Q4 2020 Global Payments Inc Earnings Call
Right.
Okay.
[music].
Ladies and gentlemen, thank you for standing by and welcome to global payments for fourth quarter and full year 2020 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, welcome to global payments.
Nice quarter for year 2020 conference call before we begin I'd like to remind you that some of the comments made by management. During today's conference call contains forward looking statements about expense.
<unk> operating and financial results.
The statements are subject to risks uncertainties and other factors, including the impact of COVID-19, and economic conditions on our future operations that could cause actual results to differ materially from our expectation for.
Risk factors inherent in our business are set forth in filings with the SEC, including our most recent 10-K and subsequent filings.
Can 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.
Some of the comments made 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 for 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 on our trended financial highlights both of which are available in the Investor Relations area of our website at Www Dot Global payments, Inc. Dot com.
Joining me on the call are Jeff Sloan CEO, Cameron Bready, President and CFO and Paul Todd Senior Executive Vice President and CFO now I'll turn the call over to Jack.
Thanks for waiting.
We delivered fourth quarter and full year results that exceeded our expectations because of our focus on technology enablement, coupled with ongoing excellence in execution.
Our fourth quarter results demonstrated continued sequential improvement.
By the impact of a more challenging macroeconomic environment.
<unk> of our markets for much of the period.
None of this would've been possible.
Without the dedication of our exceptional team members during this difficult time.
And we thank them for their commitment to our customers to each other.
And to our communities. We are very pleased to have delivered substantial margin improvement for the fourth quarter. While also setting aside funds to pay partial cash bonuses to our non executive team members.
Because of the actions we took early in the pandemic and our consistency and execution, we were able to deliver double digit earnings per share growth in the fourth quarter positioned.
Positioning us well heading into 2021.
We believe that we exited 2020 in a better position than we entered it.
We also accomplished a great deal over the last 12 months, specifically, we signed <unk> Financial Corporation, the sixth largest commercial bank in the United States.
Competitive win twice over.
We entered a new collaboration with AWS, our preferred provider of issuer cloud services to launch a unique go to market distribution strategy, coupled with transformative cloud native technologies.
Expanded and extended our partnership with cash at bank by increasing ownership of our joint venture and executing a new referral agreements through 2040.
Renewed agreements with a number of the most complex and sophisticated financial institutions globally, including TD Bank in North America, HSBC in Europe, and CIBC in Canada.
Assistant and the rapid distribution of more than $2 $5 billion in stimulus funds for our net bank customers days faster than other financial technology participants.
And announced today, a new partnership with Google to deliver innovative and seamless digital services to all manner of merchants worldwide.
Our collaboration with Google substantially advanced our merchant business by driving incremental revenue and lowering operating costs through a worldwide go to market distribution relationship and co innovation agreement focused on transformative cloud native technologies together.
Together, we will bring new best in class digital products to market on a global basis more quickly.
And we will further catalyze our culture of market leading innovation.
Cameron will provide more detail on Google in a minute.
Worth noting that in the last six months, we have struck significant and unique distribution relationships with two of the world's largest and most respected technology companies with a combined market capitalization on nearly $3 trillion.
This is a first for the payments technology industry.
And we did this in the midst of a once in a century pandemic, while delivering adjusted earnings per share growth and gaining market share.
These collaborations also are consistent with our long held distinctive strategies to drive digital penetration.
Our business is a combination of two halves distinct.
Distinctive distribution and cutting edge technologies.
And Google enhanced both parts of the equation.
Together, we will leapfrog legacy analog means of distribution and redefine how payment solutions and services are sold and consumed in the digital age for our issuing and merchant businesses. We already have reached the threshold of 60% of our business coming from technology enablement. A goal we set in March 2018 for year end too.
On 'twenty and achieved early last July.
And roughly 25% of our business is now related to our ecommerce and omni channel initiatives.
But together with AWS and Google, we expect to do more by driving further technology enablement and omni channel penetration has legs of the stool for future growth.
I cannot think of to better partners to catalyze further migration of our issuing and merchant businesses to cloud native technologies and expand our competitive moat.
These partnerships provide proof points that the momentum we have entering 2021, and we will accelerate the transformation of our businesses for years to come.
Just a reminder of the composition of the businesses driving our growth.
Starting with our merchant business, which is two thirds of our company.
Our technology enabled portfolio consists of three roughly equally sized channels.
Our omni channel partnered software and owned software and vertical markets businesses collectively represent nearly 60% of merchant adjusted net revenue.
Our relationship led businesses make up the remaining portion and continue to differentiate themselves in the markets. We serve based on the strength of our technologies.
Our omni channel businesses delivered accelerated sequential growth for the fourth quarter of 2020 again, excluding travel and entertainment.
As we said at the beginning of the pandemic, we continue to see and expect ongoing sustained share shifts towards the Omnichannel acceptance book forward three to five years by COVID-19.
We launched our unified commerce or UCP cloud Pls solution, this quarter, which connects and ecommerce software to a wireless payment terminals through our API for <unk>.
Help merchants more easily unify their in person and online payment experiences.
Our city partnership also continues to expand worldwide and we expect new city customers on UCP to include one of the leading global food companies one of the preeminent global beverage brands and one of the largest multinational auto manufacturing companies across multiple continents.
And of course with today's announcement, we also expect Google to become a UCP partner.
Additionally, we signed an agreement with Texas instruments across Taiwan, the Philippines and India.
And we expect to expand our relationship to additional geographies later this year.
We also reached an agreement with Wolverine to consolidate our UK and European acquiring.
<unk> 32 countries.
And we have now successfully launched with both Uber rides in Uber eats and our Asia Pacific region.
Moving to global payments integrated which drives another nearly 20% of our merchant adjusted net revenue with.
We generated growth for the fourth quarter and for the full year because of the unrivaled breadth of our partnership portfolio in the most attractive vertical markets.
The strength of our combined integrated offerings allowed us to exceed our budgeted new sales forecast for calendar 2020, with new partner production, increasing 171% versus 2019.
Our own software businesses represent the remaining roughly 20% of our merchant adjusted net revenue.
And our leading SaaS solutions in healthcare higher education, and quick service restaurants for <unk> have been more resilient in the current environment.
To that end our advanced on the business delivered a record performance in 2020, achieving double digit revenue and bookings growth.
And our higher education business produced one of its finest years to date.
Lastly, our enterprise <unk> business continued its success with genius cloud, Pos and omni solutions, enabling over $100 million transactions and one $5 billion in sales for the year.
In addition to serving 26 of the top 50 <unk> brands. We're also pleased to announce the signing of Denny's for cloud based SaaS solutions, extending our addressable market to the fast casual category.
Today, we lead with technology and innovative solutions across all of our merchant businesses.
This includes our relationship led channels, where we continue to see strong new sales performance fuel for our suite of differentiated products and solutions. For example, our U S business is seeing significant uptake of SaaS point of sales solutions with adjusted net revenue on new sales, both exceeding 20% growth in 2020.
One recent notable win is with the Milwaukee Bucks, where we'll be deploying our cloud based <unk> solution across merchandize stores and outlets in the arena.
Issuers, the next largest segment of our business.
In August 2020, we announced the transformational go to market collaboration with AWS to providing industry, leading cloud based issuer processing platform for our customers regardless of size location or processing preference.
We currently have one LOI on three other mid to late stage opportunities together with AWS that we are actively working.
And we now believe that the win in Asia in a single large market from a legacy competitor and we have already secured with AWS will likely expand in several markets across Asia over time.
We continue to 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 six of which are competitive takeaways.
In the last 18 months, we've had 36 competitive wins across North America and international markets.
And our customers continue to win in the marketplace, a key element of our issuer strategy to align with market leaders.
During the first quarter of 2021, we will complete the first phase of the conversion of over 4 million accounts for my competitor for one of our largest customers.
In Germany, we have successfully expanded our longstanding and successful partnership with Deutsche Bank, our largest client in the Das region. We.
We are pleased to announce that thesis has been selected and are competitive processes Deutsche Bank partner of choice for their scheme branded card portfolios across all brands, including Deutsche Bank and Postbank.
We are also proud to have signed a new multiyear agreement with more or less funding on.
Nor the operator of the debt AG lending platform.
For the processing of the new consumer credit card product, which will launch in the second quarter of this year.
We are pleased to have secured long term extensions in multiple geographies with President's choice, a subsidiary of <unk> and Canadian tire financial services, both large retailers in Canada.
<unk> Bank in Central America Bank of Ireland, and Bank of Index in Mexico.
Finally, our business and consumer segment delivered another quarter of solid growth as we continue to pivot our strategic focus to Digitization international expansion and business to business opportunities.
That shift is underway without any compromise on execution as we also achieved adjusted net revenue in excess of $200 million for the first time in the fourth quarter.
The move towards cashless solutions is benefiting the portfolio with customers remain active longer and utilizing our products more online.
I am proud that net spend is once again facilitated the rapid distribution stimulus funds to customers and play an important role during this most challenging period.
Since late December we have processed more than 1 billion deposits accounting for just over $1 billion on stimulus payments to American consumers dispersed by the IRS.
And this was done days in advance of many of our traditional financial institutions and financial technology peers.
In combination with the 2020 stimulus payments, we will have disbursed more than $2 5 billion eight to customers through the first quarter of 2021.
I think it's fair to ask how our business has been able to deliver results that are orders of magnitude better and our markets.
Our strategic focus on the diversity of our business mix has enabled us to gain share.
We are diverse across channels geographies software ownership and partnership vertical markets and new and durable partnerships.
We are diverse by design.
We've coupled that diversity with a long track record of execution consistency gears, a sustained technology investment and the unmatched global experience of our long tenured team.
Now I'll turn the call over to Cameron to provide more detail on our new partnership with Google Cameron.
Thanks, Jeff.
We are delighted to announce today, our new multi year strategic partnership with Google debt, we expect will meaningfully enhance our ability to deliver new innovative cloud based products and capabilities advanced our technology enabled distribution strategy and delivered significant operational efficiencies, while improving speed to market and the scalability of our merchant solutions business.
This exciting partnership has a number of assets that collectively serve to further distinguish our digital capabilities worldwide.
First together, we will collaborate on product development and innovation to enhance and differentiate the suite of cloud based solutions available to our merchant customers.
<unk> solutions will create stickier and longer term customer relationships building on our competitive advantages.
As just one example of the types of enhanced capabilities, we will offer together google's business services, including Google My business workspace and ads will be integrated with global payments, leading value added software and payments ecosystem, creating a single destination and seamless digital experience for the full spectrum of solutions that merchant.
Need to run and grow their businesses globally.
Merchant customers will be able to digitally accessed the industry's most robust value stack of SaaS offerings, including point of sale omni channel ordering in integrated payments.
Advertising data analytics email marketing online presence and reputation management and loyalty and gift card solutions as.
As well as capitalized and payroll and human capital management solutions.
These products will be delivered through global payments cloud native operating environment, driving better customer engagement and ease of use.
Second our joint go to market efforts will drive significant referral and new customer acquisition opportunities for businesses of all sizes across our combined customer bases worldwide on an omni channel basis.
Specifically, Google Workspace serves as the cloud native operating backbone for small and medium size businesses as well as many of the most sophisticated enterprise organizations globally.
Global payments provides payments technology solutions to roughly $3 5 million merchant locations. In addition to some of the most complex multinational corporations across 60 countries.
By leveraging our complementary customer bases, we will create attractive cross selling opportunities for our digital solutions and meaningfully expand our addressable market.
Further together, we will be able to connect consumers with merchants by a surge in new and innovative ways driving commerce and growth in a differentiated way for our customers.
And of course, our ability to secure net new customers will be significantly enhanced through the strength of this partnership with Google.
Third global payments is pleased to be selected as the preferred payments provider for Google.
Good day, Google executed approximately 3 billion transactions annually and global payments is well positioned to meet the complex payment needs of one of the world's largest and most sophisticated technology companies by leveraging our unified commerce platform.
We are humbled by the confidence our partners at Google have placed on us.
Lastly, in addition to our commercial partnership Google will become our preferred cloud provider for our merchant payments technology.
Over the next several years, we will migrate the vast majority of our merchant technology workloads to Google cloud significantly, reducing our data center footprint and streamlining our operating environment to enhance performance and drive meaningful cost efficiencies.
By moving our acquiring applications and workloads to the Google Cloud, we will maintain the highest level of scalability reliability and security, while increasing our speed of innovation and ability to seamlessly deploy products and services on demand anywhere in the world.
We are thrilled to have established this partnership with Google together, we're on a transformational journey that will further enhance our industry, leading merchant solutions ecosystem with additional scale reach and speed to market to seamlessly deliver new innovative digital technologies to customers worldwide.
With that I'll turn the call over to Paul.
Thanks, Cameron our performance in the fourth quarter and for the full year 2020 exceeded our post COVID-19 expectation and highlights our outstanding execution and the resiliency of our business model for.
For the full year, we delivered adjusted net revenue of $6 75 billion down 5% compared to 2019 on a combined basis.
Fortunately, our adjusted operating margin increased 210 basis points on a combined basis to 39, 7% as we benefited from the broad expense actions, we implemented to address the impact of the pandemic and the realization of cost synergies related to the merger, which continue to track ahead of plan.
It is worth highlighting that our full year adjusted operating margin performance was largely consistent with the guidance. We gave at the start for 2020 and prior to the pandemic.
The net result was adjusted earnings per share of $6 40.
An increase of 3% over 2019.
We are extremely pleased that we were able to grow our bottom line in 2020 enabled by continued execution on our differentiated strategy and our unwavering focus on all things within our control. Despite the impact of COVID-19 on the worldwide economy.
Moving to the fourth quarter adjusted net revenue was $1 75 billion, a 3% decline relative to 2019 as underlying trends in our business continued to recover from third quarter levels. Adjusted operating margin was 41, 5% a 320 basis point improvement from the fourth quarter of 2019.
Adjusted earnings per share was $1 80 for the quarter, an increase of 11% compared to the prior year period, an impressive outcome that highlights the durability of our model and momentum we have heading into 2021.
Taking a closer look at our performance by segment merchant solutions achieved adjusted net revenue of $1 1 billion for the fourth quarter, a 4% decline for the prior year, which marked a 200 basis point improvement from the third quarter.
Notably we delivered net adjusted operating margin of 47, 5% in this segment an increase of 250 basis points from 2019, as our cost initiatives expense synergies and the underlying strength of our business mix more than offset topline headwinds from the macro environment.
Our technology enabled portfolio continues to proved relatively resilient with several of our businesses delivering year over year growth again this quarter.
Specifically worldwide Omni channel volume growth, excluding <unk> accelerated for the high team as our value proposition, including our unified commerce platform or UCP continues to resonate with customers addressed.
Additionally, global payments integrated delivered adjusted net revenue growth for a second consecutive quarter.
The leading scale and scope of our integrated ecosystem across more vertical markets and more geographies than our peers also enabled another record year for new partner production.
As for our own software portfolio advanced MD remained a bright spot and once again produced strong double digit adjusted net revenue growth for the quarter and achieved a record bookings year in 2020.
Indeed booking trends across our vertical markets portfolio remains solid providing us with a positive tailwind heading into 2021.
We are also pleased that our U S relationship led business saw adjusted net revenue return to slight growth for the fourth quarter enabled by the innovative technology and software solutions, we are delivering in this channel.
And despite a more challenging macroeconomic environment in several of our international markets. This period demand for our differentiated capabilities outside of the U S remains strong as our solutions are well aligned with shifting customer need coming out of the pandemic.
Moving to issuer solutions, we delivered $457 million and adjusted net revenue for the fourth quarter, which was essentially flat to the prior year period.
Transaction volumes recovered further while traditional accounts on file continues to grow setting a new record.
Additionally, our bundled pricing model, including value added products and services also benefited performance.
Excluding our commercial card business, which represents approximately 20% of our issuer portfolio and is being impacted by the slow recovery on corporate travel. This segment delivered low single digit growth for the quarter.
Notably this business achieved record adjusted operating income and adjusted segment operating margin expanded 450 basis points from the prior year also reaching a new record of 44, 7% as we continue to benefit from our efforts to drive efficiencies in the business.
Jeff highlighted our issuer team successfully signed five long term contract extension and one new contract in the quarter.
Finally, our business and consumer solutions segment delivered adjusted net revenue of 205 million a record fourth quarter result, representing growth of 3% from the prior year.
Gross dollar volume increased more than 5% for the quarter on <unk>.
Result, including the little impact from the late December incremental stimulus, which we expect to primarily benefit us in Q1.
We are particularly pleased with trends with our DDA products, which includes an acceleration in active account growth of 29% compared to the prior year.
Adjusted operating margin for this segment improved 260 basis points to 24, 1% as we benefited from our efforts to drive greater operational efficiencies as well as favorable revenue mix dynamics toward higher margin channels.
The solid performance, we delivered across our segment highlights the powerful combination of global payments and pieces, which has provided us with multiple levers to mitigate the headwinds we have faced on the pandemic.
We made great progress on our integration during the crisis, which I mentioned continues to track ahead of plan.
As a result, we are pleased to again raise our estimate for annual run rate expense synergies from the merger to at least $400 million within three years up from the previous estimate of 375 million.
This marks the fourth time, we have increased our cost synergy expectations Adil.
Additionally, our early success in leveraging our complementary products and capabilities worldwide also gives us the confidence to increase our expectation for annual run rate synergies again to 150 billion up from our previous forecast of $125 million.
From a cash flow standpoint, we generated adjusted free cash flow of roughly 780 million for the quarter and approximately $2 billion for the year. These are both records for us.
This is after reinvesting $107 million of Capex for the quarter and $436 million for the year.
As you May recall, we indicated we expected to invest between $400 million and $500 million of Capex back into the business. Following the onset of the pandemic.
Consistent with our announcement on our last call. We are also pleased to have now returned to our traditional capital allocation priorities and during the quarter repurchased $1 2 million of our shares for approximately $230 million or.
Our balance sheet is extremely healthy and we ended 2020 with roughly 3 billion of liquidity and a leverage position of roughly two six times on a net debt basis.
Further our board of Directors has again approved an increase to our share repurchase authorization to $1 5 billion as part of this program, we intend to execute on accelerated share repurchase program for 500 million in the coming days.
Turning to our outlook for 2021 based on our current expectations for continued recovery from the COVID-19 pandemic worldwide. We expect adjusted net revenue to range from seven 5 billion to $7 6 billion, reflecting growth of 11% to 13% over 2020.
This outlook is consistent with the high end of our long term target of high single digit to low double digit growth and it is also reflects the benefit of the year on year comparisons due to the pandemic.
Considering this topline forecast, we would expect to deliver normalized adjusted operating margin expansion of up to 450 basis points, given the natural operating leverage in our business and expense synergy actions related to the <unk> merger.
However, this will be partially offset by the reinstatement of certain expenses that were temporarily reduced at the onset of the COVID-19 pandemic for most of 2020.
Therefore, we are currently forecasting adjusted operating margin expansion of up to 250 basis points compared to 2020 levels on a net basis.
To provide some color at the segment level, we expect adjusted net revenue growth for our merchant solutions segment to be in the mid to high teens, which assumes the current pace of recovery continued worldwide.
We expect underlying trends in our issuing business to be in the mid to high single digit growth range and above our mid single digit growth target.
But these trends should be normalized for two distinct relatively equal size headwinds.
First we are not anticipating a recovery in our commercial card business as we expect corporate travel to remain depressed throughout 2021.
We will be absorbing the impact of a portfolio sale by one of our customers, which will impact us for the remainder of the year.
Taking these two items into account we are forecasting our issuing business to deliver adjusted net revenue growth on the low single digit range for the full year.
Lastly, we expect underlying trends in our business and consumer segment to be consistent with our long term expectations of mid to high single digit growth.
This outlook reflects the expected benefits of the recent stimulus announced at the end of December but it does not assume any additional stimulus.
Adjusting for the impact of the larger 2020 cares Act stimulus on comparative results for 2021, we are forecasting adjusted net revenue growth to be in the mid single digits for this segment.
Regarding the segment margins, we expect up to 250 basis points of adjusted operating margin improvement for the total company to be driven largely by merchant solutions, while we expect issuer and business consumer to deliver normalized margin expansion consistent with the underlying leverage profile of these businesses.
This follows a 500 400 basis points of adjusted operating margin expansion delivered by issuer and business and consumer respectively in 2020.
Lastly, I would highlight debt from a quarterly phasing perspective, we will not lap the initial impact of the pandemic until mid March.
Therefore, we will have pandemic affected first quarter comparisons, resulting in more muted growth characteristics early in 2021 with the opposite effect occurring in the second quarter before returning to more normalized rates of growth in the back half of the year.
Our outlook is for adjusted net revenue growth adjusted operating margin expansion and adjusted earnings per share growth for each quarter of 2021.
Moving to a couple of non operating items. We currently expect net interest expense to be slightly lower in 2021 relative to 2020, while we anticipate our adjusted effective tax rate to be relatively consistent with last year and expect our capital expenditures for 2021 to be in the 500 to 600 billion range.
Putting it all together, we expect adjusted earnings per share for the full year in a range of $7 75.
For $8 five.
Reflecting growth of 21% to 26% over 2020.
This is consistent with the adjusted earnings per share target of roughly $8 that we provided on our third quarter call. Despite the incremental adverse impact of additional lockdowns and social distancing protocols in a number of our markets since late October.
In summary, our 2021 guidance assumes an improving economy for the first half of the year and a stronger second half of the year with continued progress toward normalization. We are pleased with how well we're positioned as we enter 2021.
And with that I'll turn the call back over to Jeff.
Thanks, Paul.
I am very proud of all that we accomplished in 2020.
This would have been a remarkable year of milestones regardless of the macroeconomic environment.
But it's all the more notable in the face of a 100 year pandemic.
Competitively 2020 was a year of firing on all cylinders for our company.
Across our businesses, we took meaningful market share and advance the ball down the field. Despite all the challenges trying on us we don't need to wait to see a more benign macro to grow.
We didn't spend the past year waiting for a better day on.
Our resilience is self evident.
The technology investments, we made over the last seven plus years margin.
Distinctive strategy and execution consistency has served us well and we significantly expanded our competitive mode. As a result during the crisis, while hurdles undoubtedly remain we will not trade positions with anyone heading into 2021.
Winnie.
Before we begin our question and answer session I would like to ask everyone to limit. Your question for one with one follow up to accommodate everyone in the queue.
Operator, we will now go to questions.
Thank you at this time I would like to remind everyone in order to ask a question for Star then the number one on your telephone keypad.
The first question comes from Bryan Keane with Deutsche Bank. Your line is open.
Hi, guys. Good morning wanted to ask about the Google relationship does it does it change the pricing to the merchant at all do they see different fees as a result of the partnership or do they get a lot of these benefits as part of the package.
Hey, Bryan its Cameron good morning, I'll start with that and then ask Jeff for Paul to jump in if they'd like to so basically what we're really trying to do is create a an even more differentiated portal offering to our customer base by enhancing our existing value added services with Google product and capabilities that exist in the market today.
And then further as we co develop and innovate new product with Google will obviously look to layer those into the broader environment as well the nice thing about for environment, It's completely self select our customers can choose what products and solutions that they need to run and grow their business and there'll be able to effectively determine the pricing outcome. The day desire based.
On their need for our products and services. So like anything else, we do there'll be different levels of availability to customers from lower end very basic to mid market to hire and complete sets, but will have different price points associated with them, but end of the day. The idea is our customers have the opportunity to self select the products services.
Ladies and solutions, they need to run and grow their businesses more effectively and by working with Google, We expect to be able to innovate new products and capabilities that will be distinctive in the marketplace for them.
Got it helpful and then as a follow up I just wanted to ask on the merchant side I think you talked about mid to high teens growth.
Can you give us any help kind of by segment.
Thinking about relationship software, obviously that probably recover stronger and integrated just buy the pieces, maybe what those growth rates might look like to get to that mid to high teens growth.
Yes, sure Bryan its Cameron, maybe I'll start with just a little commentary about the expectations for the business and I'll, let I'll, let Paul jump in with a few more of the details. So I would say if you look at the business overall, given that North America represents about 70% of the merchant business globally. Obviously, it is going to drive the lion's share of it.
The outcome for the entire segment for the full year and I would say our.
Looking for pretty good recoveries, obviously in the payments and payroll business as well as the integrated business in the U S. So I would say both of those would be towards the higher end of that targeted expectation that we have for the merchant business in aggregate and as.
On the vertical markets that we participate in continue to recover as well, we would expect our vertical market business to be towards the higher end of that range also.
Given obviously the impacts on 2020 for that business as well as strong new sales performance that we saw in 2020, giving us good momentum heading into 2021 as we start lapping impacts of the pandemic I think Europe, our expectations, a little more modest they're probably in that kind of mid teens range, just given some of the incremental impact.
It's a new shutdowns and restrictions in the first part of the year in Europe, and maybe just a slightly more benign expectation around the recovery environment in Europe, particularly as it relates to cross border throughout the course of 2021, and then I would say Asia.
Covered reasonably well heading into the year and I think we have pretty good expectations at Asia gets back to early strong growth rate in the year towards again, the high end of that guidance range overall for for 2021. So I think when you put it all together we feel good about the mix.
Our businesses, we have on the overall expectation for mid to high teens growth for the full year I would tell you Brian that basically assumes kind of an ongoing gradual recovery from where we are today. We've seen results in January that are better than December and we expect the recovery to continue to grind higher through the balance of the year such that by the time, we're exiting 'twenty one.
We expect domestic volumes to be more normalized.
Obviously, we think cross border is going to continue to lag slightly kind of heading into 2022, and that's consistent with the commercial card commentary that Paul provided in script. So we're not expecting a heroic recovery as we think about the outlook for 2021, we expect a gradual recovery kind of throughout the year. We know it won't be linear there'll be puts and takes as we continue to progress through.
The year, but by and large expected continued gradual recovery and Thats really what supports the overall merchant expectation for the year, Paul I don't know if you'd add anything to that yes. The only thing I would add I think you covered it would just be the quarterly phasing of that Brian on kind of referenced that in the script, but obviously in the first quarter, we have really a pre pandemic affected comparison that kind of lens.
Sort of more muted growth there in the second quarter is just the opposite those two kind of blend out to that mid to high rate that we're talking about and then the last half of the year is pretty consistent with that mid to high rates. So I think debt.
That could give for little more color on the quarterly pacing, yes on the only other thing I would add to that Brian is we don't need on a road recovery or perfection youre going to get to the higher end of the range. So obviously, there's a lot of uncertainty heading into the year and I think our guidance accommodate that but we don't need perfection in some sort of heroic recovery, where everything is coming back.
The normal by mid year for us to get to the higher end of the range that we've put forward today.
Got it very helpful comments, Thanks, Scott.
Thanks, Brian.
Your next question comes from Timothy <unk> of Credit Suisse. Your line is open.
Sure.
Thanks, a lot for taking the question. So you mentioned this in the Google Press release, and then also Cameron in the prepared remarks around the distribution not just payments acceptance, but also loyalty gift card payroll capital access as I mentioned and other financial services, maybe you could talk a little bit more broadly about not only the opportunity within the Google <unk>.
<unk>, but also how much runway there might be for embedding these offerings with your 4000 other software.
Platforms and partners within the global integrated global.
Payments integrated business.
Yes, it's a really good question. So there's really two elements of that Theres. One obviously the coastal relationship that we'll have with Google as it relates to our go to market strategies going forward, and obviously being able to work with Google cloud co sell solutions with them, having them or a business into us from a payments standpoint creates a strong new technology enabled distribution.
<unk>.
Stream that really I think augment and complement our existing go to market strategies very nicely. So we're delighted about that and think there's a lot that we can do together with Google to drive new revenue growth in the business through this cross sell relationship and then reflecting back a little bit on the comment that I made to Bryan's question. If you think about the.
Business. These solutions will be delivered through our cloud based digital portal that is in operation today and running in Google about today. So the idea is as we continue to integrate new products and solutions and services into our digital portal there'll be available to our entire merchant base, regardless of what distribution and channel that merchant customer comes to us.
So since it's all consolidated on the backend those merchant customers will have the ability to access all of those value added solutions and capabilities, whether or not there are traditional relationship led customer coming through us through that channel or they're on integrated customer coming through us through a through an <unk> relationship and we think thats unique and distinctive to glow.
<unk> payments, our ability to integrate those solutions and make them available through a digital portal for the entire suite of customers that we serve around the globe.
Yeah.
Thank you for one thank you.
Your next question comes from Ashwin <unk>.
<unk> of Citi. Your line is open.
Thank you.
Performance Paul.
You guys have been quite busy investments and announcements to absorb here.
Let's see.
Okay I guess.
One question I had obviously heading into 'twenty, one sort of moving parts for Q.
Hi, good asked on on the prepay.
Prepared remarks.
If you don't mind could you kind of in one place kind of go through the cadence of how you expect overall segment revenue and profit.
Pro forma on the course of the year by segment, particularly.
Thinking thinking of.
Comps synergy unwind upwardly pandemic cost thanks.
Things like that.
Sure Ashwin.
We kind of hit on it a little bit on the merchant side.
In the earlier question around kind of that aging and at that same kind of concept kind of plays through to a large degree with other segments, particularly as it relates to the pre pandemic comp in <unk> and then the pandemic.
Going the other way in the second quarter, and then kind of more normalized.
In the back half of the year. So clearly that's the case and merchant in that mid to high teens growth rate as I said kind of averages out between the first two quarters with those two impacts and then.
Pretty consistent for the back three quarters.
On the issuing side as we said.
From an organic standpoint, we start kind of that mid to high growth rate.
And then we're going to actually look to be at more of a low single digit as reported matter I. The only thing I would highlight there is we did not assume commercial card.
Recovering throughout the year. So that's a headwind that plays itself out throughout the whole year I would say we also have some in addition to just the pre pandemic costs. We also have some headwind as it relates to just credit transaction volumes in the issuing business year.
Year over year, as we're seeing consistent with what the beat the numbers that they talked about for January and as Cameron mentioned earlier, we did see improvement from January to December, but we still have some headwind on the transaction volume side and issuing that will play itself through the first quarter.
And then on the business and consumer side, we kind of talked about it we've got some tailwind as it relates to stimulus in the first quarter, and then kind of more normalized kind of that mid single digit growth rates that we've talked about for the remaining three quarters as it relates to expenses and margin there isn't anything necessarily on the expense side, obviously, we've done a really good job on <unk>.
Last two quarters of managing debt expense rate through a pretty consistent year over year growth rate of roughly about 8% and there is nothing I would necessarily highlight other than the variable expenses that come with that revenue that I would call out on.
On the expense side. So obviously, we're very pleased to be in a position to tell yet again had a very impressive margin expansion as a consolidated matter. We did as we said in our prepared remarks have a much higher weighting of that margin expansion on the merchant side than we did this last year, but we still expect to have nice margin expansion.
And both issuing and business and consumer and there wouldn't be necessarily anything on a quarterly basis on the call out there.
Got it and then capital allocation is good to see the incremental.
Buyback.
Announcements.
I mean can you speak to the M&A pipeline, though from a capital allocation perspective traditional view on making accretive acquisitions, maybe Keith can say, what if acquisitions that Mike.
Revenue growth, a little bit more but not be accretive to the bottom line.
Ashwin its Jeff ill start on your on your question. So the answer is no. Our view has not changed on capital allocation, our M&A pipeline.
As for.
Usually point out we did almost 780 million on free cash flow just in the fourth quarter 2020 and over $2 billion during the course of 'twenty.
Pandemic caused depression, so we feel pretty good about our ability to generate.
Free cash flow. So I would say nothing has changed there we are looking for revenue growth on.
<unk> on our side for US we've got plenty of earnings and obviously shown on our Delhi to grow margin.
Substantially even in difficult macro economic environment in 'twenty and Thats, obviously, our outlook for 'twenty, one too. So I don't think any of that change. These things aren't mutually exclusive we got plenty of firepower of two six times net leverage and 2 billion for free cash flow from last year to continue to make concurrent investments in our sales, which we think is a good idea.
To do right now just like we thought it was in October on our third quarter call. We've got the flexibility thankfully and the wherewithal to do both of those things and that's what we'll continue doing.
Thank you good job.
Thank you.
Your next question comes from Darrin Peller of Wolfe Research Your line is open.
Hey, Thanks, guys I wanted to go back just to follow up on the capital allocation for a minute. We ended the year last year, some headlines over consolidation, but that plays in the day as you guys.
It was obviously at the time of rumors.
But Jeff if you could just revisit for us your vision of the industry for a bit in terms of the merits of consolidations.
Scale versus your view of what Youre, clearly doing now which is investing for yourselves around.
The channel and.
Cloud and other initiatives I would love to just hear your view on long term next few years, where you see the industry I think.
Thanks, Erinn, it's Jeff So look we're in a scale business I think thats always been true that continues to be true today, that's going to be true tomorrow. So having more scale on a scale business is always a good idea I think we've shown on this with Heartland I think we've shown it with Tcf pieces partnership. So I don't think adding scale in the technology business is really ever going to go out of favor.
I think the puts into put anything you saw that in 2020 like double digit earnings growth in the fourth quarter coming out of the depression, while the net which are shrinking I don't think thats a little further than that realized that was a good idea. So I think on the other day those type of scale economies worldwide further consolidation, but it's not just consolidation for consolidation sake I think the reasons.
In part that we look for further scale opportunities to make more investments back back in our businesses. If you look at the areas that are growing most quickly for us during the pandemic book in our omni channel business, which accelerated again.
For the high teens in the fourth quarter of 'twenty, which finally google's going on too on our UCP product look at our integrated business, which showed absolute growth.
In the fourth quarter and for the year those are businesses and of course on our software businesses average debt is now on certain of their vertical markets like.
Advanced Indeed, those are all businesses, we mean it made very substantial investments in over the last number of a number of years, we couldnt make those investments worldwide as we're doing if we didn't have the scale.
In the first place so listen my own view on the in the business as we need to continue to invest in those.
Areas that we think are right for a future for future growth, we never could have pivoted. This quickly to omni channel to safer commerce. If we hadn't had those on the product development board in the first place and if it didn't have the access to capital that we do from around free cash flow to continue to make those investments. So on those context, obviously additional scale.
It makes sense, but very similar to debt response, Derrick that's a very similar question on Ashland at the end of the day, none of that changes the strategy really net we've been running the company with over the last seven plus years, which is to say focus on the free firms at the end of the day.
Software partnership and ownership on on.
On the channel acceptance and delivery on on the <unk>.
Most attractive.
Market. So the nice thing about 2020 with all the challenges of food every one of us.
Was that it really validate all things on the talking about if we can find if we can find future transactions or partnerships.
That align with the three things that we've been talking announces 2013 and of course scale on a scale business is going to be.
Good idea. So I think we do 20 and the more recent events as it related to validation of all stuff that we've been <unk>.
Looking back on if we can find further ways to accelerate those investments and be well.
That's helpful. Just one quick follow up Jeff as you guys outperformed our merchant business in the quarter and I mean, it's pretty clear that it's a tough quarter for merchant standpoint for revenue to really read aloud to what's happening in index.
Alright.
If you can give us any more color on the actual bookings kind of trends in the sense of the number of merchant theoretically it seems like with all the initiatives you are holding up and youre actually gaining share, but it's easier to see that agree on numbers around merchant bookings. So any more color on what happened. There. So we know what could look like when it reopens. Thanks for that yes, yes.
Yeah, Hey, Darrin, it's Cameron.
Maybe I'll jump in on that one on I'll ask Jeff for call to chime in as well if they'd like to add anything so maybe if I just step back and look at it from a macro standpoint in terms of overall net new sales performance for the year.
I think it's pretty easy to say that we are delighted with the outcome, particularly given the backdrop that we were executing again for the full year. So just a few highlights that I would share one.
Heartland for the year had new sales growth year over year relative to 2019, despite the pandemic, which I think speaks volumes to our relationship led manager's ability to go out and generate new business EBIT in a really difficult environment, and obviously, they've been very creative and nimble in terms of how they've been able to do that so hartley.
<unk> grew net sales in 2020, notwithstanding the pandemic environment.
Integrated exceeded our budgeted new sales forecast for the year.
By a pretty meaningful amount and excellent new sales year for our integrated business New partner production was also about 140% of our budget so on.
Not only did we see good strong new sales of merchant we saw good new business development partner production in that channel as well and then in some of the vertical market businesses advanced MD grew bookings, 15% year over year, our <unk> SaaS solution was up 20% year over year cuts net had new sales performance it was pretty consistent with 19.
<unk>.
Notwithstanding the fact that many university on campuses were closed for much of the year with the beginning of the pandemic. So that just gives you a few ideas, Canada was up 20% in new sales year over year. So from a new sales execution standpoint, I think our performance was exemplary in 2020, and I'm really delighted with the teams and what they were able to accomplish given the <unk>.
<unk>.
I think the most important thing and we grew net net count globally in 2020, so notwithstanding all of the concerns around the SMB markets on all the concerned about small business failure, we grew mid count year over year.
Which is a good accomplishment in any market in any environment that are particularly good outcome.
In 2020, given the backdrop. So we feel very good about the health of the underlying portfolios that we're managing we feel very good about the diversification of the businesses that we have the vertical markets exposures we have to.
To Jeff's point in his script, we are diverse by design, obviously, we put a lot of effort into making sure that we have a merchant business in particular that has a good mix of credit exposure.
That is not taking undue credit risk is well diversified across geographies verticals types of underlying merchant customers and.
I think that has helped us to have a more relatively more resilient sort of performance over the course of 2020 and I think we exited the year at a pretty good place and have a lot of confidence heading into 2021 that the expectations. We've set for today are achievable and we feel good about delivering against those as I said earlier January.
<unk> was better than December for us in our merchant business and very much consistent with our expectation that gives us confidence at least one month into the year that we have for on a good trajectory to get to the outcomes.
We have provided today.
That's great. Thanks, Cameron is a great data points.
Thanks Darren.
Your next question comes from Lisa Ellis of Marcellus Nathan Your line is open.
Hi, good morning, Thanks for taking my question.
Alright can you.
Just take a step back I wanted to follow up question on the on the Google partnership and just in light of the Amazon partnership also from from earlier. This year can you just.
Maybe you gave it a high level compare and contrast, the two a little bit I know, obviously, Google has focused on merchant Amazon focused on issue where in debt.
More strategically I guess, what do you how do you see those impacting your business in 2021 2022 and beyond thank you.
Yes, Lisa it's Jeff I'll start on share camera land, it's an excellent question so on.
Both businesses, both <unk> and global payments on have had historical relationships.
With each of Amazon and Google for many years. So I think we've had a firm.
First for IC as to what goes on our company.
Companies look like we've won respect.
For free so when I start with.
<unk> folks have worked with them for for a number of years as part of their modernization initiatives have been very very happy with them. I think you have to realize that it's a slightly different proposition net undertaking an issuer versus versus merchant. So on the issuer side its technology modernization and transformation really at the same.
Time, which is to say that COVID-19 is going for more of a legacy code into cloud enabled naval we're probably is today and then into cloud native ultimately, while being lifted and shifted over to a cloud.
Posted in.
Environment. So in the case of the goodwill however on the merchant side, we're really already there are businesses are really.
Cloud enabled day or cloud data already in there in their own right. So the global proposition is a little bit different and technology side, it's more of a shift rather than a lift and shifts in the case of.
The merchant business I would say in the case of each the go to market proposition that is very similar we think AWS has a very distinctive and strong proposition among financial institution issuers. You can look up a lot of folks that they've announced recently going to AWS cloud that we've had as we said in on.
Our prepared remarks, Lisa very good experience already.
With one announced win and I think three to four we said already mid to high probabilities and the pipeline and probably another four or five that are lower primarily but also on the pipeline on the co sell with on AWS in the issuer.
Issuer environment. So we view the AWS and I think it's been proven so far in our experienced the day as having fantastic technologies, which we use for a long time, but also having terrific distribution into the <unk>.
By segment Google of course has very many of the same things that we view the Google Hotel on more on the merchant side here, which is like Cameron was talking about to really theres. Two pieces. There that are also unique so in the case of an AWS.
He co sell in a file and indicates that Google is a unique co sell into merchant land and on the merchant side. It's really two pieces as Cameron has articulated the Google. The first one really is embedding their products and services uniquely into our already like merchant portal, which by the way is already resident for global payments has been for years in the Google cloud.
Already right. So we already have that we're just letting their products into our merchant cloud environment more seamlessly and then the second piece similar AWS as a co sale, meaning there was actual quota at the Google level for Google on sales reps to sell our products and services into the into the Google base and we also have that ability of selling to both products.
On services into our portal like environment, which Cameron described some time ago very similar to what we're doing at AWS re David says quota on their sales reps are selling on the five day. So while I would say that they're very similar in the sense of contracts for a bit different.
When you think about where their targeted issuer versus merchant and when you think about on.
On the nature of the lift and shift that's really going on in the case of the AWS side and the Google side is more of a shift.
And Lisa its Cameron I would just add a couple of things on on that particularly as it relates to the Google partnership just building on Jeff's commentary. So first of all as Jeff noted, we have a very long history with Google We know them in the merchant business extraordinarily well they've been a terrific partner to us and we expect them to be obviously, a fantastic partner going forward I think what struck me.
As we thought about the opportunity is just the shared vision that we both have as it relates to helping merchant customers to a couple of things one is drive top of funnel opportunities for their business with new product and capability and innovation, particularly digitally that will help do that for our merchant customers, particularly in an environment, where they need us now more than ever and then.
Secondly, delivering products and capabilities that help businesses run more efficiently and more effectively and I think we have Google payments excuse me at global payments and what Google has tried to accomplish are really geared towards those elements are supporting merchant customers and then lastly, we have very shared visions around innovation and those things that we can do again.
They're going to help drive more customers through our customers' businesses, while at the same time again, helping them to run their businesses more effectively and although we are starting with Google My business workspace on ads integrating that into our auto environment, We hope that omni channel ordering in search service appointment availability inventory of those types of solutions as well again trying to <unk>.
Create a more distinctive holistic offering of value added services through our digital portal that we think will be again differentiated in the market for global payments, but more importantly will really help our customers again to run and grow their businesses effectively.
Super helpful. Okay, great color. Thank you.
While they have for global payments. Thanks for your interest in us and joining us this morning.
This concludes today's conference call. Thank you for your participation you may now disconnect.
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