint venture with money to pay on October Onest, which expands our target addressable market to include Continental Europe for the first time.
We have no better partner than commercial bank and we believe the combination will offer significant growth opportunities for this business segment in the future.
The new venture also validates the types of revenue synergies, we anticipated at the time of our thesis merger.
Finally, the underlying strength of our businesses has enabled us to now return our focus toward a traditional capital allocation priorities that we've employed over the last seven years.
Return of capital to shareholders and select M&A.
We have put those initiatives on hold at the beginning of the coven outbreak.
Within difficult in March to imagine we will begin the position that we are in today.
As a result of for more activity going forward subject of course to the capital markets environment and outlook.
Now over to Paul.
Thanks, Jeff I'm.
Im extremely proud of the financial performance, we achieved this quarter that once again exceeded our expectations driven by strong execution of our differentiated technology enabled strategy.
Adjusted net revenue for the quarter was 1.75 billion, reflecting growth of 64% over 2019.
Adjusted net revenues compared to the prior year on a combined basis was down just 4%.
Meaningful improvement from the second quarter import.
Importantly, our adjusted operating margin increased an impressive 250 basis points to 41.1% as we benefited from the broad expense actions, we took to address the impact of the pandemic and the realization of cost synergies related to the merger, which continued to track.
Ahead of plan.
The net result was adjusted earnings per share of $1.71 for the third quarter, which compares to $1.70 in the prior year period and impressive outcome that highlights the durability and resiliency of our model.
These results include an accrual for non executive bonuses as our performance for the quarter substantially exceeded our expectations.
We are pleased to be in a position to begin to reward our team members around the world who continue to deliver the highest standard of service to our customers.
And our merchant solutions segment, we achieved adjusted net revenue of $1.13 billion for the third quarter, a 6% decline from the prior year on a combined basis and significant improvement from the second quarter.
Notably we delivered an adjusted operating margin of 47.3% and this segment and improvement of roughly 40 basis points as our cost initiatives and the underlying strength of our business mix more than offset topline headwinds from the macro environment.
Our technology enabled portfolio was relatively resilient once again with several of our businesses delivering year over year growth in the third quarter on a combined basis.
Specifically our worldwide Omnichannel E commerce volumes, excluding TNT grew mid teens as our unique value proposition, including our unified commerce platform or DCP continues to resonate with customers also.
Also global payments integrated delivered adjusted net revenue growth in the quarter on a combined basis, while the leading scale and scope of our ecosystem has this business on pace to deliver another record year for new partner production.
As for our own software portfolio advanced MD remained a bright spot producing strong adjusted net revenue growth and once again delivering record bookings during the third quarter.
Moving to our relationship led businesses. We are pleased to have realized solid sequential improvement across geographies this quarter and payment volumes continue to recover around the world.
Once again execution in these businesses remain very strong this quarter as evidenced by the new sales performance, Jeff highlighted earlier and share gains we have realized.
Turning to issuer solutions, we delivered 433 million and adjusted net revenue for the third quarter, representing a 2.5% decline from the prior year period on a combined basis as transaction volumes are recovering traditional accounts on file continue to grow in the mid single digits and set a new.
Record for the quarter, and our bundled pricing model, including value added products and services benefits performance.
In fact, excluding our commercial card business, which represents approximately 20% of our issue portfolio.
Is being impacted by limited corporate travel this segment delivered low single digit growth for the quarter on a combined basis.
Adjusted segment operating margin for issuer expanded a very strong 500 basis points to 43.3% compared to the prior year on a combined basis as we continue to benefit from our efforts to drive efficiencies in the business.
Finally, our business in consumer solutions segment delivered adjusted net revenue of 204 million a record third quarter results representing growth of more than 7% from the prior year.
Netspend continues to benefit from strong trends in gross dollar volume, which increased 12% for the quarter and impressive outcome in light of the environment and in the absence of incremental stimulus.
We are pleased that netspend customers remain active and are utilizing our products for purchases as we are seeing a shift to cashless spending in this channel as well.
We are particularly pleased by trains with our PVA products with active account growth increasing 24% from the prior year.
Adjusted operating margin for this segment improved 710 basis points to 25.6% as we benefit from the efforts we have made over the past year to streamline costs and drive greater operational efficiencies in this business.
The powerful combination of global payments and pieces has provided us with multiple levers to mitigate the headwinds we have faced from the past than.
We are making great progress on our integration, which I mentioned continues to track ahead of plan.
It has been just over one year since we closed our merger and we have the confidence to again raise our estimate for annual run rate expense synergies from the merger to at least 375 million within three years.
From our previous estimate of $350 million.
This marks the third time, we have increased our cost synergy expectations.
We also remain confident in our ability to deliver at least $125 million in annual run rate revenue synergies and the 400 million and additional annual run rate expense savings related to the pandemic, which is incremental to the tcs merger synergies.
As we sit here today, our business is healthy and we are able to return to our capital allocation priorities.
We generated roughly 500 million in adjusted free cash flow this quarter essentially funding our purchase of an additional 29% stake in our joint venture with pass you back.
We reinvested approximately 120 million of Capex back into the business.
We ended the quarter with roughly 3 billion of liquidity and our leverage position of roughly two and a half times on a net debt basis.
Given our strong liquidity and balance sheet strength, we are pleased to announce that our board of directors has increased our share repurchase authorization to 1.25 billion. While we continue executing against a full pipeline of merger and acquisition opportunities.
While we're not providing guidance at this time, we currently expect to have margin expansion and earnings per share growth for the fourth quarter, providing us with strong momentum heading into 2021.
Additionally, assuming the recovery continues to progress and we see a more normal environment. In 2021. We are currently targeting adjusted earnings per share of roughly $8 for next year.
We are grateful for our market leadership and global scale in payments, while the proliferation of technology and software and our industry should allow us to continue to drive meaningful share gains well into the future and with that I will turn the call back over to Jeff.
I am very proud of all that we have accomplished thus far in 2020 as we execute on our strategic initiatives.
This will be a remarkable year, regardless of the macro economic environment, but it is all the more notable in the face of a 100 year pandemic.
The last Acacia bank and crossing a 60% digital enablement threshold just to name a few of the noteworthy accomplishments.
Our new collaborations with market, leading technology companies, such as a ws combined with distinctive partnerships with some of the largest and most complex institutions in the world such as HSBC IVC and Kai Sabbag provide further validation of the wisdom of our differentiated strategies.
We are enthusiastic about the future as we continue to advance our technology enabled software driven goals building upon our competitive advantages to widen our mode and to create significant long term value for our shareholders winning.
Before we begin our question and answer session I'd like to ask everyone to limit their questions to one with one follow up to accommodate everyone. Keith. Thank you operator, we will now have a question.
Thank you. Your first question comes from the line of Darrin Peller with Wolfe Research Karen Your line is open.
All right Hey, thanks, guys.
I just want to start off with your strategy around ACA.
Acquisitions, and really the technologies and capabilities you really think you can use.
To fill out what's already obviously selling to hold up.
Its own pretty well and then just on top of that any data points you can give us on how you're kind of filling the funnel in the top in terms of bookings new business trends in the merchant business versus any attrition levels.
It would be great. Thanks.
Thanks, Aaron its Geoff and I'll start I'm sure Cameron and Paul can comment on your on your second question, but on your first question listen our strategy has not changed the company probably over the last number of years and that is to say that we have three legged stool.
Good legs to the stool include owned and partnered software include E Commerce, and omni channel businesses and exposure to faster growth Mark.
Markets I'd say pretty much all the deals that we look at our fall into one or more of those of those three buckets will really pleased about where we are today and Paul has mentioned this in his prepared comments is that we sit here today.
In healthy position as we've ever been but particularly much healthier than we would have guessed probably back in March or April as Paul said, the lever today on a net basis today half times, and we have $3 billion.
The of liquidity.
Our M&A pipeline is pretty full but obviously some of that depends on some stability of course in the capital markets. These are our announcement today about our board thankfully, increasing our share repurchase authorization.
Authorization authorization for the time being about the best I think is us.
Given our performance and where the markets have been having said, though we continue to execute against that pipeline and we are well capitalized.
Two.
To pursue these opportunities I think we're really happy placed area and I would say our our strategy has not changed and you probably saw this in our release as well as our prepared comments.
We've actually now crossed the 60% threshold of our merchant business coming from digital try.
Trends, which is something that we started talking about in 2015 and 2018, we set that target in our last Investor day in 2018 for the end of this year, we caution to cross that threshold in the in the third quarter. So I think that's working really well for us I don't really see that changing and if we ever do additional acquisitions and subject to market conditions, They would probably fall.
While those three buckets I carry one cycle that the second question, yes, sure there and good morning, our ill touch on that I'm going to focus on North America since that represents about 80% of our merchant business, but I would tell you. The one thing that we tried to do during the Miss for the pandemic of focus on the things that we can control and that starts with new sales and I would say the new sales performance across our.
Businesses are really been exceptional heartland had a record new sales production period in the third quarter up double digits year over year up 25% sequentially versus the second quarter again, the strongest new sales performance period in the history of that business, our integrated business as we noted in our prepared comments is tracking.
To budget for the year, notwithstanding the pandemic new partner production is up 70% year over year and I would say the overall partner pipeline is as strong as it's ever been in that business and we're pretty optimistic about the momentum we have heading into Q4 and 2021 and our integrated channel in vertical markets. We saw particular strength in advance.
SMB, that's a continuing theme obviously, we've touched on throughout the pandemic their new bookings were up 15% year over year.
Emil our QSR enterprise business, we saw a new SaaS sales up 30% year over year in our higher education business, new bookings are tracking at a consistent level with 2019, despite a number of campuses being closed during the middle of the pandemic. So we're pleased with our performance as well.
Canada saw new sales up 12% year over year in the quarter or excuse me year over year year to date, they're up 28% in Q3. So again continued strong strength in.
The Canadian market largely on the heels of our new partnership with days are down which continues to bear fruit.
Through for us in that market in Europe, and Asia overall, just touch on briefly I think their performance has been very strong notwithstanding the environment. They have been operating in new sales remained solid in all those markets. The UK has had some significant new wins this quarter that we're particularly pleased with Spain continues to be a strong performer for us.
Yes.
Midtown is up in Spain year over year domestic volumes are up by 6% in Spain year over year, we see particular strength in that market as well and then Asia again, new sales performance has been very good obviously, the overall macro and Asia continues to be a bit soft given the the impact of the pandemic, but I would say just overall in the business.
Going back my opening comments, we are exceptionally pleased with the pace of new sales and how weve executed well.
With new sales and bookings throughout the pandemic, but particularly in Q3.
Thats really helpful guys, great detail I mean, it sounds like you're going to leave it at that but it sounds like overall technology offers you have is enabling you guys to gain share through a degree that you come out of the pandemic potentially larger or higher margin than you could a bit before is that they are just based on the tactical execution, we're seeing versus maybe some of the banks out there.
I think we're certainly our opinion you look at these and NASCAR Gatorade Guaran, which on a combined basis I view this kind of the market and these numbers, obviously are multiple better than.
Then those numbers so with that I think supports our thesis that I will rapidly gaining share and pretty much every one of our businesses as we look at it especially for these purposes, our merchant business. So I think what you said is exactly right and not and that in addition to that bookings numbers, which are great leading indicators at Cameron alluded to make us feel really good about the trajectory of the business.
All right. Thanks, guys, Thanks, and thanks, Eric.
Your next question comes from the line of Dave Koning with Baird. David Your line is open.
Okay, Thanks, and nice job.
Thanks, David.
Yes, maybe could you review monthly trends in especially in merchant, maybe I know you did down 6% year over year, but does that improved throughout the quarter and maybe how is that setting up into it that tobey.
Yes, so maybe I'll start on camera and Ken can give a little more insight Joe the monthly trends continue to to kind of have good both stabilization and that kind of sequential monthly growth and so.
We have said for some time now that from a merchant standpoint, our volumes most a lot like the visa credit volumes by most recently started positively decoupling from those volumes and trending better and we saw that obviously in the third quarter relative to the visa volumes that came out yesterday and we're continuing to see.
See that improvement in those in those several weeks here of October that we've seen so far so yes. The trends continue to be positive mentor over kind of how we've described and then obviously the results flowed through from those relative to the financial performance for the quarter. Karen do you want to add to that yes, I would just add a couple of things I think if you look at Q3, we saw.
The merger.
Yeah Ramsey, we missed the first part of your question, but I think it relates to what we're seeing from a merger synergy standpoint on the revenue side, how that's pacing.
And what our expectations are as we continue to push forward. So I would say, we're very pleased with the early progress we've seen from a revenue synergy standpoint, as evidenced at least partly today by our returns of our expectation of $125 million of annual run rate synergies by time, we get to three years out from the closing of the merger we've launched a number of initiatives.
In our merchant business to realize those synergies today tactically, we are cross selling our analytics and customer engagement platform now across the teachers base of business, we've introduced vital plus into the Heartland team. We've also brought that solution to Canada as well, we're leveraging the capabilities of Propay now in the Heartland business. We're also bringing.
Thats the Canada those revenue synergies are well on track and pacing relatively consistent with our original expectations for them. Notwithstanding obviously the impacts of the pandemic, there's a longer tail revenue synergies. Obviously the continued to progress as well a number of those are really focused on our ability to cross sell our issuing solutions into.
Our base of existing merchant Fi relationships outside of the U.S I would say those discussions continue to be very fruitful and are progressing obviously the pandemic has had some impact on the pace of those conversations, but we remain very optimistic and bullish as it relates to our ability to be successful in cross selling issuer into.
His relationships and vice versa, we're having a number of conversations today about new merchant relationships that could come from existing Dcs issuing at by partnerships outside of the us as well and then lastly, we're making great headway on what we would characterize as our transact and optimization opportunities, where we can better.
We clearly achieved the $100 million of of run rate cost pick out relative to the pandemic and so we're seeing that benefit come through them and just in general as we're getting incremental revenue.
Criminal margins of that revenue is coming in at a higher incremental right.
Then we had originally planned because we've kind of locked down the expense page. So it's really those three drivers I would say as it relates to the fourth quarter and the market expansion narrowed specifically talking about the merchant segment when I when I referenced kind of expansion. There I would also say and I mentioned this into prepared remarks, the market expansion, we would've had.
This quarter, we've been higher had we not used some of the excess incremental revenue at the incremental margin to set aside hurt grow with non executive bonuses. So we actually on a core fundamental basis margin performance with actually even better than the 250 basis points that we realized.
Perfect. Thanks, so much for taking my question.
Thank you.
Your next question comes from the line of Bryan King Deutsche Bank, Frank Do you mind is open.
Thanks, I just wanted to follow up Jeff and ask about the M&A pipeline. There's a lot of people trying to speculate on what deals you guys would look at in particular, I guess I'm trying to understand your preference between a scale kind of a cost synergy versus looking at a growth asset that would supplement your growth rate or even taken higher.
<unk> just any thoughts on a preference between those two types of assets.
Hey, Brian Thanks for your question and chest. So let me just start with the criteria that we always apply to kind of bad reveal now work backwards to kind of get an address your question more directly. So as you said for some time, we look at strategic fake cultural fit in financial returns when we look at when we look at new mergers and acquisitions very few things that we look and actually need all three of those hurdles.
And I would tell you that we vary the financial return hurdle based on risk not surprisingly, which includes geographic and country. Rich can also will reflect the volatility that we see in the capital markets.
Currently that may or may not percent time will tell.
And you said a minute ago give them I just said it current price levels, we believe buyback our stock is really a compelling opportunity. Hence the announcement day of the share repurchase increment authorization and a return to capital allocation, which we put on hold in March when Covid. Initially initially started I'd also say another corollary coming out of like I said is most of our phone.
Because now in our pipeline full as Paul said most of our focus now is on deals in the United States.
So if you look at the.
Quite sure I lifted and you think about macroeconomic rich country risk regional risk and everything else it shouldn't be surprised anyone that unless pricing environment drop their focus is largely within the United States market, which is about 70% of a company. So I, probably shouldn't surprise anybody as it relates to scale versus.
Versus growth assets, but their own pipeline is Phil filled with both of them what I would tell you at the end of the day those I think it's unlikely any immediate term that we do something outside the United States within the United States. We're looking at both software assets as well as traditional processing assets, but if nothing changes from here I would expect US do more we purchase you should be candy that these prices.
And less inorganic investment, but obviously that subject to the facts and his effects change our opinions will change the other thing I want to mention respond to your question is Paul said is at two and a half times that leveraging 3 billion liquidity, we have plenty of financial firepower to do what we need to do.
On her own should we need access to additional capital coming out of the use of proceeds for it then obviously will review the visit the competition of our businesses, but I would say sitting here to day, we think we are particularly well capitalised executing our strategies MTS shitting any assets to do that apps into distinct use of proceeds, but we don't have today.
Oh, that's super helpful. Thanks for that color and just as a quick follow up on the issuer solutions business. It seems like it's trending.
Training, well and came in kind of a little bit ahead of where we were looking for just thinking about the outlook there in the pipeline an issuer.
Make some comments there thanks so much.
<unk> <unk> Paul can contribute also let me to start so I would say, it's a real bright spot is he said sequentially pretty significant improvement return to better growth in the third quarter X. The commercial card, which is larger corporate travel related as Paul described his prepared remarks lavar pipelines full I think we've got in our prepared remarks 11.
Deals in our pipeline evident which are competitive takeaways in the last 18 months 33.
Competitive wind so it's hard not to look at that would be really pleased with how we're executing and some of the things. You mentioned initially are AWS collaboration which is unique to us really starting to bear fruit for our first joint when.
In Asia and that someone going competitive takeaway from someone else from a legacy provider into cloud based environment coming in 2021. So now we have market validation from our customer base as to how we are as to how we're doing in our strategy. There is a little bit different that everybody else is if you look at our strategy an issue of which is bearing fruit it's to marry great technology.
Allergy with folks like AWS to marry that with.
With servicing the largest and most complex financial institutions globally and the reason we go after that market based in stock the exclusive everything else, but the recent go after that market.
Places marketed that those are the folks who are gaining share in their own right. So as they gain chair, we gain chair with them and I don't think you have to look further than announcements for example that cap. One is made and other folks over time to about picking up additional portfolios to see that it were successful with our partners are successful. So that's why our focus is where it is so we're pretty optimistic.
Second that business, obviously, some that depends on the macro as I think Paul pointed out in his commentary and you look at the visa and Mastercard numbers last night, our business was someone can do the math it six times better than the market rates of growth or whatever the math was embedded in the visa Mastercard commentary so <unk>.
No single digit growth with.
With TNA in there and commercial card.
Minus to wherever it was that compares to whenever they announced last I minus seven and my at 12 over the revenue was minus 14 and mine is 17. So clearly I think we represent the market and initially and I think it goes to show the length of differentiation the unique value play with that we have evaluated services like.
Brought analytics.
And loyalty and our businesses and that stuff. Obviously is waiting for you. When it comes with Yeah I would I would just say this that we are going to see continued growth there and more coverage that is happening in that business.
Is very good from a topline standpoint, I would say the other thing is the efficiencies, we're getting that business to get 500 basis points a margin expansion. This quarter just speaks volumes to how we're managing the cost base in the environment. We're in and then finally, we're doing all that in an environment, where we're investing in modernization is just talked about so really.
Hitting all three levels of the business of the growth side from the top line the new wins for pipeline the cost base efficiency, and then investing to position to business for the future.
Got it thanks, so much and congrats on the progress thanks.
Thanks, Brian.
Your next question comes from the line.
Okay.
ISI, David Keeling is open.
Thank you good morning, good to see.
Major initiatives in Europe, particularly the reestablishment of the HSBC JV and growing up to 80% on location I'm curious.
Why move forward on both of these initiatives now and it does control of the loci should JV allow you to do things that you couldn't do previously.
Yeah Davis, Jeff all started and I am sure cannon.
Comment as well so let the newest businesses are both performing really well in the current environment. I think you have to parse out the nature of our business in Europe relative to the nature of the market themselves or in particular visa Mastercard proxies for the market. So our business is in those markets, which is to say western Europe, or the U K and Spain, and Portugal have it.
Very heavy domestic component in those markets and our businesses are growing their absolutely in a domestic basis.
Over a year and I'm thinking about <unk>.
Particularly in cross border wall piece of our business.
Is there a relatively small piece of our business and is nowhere near the driver of revenue growth that you have in in visa and Mastercard. So I'd answer a question from my point of view, we fantastic partners.
In HSBC and Kaishek using the networks as a proxy we're growing leaps and bounds ahead of where they are growing in those markets our ability to invest in capture more share in those businesses Cameron talked about the booking totals and some of our markets. We've had really good results in terms of new sales news business businesses, while in Spain for example of.
Growing absolutely drove you're into October on a domestic basis. So I actually think it's a fantastic time for us to continue to invest in those businesses and support our partners yeah.
I agree with that Dave I don't have a time that I would say I don't I don't think there's ever embed time to extend the relationship with a partner like HSBC. Some under the we've worked with over 50 years in our business in some form or fashion and certainly for.
The entirety of our existence in the UK market their fantastic partner, we have a number of initiatives from a digital engagement standpoint that align very well with what our strategy is in that market and we've worked together extensively for years and are delighted to have the opportunity to extend our existing relationship and you've been brought into new avenues that as we move.
Forward in time so.
We could not be more pleased to have executed that with them as it relates to Spain.
I completely agree with Jeff comments, Spain, and Portugal through the most attractive domestic markets in Spain or excuse me in Europe as I mentioned previously its paying returned to volume growth domestically.
In the quarter and that has continued in October even with some reintroduction of restrictions to impact.
To combat the.
Coronavirus spread so we're delighted with the overall performance of that business and certainly is Guy showed continues to look through it's banned in Spain as well through with merger with thank you, we think there'll be incremental opportunities for us and obviously, earning more of the joint venture I think will yield better returns longer term as we think about that investment so.
Clearly the valuation that under underpinned.
And the forecast with underpin the valuation for that business reflects the environment that we're in today, we are outperforming that valuation in the forecast as we sit here today and.
Again anytime you have an opportunity to invest further in a joint venture that's been a successful as ours has been wickizer insane, certainly we jumped at the opportunity to do it.
Understood just as a quick follow up if I could be made a number of important announcements.
Both of them in the current quarter and previously the 11 allies with financial institutions globally, you've got the AWS partnership.
<unk> when you, which you announced earlier this year can you help us.
Mention what this might mean for 2021 or 2022.
Revenue earnings growth recognizing companies are giving guidance in this environment, but maybe give us some framework with which to think about it.
Yeah. So.
This is Paul.
Ridiculous, but have a framework to think about art painting as it relates to 2021 with be adjusted earnings per share target rehab breakdown, our budgeting process of roughly $8 and so that's how we are currently thinking about next year all of those things you. Just mentioned are obviously dynamics and that overall planning.
Kind of cycle that we're in right now, but as it relates to the next year, that's kind of a better indicator. We can give you a start thinking of.
Next year microclimate, assuming that much more normalized.
And kind of more normal operating environment.
Yeah.
The only thing I would add to that is it I think it gives us a lot of confidence around the momentum we have in the underlying business the macros macro and the impact of the virus is what it is and obviously that will eventually play out but as it relates to how we're executing in the business. The underlying momentum we have from a new sales products.
In servicing standpoint, I think it just gives us a tremendous amount of confidence as the Directionally, where the business is heading every time and is the macro continues to recovery, obviously that'll bear out.
In the financial results that we produce.
Understood Thanks very much.
Okay.
Your next question comes to the line is Ashley Shebang city actually and like it's open.
Thank you.
Cameron Hi, Paul Congratulations on the court, they're good comments here.
I wanted to actually start.
Something that.
And then on your feet.
Free cash flow.
Almost half a billion quite impressive and then one time and then what should we look forward in the full year.
Any comments on.
<unk>.
Completely casually conversion going forward.
Yeah. So ashwin. This is Paul as it relates to we've always had as as our goal to kind of convert roughly 100% of adjusted earnings into free cash flow right at that bulk of the third quarter.
It relates to time, if there's been any really unique timing items in the corner valid points. You can always have timing things to kind of flow in and out of a quarter, but nothing that I would specifically call out and yeah. It relates to kind of a forward look we've said.
Big and six to 2 billion run right on a four year basis is kind of a joke that that we're producing against from a free cash flow standpoint.
You look over kind of the last three quarters were playing right now so there wouldn't be anything else. There. We continue to obviously manage our capital expenditures in a very efficient sort of way, while still investing for growth.
The initiatives that we've talked about but there isn't anything from a unique kind of one time standpoint that appointment a quarter.
Okay got it.
So.
Mitigate D he'd be competitive wins continue.
Any any continent any on the pace of good working these veins two two revenues are financial institutions marches committed to comments timelines and maybe pushed out you need maybe even put forward given sort of studied urgency any any comment on that.
Can have implications floor.
For the future.
Yeah sure there isn't anything really from overall standpoint that I would say is changing the pain.
Realization of those opportunities now obviously each client might have a different dynamic just always it always happens when you're dealing with clients, but there is one theme or any kind of.
Pickler dynamic at play of either speeding up or slowing down kind of normalized realisation of being able to get.
Those opportunities converted into a revenue I'm excited uniform convergence standpoint, issuing stock, which has the longest kind of cycle to bring those are commercial pipeline is relatively fall and so new opportunities are are kind of bean paste into that pipeline with that full nature, but there isn't any unique die.
AMIC it play around acceleration or delaying of those opportunities.
And that could transfer to look make the day to day I would imagine.
Yeah.
Okay. Thank you.
Thanks ethics.
Your next question comes from the lines, Jason prepared with Bank of America, Jason Your line is open.
Hey, guys I thought I'd just follow up on the comment around the targeting $8 of ETS for.
For next year I know you said that assumes a more normalized macro environment, but I was hoping that you could outline just a little bit more about some of the expectations that are embedded behind that target. For example would you have the flexibility to drive it more cost take out if necessary to get there does it also assumes a meaningful amount of capital deployment.
Yeah. So Jason obviously, we're in this budget process right now and we also have always got a lot of dynamics at play when we're in our budgeting process that place do various scenarios of what the revenue picture looks like and and what the cost side and looks like and yes, we have obviously.
<unk> plans as it relates to our cost initiatives and then under a different set of revenue assumptions. We would have a different set of plants should we have additional costs opportunities answer to that is yes. There is always this balancing of those realisation of cost opportunities with what that does on the revenue side and all of this is kind of rap and.
Overall environment that we're operating in and we're going to need. The next obviously several months kind of play itself out relative to the overall operating environment.
Since the cost base relative to that operating environment, but yeah, I mean, I wouldn't give you any more color really been bad other than the state that we are in our budgeting cycle and replace them all those dynamics and every year. This is a more unique you're obviously, given the pandemic and the and the dynamics at play.
With the pandemic.
Hello. This is Cameron the only thing I would add to that is obviously assume that the papillon as it relates to recovery continues.
Certainly doesn't anticipate.
Meaningful retrenchment, particularly as it relates to shutdowns or significant restrictions around commerce.
That we saw obviously earlier this year. So it's not assuming her rohan pace of recovery, it's sort of assumed we're continuing on the pace we're up today.
Okay just to follow up on.
Mmk and I think historically you guys have been pretty clear that acquisition needs to be at least break even but more likely accretive to your one.
Just that ETS.
So is that still the case and would you do a deal that actually dilute your organic revenue growth. Even if it gives you a lot of your <unk> accretion.
Yes, Jeff J and answer is no we would not do that so we're very focused on our long term model that the re articulated and reaffirmed time of our partnership with thesis about a year and a half ago now so no I don't see it doing deals that.
That are diluted to the right of organic revenue brought that make any sense to push push a boulder further handle I think is invested very substantially to get our business to be 60%.
Technology enabled we're very pleased with the success of best friends you see it in their differentiated result, which are multiples better the networks last night I don't see is going backwards on that.
Well thank.
Thank you thanks.
Thanks.
Your final question comes to mind, it's antique Jeffrey with choose to charities Andrew Your line is open.
Thank you good morning, I appreciate you excuse me here.
And here.
Jeff.
Spend a lot of time talking about.
Soffer technology enabled businesses, which I think is the key differentiator I wonder if you could drill down a little bit in the hospitality, where it seems like there's a tremendous amount of.
Tech change question, whether it's delivery order head.
Q are code.
Made a couple of comments about video, including the integration of genius.
Just wondering if you could maybe.
Flesh out a little bit volume growth in in that vertical share gains for whom you are taking you share where do you think your competitive advantage it et cetera.
Yeah, I'll start Andrew and I am sure Cameron will comment as well so flipping we're very pleased with our ideal business as you reference we gave additional disclosure today about how that businesses performing we did 62 million I think online orders as well as a $1 billion a volume.
Coming out of that business. The most recent period I think Cameron commented on 30% increase in staff sales in that business and most most recent quarter or so he can give you more detailed we're very pleased that way that businesses and if you step back for a second you guys about the overall competitive competitive landscape I don't think there's anybody who's got the full stack of vertical capability that we do.
Do.
That business our pipeline day, Andrew is still with cross cells in that business. So we mentioned desperate as I mentioned long John Silver's today in previous calls we've mentioned are beyond with Hurricane Popeye's et cetera, you've mentioned any ends and then associated are focused brands. So we've got enormous pipeline that business I would say, what's changed a little bit and.
This is very good news for us and validation of our strategy is that in the last six months or so we've been getting a lot of rfps commuter folks who were never customers of ours or change in that pipeline and I can get because these people who are seeing which is we call. It the restaurant or the future of the <unk> the future, which obviously now include safer commerce.
But looking new RFP their payments business and he's your businesses that are not with us today with competitors, who are primarily Whitehall shop payments companies, they're looking RFP their payments businesses, and they're coming to us and I'm sure others, and saying can you do that while you're doing everything else that we need to <unk> level, including safer commerce and I think that go to mark without Andrew is distinctive and unique to.
US and that includes both competitive take wasting brand new brands.
26 at the top.
50 day, but we don't have all of them. So includes brand New brand also includes got Ya. Our customers have asked me just for a portion of their business. So I think that <unk> strategy is.
Really is really working and we're very fortunate to be in that position in Canada, We will talk a little bit on the sub detail sure I'll be I'll be happy to I think Brian is important to segment the market as we always do here, particularly in restaurant, maybe more than other vertical market. So it would be at the enterprise.
Described well our position with video of the success, we've seen with video I will comment obviously that disagrees with I am really opens up the avenue for cross selling payments into that channel and thank you to a site on the legacy business required a couple of years ago have no real payment volume isn't that business and by integrating in we're opening up a significant new Avenue for.
Right across though which is obviously consistent reverb market strategy as we move down market into the mid market, Canada, which we really attack through the Heartland business.
We are delighted with the success, we're seeing with our Portland restaurants solution that is geared towards what I would characterize as the restaurant mid market channel sales of that were up 26% sequentially from Q2, 20% year over year, we're continuing to see significant.
Uptake of our software as a solution.
The service solutions through the point of sale system in that channel and could not be more pleased with the progress in the mid market and then lastly in the fall into the market. We introduced our Omnichannel version of are registered product in this quarter, which we sell into the small end of the restaurant as well as small ended just a merchant based more broadly we're seeing uptake.
That being particularly good as we've been for greater online ordering capabilities into our traditional point of sale software solution for the small end of the market. So I think we had better product better capability better solutions across the spectrum of the restaurant vertical across all segments of that market and I think as a result of that we continue to win and we continue to take chair.
Even that channel.
That's helpful color and then one quick follow up on the issue of business mentioned a number of competitive.
Could you just discuss those.
Takeaways from existing vendors or.
Internal flips.
Yes, they are largely the former Andrew we did that they will be announced.
With our script. This morning, so scotiabank in Canada and in sourcing model. So that actually is conversion in sourcing outsourcing.
So that the flip for noon out, but other than that dimension prepared remarks, setting up the 11 or competitive takeaways from my existing provider and the new one with AWS in Asia is also a takeaway.
From the legacy incumbent so the vast majority are takeaways, but scotiabank would be the exception.
Great. Thank you.
Thanks very much.
We will be happy glow payments. Thank you very much for joining us this morning.
Ladies and gentlemen. This concludes today's conference call you may now disconnect.
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Canada.
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How long.
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Uh-huh.
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