Q2 2021 Global Payments Inc Earnings Call
So coming from.
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Ladies and gentlemen, thank you for standing by and welcome to the global payments second quarter 2021 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 the call. Please press Star then zero and as a reminder, today's conference will be recorded.
At this time I would like to turn the conference over to your host Senior Vice President Investor Relations Winnie Smith. Please go ahead.
Good morning, and welcome to global payments second quarter 2021 conference call.
Where we begin.
To remind you that I'm on the comments made by management during todays conference call contains forward looking statements about expected operating and financial results. These 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 risk.
Could differ materially from our expectations.
Risk factors inherent in our business are set forth in filings with the SEC, including our most recent 10-K and subsequent filings we caution you not to place undue reliance on these statements forward looking statements. During this call speak only as of the date of this call and we undertake no obligation to update that came on.
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 to the most comparable GAAP measure in accordance with SEC regulations. Please see our press release.
Furnished as an exhibit to our 8-K filed this morning, and our trended financial highlights both of which are available on the Investor Relations area of our website at www Dot global payments stock comp.
Joining me on the call are Jeff Sloan CEO, Cameron Bready, President and COO and Paul Todd Senior Executive Vice President and CFO now I'll turn the call over to Jeff.
Thanks Wendy.
We delivered a terrific second quarter with each of adjusted net revenue adjusted operating margin and adjusted earnings per share outperforming our targets. We are most pleased by the compounded rate of growth that we realized in the quarter and are now forecasting from full year compared to pre pandemic 2019 levels.
While we've not pulled back all of the impact of COVID-19 relative to our pre pandemic expectations we have.
Have made substantial progress and are far down that path.
As we have throughout the pandemic, we continue to expand our competitive moat through leading strategic partnerships. First we are excited to have agreed with our partners at <unk> bank to acquire a bank is payments businesses in Spain.
Specifically, we will enhance our position in 1 of the most attractive acquiring markets in Europe with the addition of <unk> merchant business, consisting of roughly 100000 customers in the region.
This pending acquisition further enhances our distinctive distribution and will allow us to delight customers with our market, leading technologies, providing us with significant cross selling opportunities and deepening our presence with 1 of the leading institutions in Europe.
This agreement follows our purchase of an additional 29% stake in our commerce via joint venture last October which increased global payments ownership to 80%.
Additionally, our money to pay joint venture has agreed to purchase <unk> prepaid business as we continue to execute on our strategy to expand and diversify our business into international markets.
We expect both of these transactions to close in the fourth quarter.
Second we are delighted to announce that we've entered into a new collaboration with Amazon Web services AWS for unique distribution and cutting edge technology that net spend to substantially increase our target addressable markets and accelerate our strategy across our 3 pillars of Digitization internationalization.
And <unk> expansion.
Much of that we have done with our issuer business, we plan to leverage the AWS partner network and dedicated partner development specialists to bring <unk> BDC and <unk> digital payments solutions, including program management to reward our base of Neo banks, Fintech startups and other e-commerce players.
As well as to new geographies.
This partnership will also provide an industry, leading cloud based processing platform for <unk> customers to access cutting edge technologies with greater speed to market security and flexibility.
We are thrilled to deepen our go to market collaboration with 1 of the worlds largest technology companies to continue our disruption of these markets.
Third we are pleased just closed our acquisition of Zico in June further capitalizing on the convergence of software and payments and 1 of the largest and most attractive vertical markets worldwide.
As I highlighted last quarter real estate is the quintessence of the type of market that we see sizable global in scope fragmented and ripe for further software digital commerce and payments penetration.
And COVID-19 has accelerated the underlying trends that make this $6.5 billion target addressable market. So attractive as we continue to expand our software driven footprint.
It has migrated pleasure to welcome the <unk> team members to global payments.
In addition to these strategic accomplishments, we produced yet another outstanding quarter of results.
Since we began running the company in 2013, our main focus has been on 2 areas.
Enabling diverse distinctive defensible distribution.
And developing market leading technologies.
We could not be more pleased with the momentum across our businesses evident in our second quarter results and reflected in our increased guidance for 2021.
It's worth noting that we have delivered the greatest value creation on our history over the last 8 years, despite numerous new market entrants during the entirety of that period public and private.
And we have generated consistent financial and operating outperformance through a variety of macroeconomic cycles, including most recently the financial impact of the first worldwide pandemic and over 100 years.
The results are self evident.
We have record performance in the second quarter in our merchant segment on several bases.
Absolute sequential and year over year, while also producing strong growth versus pre pandemic levels.
Simply put our payments businesses continued to significantly outperform and gain share fueled by our long held technology enabled focus and solid ongoing execution.
On a more granular basis, we saw strong double digit growth in new sales in both global payments integrated and our vertical market businesses in the quarter and our U S relationship led business again achieved record new sales.
This marks the third quarter out of the last 4 in which we have achieved such a high level of performance.
Rather than impede our strategy the pandemics for further share gains and catalyze the digital strategies, we have had in place since 2013.
Our omnichannel businesses accelerated yet again in the second quarter with growth in excess of 20%. Despite lapping the enhanced shift towards E. Commerce globally that began with the start of the pandemic in early 2020.
New customer signings. This quarter include foot locker as a key customer in Europe that will leverage our unified commerce platform or UCP to modernize its payments acceptance capabilities.
We are pleased to have also signed new global UCP partnerships with Hunter Douglas on your net worldwide subsidiaries Z Dot com.
Our ability to deliver a single API solution virtually around the world has been a key driver of our success.
And our unique multinational footprint and both the virtual and physical worlds has proven to be a differentiator versus both legacy and new market entrants.
Within our vertical market businesses, we had a number of new key customer wins for our quick service restaurant business, including precious Big Boy crystals in the face of group, while AMD and touch net continue to deliver record revenue performance as they have throughout the pandemic.
Notably touched on it continues to add new marquee colleges and universities domestically and internationally, including the Arkansas State University system, and Sheridan College in Canada This quarter.
We're also making great progress on our partnership with Google and remain on track to board, Google as a merchant customer this quarter and expect to launch our volume growth business product that integrates Google solutions, and our digital portal environment in the fourth quarter.
Our issuer business delivered growth beyond the high end of our targeted long term range.
We are pleased to have signed a new multiyear partnership with Banco care for in Brazil, The financial services arm of the country's leading supercenter retail chain to provide a range of technologies for its credit card and digital accounts as well as the handle on us acquiring transactions.
Recall that transaction optimization is 1 of our key post merger initiatives more to come on that at our Investor Conference.
We also signed a letter of intent with a large global financial institution and long standing partner in a new market in Latam Belmont another significant milestone for us and our continued expansion into the region.
Further we executed a multi year extension with the Uk's largest retailer Tesco enabled by our share digital modernization vision for the future.
Finally, we are pleased to have extended our relationship with Mercury financial for a range of digital technologies.
This relationship serves as further proof that our industry, leading platform offers the agility to support leading edge fintech companies.
<unk> recently launched a strategic go to market partnership with price Waterhouse Coopers or Pwc.
As part of the thesis partner program, we expect that our collaboration with Pwc will diversify and expand our distribution and allow us to jointly offer innovative solutions expertise and execution capabilities to clients of all sizes across the full spectrum of neo banks, Fintech startups and program managers.
Again diversification of distribution has been 1 of our key objectives. Since 2013, and we are using the same playbook with pieces that we have successfully deployed in the past.
We continue to capitalize on the broad and deep pipeline, we had the good fortune to have in our issuer business. Today, we have 15 letters of intent with institutions worldwide 6 of which are competitive takeaways.
Turning to our unique collaboration we now have 20 active prospects on our pipeline with AWS up from a dozen last quarter and 4 at the end of 2020.
These include a mix of new financial technology entrants and other non traditional issuers. In addition to large financial decisions.
As growth accelerates in this market, we believe that we are the ones doing the disrupting.
While buy now pay later solutions Macy's not all the time, we have in fact in providing leading technologies to that segment of the market for decades, and both our issuer and merchant segments.
And we continue to deliver innovative installment payments products for customers.
We are currently enabling our merchant customers in Canada in partnership with <unk> with the visa installment solution.
CIBC will also launch a combined <unk> visa installment solution in early 2022.
We signed a global referral agreement with Mastercard supporting installment payments in June.
Finally in our business our consumer segment, we expect a unique co sale arrangement with AWS to expand our distribution capabilities again, much like we've been doing since 2013.
And together with our issuer business, we intend to further disrupt the program management segment in the near future.
This is yet another example of application of our strategies to legacy pieces businesses and we expect the same successes here as we have generated in other contexts.
Paul Thanks, Jeff.
Our financial performance in the second quarter of 2021 demonstrated meaningful sequential momentum and exceeded our expectations. These results highlight outstanding execution on our differentiated strategy of technology enablement spin.
Specifically, we delivered adjusted net revenue of $1.94 billion, representing 28% growth compared to the prior year and 10% growth compared to 2019.
Adjusted operating margin for the second quarter was 41, 8%, a 480 basis point improvement from the prior year. Despite the return of certain costs, we temporarily reduced at the onset of the pandemic.
The net result was adjusted earnings per share of $2.04 for the quarter, an increase of 56% compared to the prior year and a 35% improvement from the same period in 2019.
Taking a closer look at our performance by segment merchant solutions achieved adjusted net revenue of $1..2 9 billion for the second quarter, a 42% improvement from the prior year, we delivered an adjusted operating margin of 48, 5% in this segment an increase of 750 base.
<unk> points from the same period in 2020, as we continue to benefit from the recovery and our improving technology enabled business mix.
We are pleased that our acquiring businesses globally generated 46% adjusted net revenue growth compared to the second quarter of 2020 led by strength in the U S.
Notably our U S acquiring business, which includes our integrated and relationship led channels grew approximately 25% compared to the same period in 2019.
These results were led by our integrated business, which produced a stellar quarter generating a 53% adjusted net revenue improvement compared to 2020, and 35% growth relative to 2019.
As for our own software businesses in the U S. We are delighted with the overall portfolio delivered growth of roughly 30% compared to the prior year and achieved solid sequential improvement relative to the first quarter.
Jeff mentioned, our vertical market businesses continue to see positive bookings trends, providing us with a favorable tailwind for the second half of 2021.
Additionally, our worldwide ecommerce and Omnichannel businesses saw growth in excess of 20% year on year as our value proposition, including our unified commerce platform or UCP continues to resonate with customers.
Regarding our international businesses, while these markets have been a bit slower to recover compared to the U S. On an absolute basis, our portfolio of businesses across Europe, and Asia contribute favorably to our overall merchant adjusted net revenue as a growth matter compared to 2020.
These businesses also returned to growth on a combined basis when compared to 2019.
Moving to issuer solutions, we are pleased to have delivered a record $446 million and adjusted net revenue per the second quarter, marking an 8% improvement from the prior year period.
This strong performance was driven by the ongoing recovery in transaction volumes across many of our markets. While non volume based revenue increased mid single digits. During the period led by our output services business, which grew at roughly 10% for the quarter.
Our issuer business also achieved record second quarter adjusted operating income and adjusted segment operating margin expanded 100 basis points from the prior year also reaching a new second quarter record of 43, 9% as we continued to benefit from our efforts to drive efficiencies in this.
Business.
This is an impressive result, particularly given we achieved margin expansion of 640 basis points in the second quarter of 2020 <unk>.
Additionally, our issuer team signed 5 long term contract extensions during the quarter and our strong pipeline bodes well for future continued momentum going forward finally, our business and consumer solutions segment delivered adjusted net revenue of $227 million representing growth of 5% despite lapping.
On the benefit of the 2020 cares Act last year.
As a reminder, this business delivered double digit growth from the second quarter of 2020, driven in part by our support of the disbursement of over $1.4 billion in stimulus funds during that period.
Adjusted operating margin for this segment was 26, 9%, which was also ahead of our expectations.
The outstanding performance, we delivered across our businesses served as a further proof point that we continue to gain share as well as the alignment of our strategy with the accelerating digital trends coming out of the pandemic.
We're also pleased on our integration continues to progress well and we have now executed actions, allowing for the achievement of annual run rate expense synergies of at least 400 million.
And annual run rate revenue synergies of at least $150 million.
<unk> been targeting exactly as we said, we would do and despite the pandemic, we will continue to deliver additional expense and revenue synergies over the coming periods as our efficiency efforts continue and we leveraged the collaborative growth opportunities across our businesses.
From a cash flow standpoint, we generated second quarter adjusted free cash flow of roughly $452 million or at a little over 1 billion through the first 6 months and continue to expect adjusted free cash flow in excess of $2 billion for the year.
We reinvested approximately $130 million in capital expenditures during the quarter and continued to expect capital expenditures in the $500 million to $600 million range for the full year and.
In June we successfully closed our acquisition of Zika consistent with our expectations and we expect this business will contribute roughly $50 million of adjusted net revenue to our merchant segment in 2021.
I'd like to Echo Jeff's excitement regarding the agreements, we announced today to acquire <unk> payments businesses in Spain, and we expect these transactions to close in the fourth quarter.
Further we remain on track to complete our purchase of war lines pay 1 business in Australia in the second half of this year.
We are pleased to have continued to return cash to our shareholders. This quarter with the repurchase of $1.5 million of our shares for approximately $290 million.
Following our balanced deployment of capital this quarter, we ended the period with roughly $3.3 billion of liquidity and a leverage position of roughly 2.6 times on a net debt basis, which is flat to last quarter as expected and this leaves us with continuing ample capacity going forward.
Based on our current expectations from the continued global recovery, we are again, increasing our guidance for adjusted net revenue to now be in a range of $7.7 billion to $7.73 billion, reflecting growth of 14% to 15% over 2020.
We continue to expect adjusted operating margin expansion of up to 250 basis points compared to 2020 levels on a standalone basis.
As a reminder, veeco will be a modest headwind to the upper bound of our margin target now that it as close as it does not currently operate at our margin levels. Despite having already achieved we will look forward status.
At the segment level, we are increasing our expectations for merchant solutions adjusted net revenue growth to be around 20% from high teens previously which assumes the current pace of recovery continues worldwide.
This marks the second consecutive quarter, we have raised our outlook for our merchant business.
We are also increasing our outlook for our issuer business and now expect growth to be in the low to mid single digit range for 2021 up from our prior outlook from low single digit growth. We continue to expect our business and consumer segment to achieve mid to high single digit growth for the full year consistent with our long term.
Term growth target for net spin.
As a reminder, we increased our guidance for this segment on our first quarter earnings call in May Despite lapping the impact of the 2020 carriers that in.
To expect net interest expense to be slightly lower in 2021 relative to 2020, while we anticipate our adjusted tax rate will be relatively consistent with last year.
Putting it all together we are increasing our expected adjusted earnings per share for the full year to a range of $8.7 to.
To $8.20.
Reflecting growth of 26% to 28% our raised outlook presumes, we remain over the balance of the year.
We look forward to updating you on our longer term expectations for the business at our upcoming virtual Investor Conference, which we will host on Wednesday September 8 and with that I'll turn the call back over to Jeff.
Thanks, Paul as we look ahead to next month it is worth reflecting on how much we've evolved our business.
Around much of the last 8 years, we have witnessed a multitude of new market entrants newly public companies shifting modes of competition and macroeconomic cycles to numerous accounts.
On set a number of times over the near last decade that our best days are behind us the facts say quite the opposite.
In fact, we have delivered the greatest value creation on our history during that period and we believe we are poised today to continue our track record of outperformance.
The second quarter and our raised guidance today are the most recent examples are.
Our rates of revenue growth and bookings trends underscore sustained share gains despite managing through an unprecedented crisis.
1 proof point, we now expect our U S payments business to roughly reach its original growth target for 2021 based on 2019 goals in short we grew right through the pandemic.
More to follow in September.
The reasons for our success are straightforward.
Stinker of strategies the technology investments, we have made over many years the support of our market, leading partners and customers our execution consistency and the quality of our team members have allowed us to significantly expand our competitive moat.
As painful as it has been COVID-19 has reaffirmed the digitization of our businesses.
We believe that the best is yet to come you can judge that for yourselves next month.
Winnie.
Before we begin our question and answer session I would like to ask everyone to limit their questions to 1 with 1 follow up to accommodate everyone can be queue. Thank you operator, we will now go to questions.
If you would like to ask a question. Please press Star then the number 1 on your telephone keypad.
And that is star then the number 1 in Europe.
First question is from Google with K B W.
Hi, Thanks for taking my question.
Great results across the board so maybe just start on.
Bob just looking at the merchant segment revenue relative to COVID-19, I think the roughly 12% higher could you.
Could you talk about what's driving that are you seeing a lot of pent up demand among consumers.
Driving that type of growth and just trying to gauge whether as we go forward with that.
Growth rate could accelerate going forward, if theres about a pent up demand.
Hey, good morning, Thanks for the comments, it's Cameron I'll kick it off and maybe ask Paul to provide a little bit of color as well. So I would say its a few things and I would start with just the efficacy of our strategy. Obviously the technology enabled businesses that we've been investing in for the last 7.8 plus years now really continue to lead the way per.
Growth across the business, including our integrated business, which grew 53% in the quarter and up 35% versus 2019 levels. In addition on E Commerce Omni business grew well over 20% this quarter again topping performance from last year. We're also grew in the high teens level, So again realm.
<unk> 2019, and continuing to see very strong growth across E com and omni channels of the business.
For me, it's really the strategy that we've been deploying thats driving growth and I think we continue to see a lot of tailwind in those businesses looking forward through the balance of 2021 and heading into 2022 and beyond I don't know if you want to add any more specific comments on that.
Would you say.
We've said on the press release, we're pleased so far with what we've seen in July as well as it relates to kind of continuing improvement relative to 2019 and really across the <unk> segment and the only other thing would be we were pleased to see the growth in the vertical market when you're talking about just per segment.
30% improvement year over year in the vertical market business. So, yes, I think that covers it.
Got it and just from my follow up I wanted to ask a capital allocation question I saw that you guys Smith with share buybacks or any color on whether you're expecting to do more buybacks versus M&A and on the M&A on dyno historically, you've been focused on doing accretive deals.
But given where valuations Brooklyn, Zach Barr that seems to be becoming harder and harder. So just curious I know Todd would you be open to doing something that's revenue growth accretive, but perhaps earnings dilutive at this point if it makes sense for the long term and if yes like with some of the area.
Yeah.
Good day, it might make sense that you have available.
Yes, yes. So this is Paul and I'll cover the share repurchase and then maybe turn it over to Geoff on the on me.
On M&A side, yes.
Yes, we did.
Resize the share repurchase authorization due to the fact that we had made significant purchases since our last.
<unk> and we've said all along our preference is to allocate capital to M&A and M&A opportunity if not in front of US we will deploy capital on share repurchase and we were very pleased to do so this quarter much like we did last quarter. So we do not have share repurchases and the Guy has a go forward.
Matter of on the back half of the year.
We are always opportunistic as it relates to share repurchases. So we wanted to make sure we have the capacity to execute if we choose to do that Jeff do you want to talk about the M&A side. Okay. Thanks, Paul So as also in the second part of your second question. So we actually have been very active on the M&A front in the last 6 months I think with today's announcements of banking.
We've committed about $1.3 U S. M&A in the last 6 months, while committing to that $1.5 on a buyback sales as we said in the press release I think we've been very balance.
Between the between the 2 as we also said in the last quarter <unk>.
Is a technology and software driven business very consistent with our strategy, particularly given the size of the real estate target addressable market, yet notwithstanding that going back to the premise of your question on that deal was not dilutive and I think we announced it was immediately accretive although really no discernible impact on on earnings, but nonetheless was not dilutive.
We look at many things so targets able from what I wouldn't do on the abstract but I would say is.
You've been running the company in the last 8 years, we've not done a dilutive deal I don't expect this to that's not the mindset, we have shareholders and owners and managers.
The business, so I really don't expect our strategy to change.
Got it thank you very much from the color. Thanks.
Yes.
Your next question is from Ashwin true Bank Barker with TD.
Hey, Jeff Kevin Paul Congratulations.
Congratulations on the on the good results.
Hi.
Was kind of hoping coming out of the pandemic on at least sort of lapping pandemic impacts.
You can kind of per line of breakdown of the.
Expectations taken in both businesses.
On the TQ versus <unk>, what do you see.
What part of the day coatings volume sensitive thats, yet to come that benefit forward numbers agitation events things like that from.
Quantification would be it would be great on <unk>.
Yes, Ashwin I'll start off and maybe Cameron might.
I want to add something as it relates to merchant, but largely speaking we're expecting.
Roughly <unk> and <unk> to be largely similar across our businesses as we have said at the beginning of the year, we had expected the back half of the year too.
Return to a much more normal kind of state and so clearly there is some reopening that will continue to benefit kind of <unk> into <unk>.
Countries around the world kind of reopening from from some of the closures Youre exactly right ashwin as it relates to some of our vertical markets businesses as Ive. Just commented we're very pleased with the growth we saw in <unk>, but we could see more meaningful growth on those businesses in the back half of the years, we'd have more reopening the economy.
More tailwind kind of impact as it relates to those businesses. So yes, those would be the dynamics between kind of Q2 Q3 to Q4, certainly in merchant and there wouldn't be anything I would necessarily call out across the other 2 businesses, obviously very pleased to raise the revenue guide on our issuer business from low single.
Digits to low to mid single digit says talks about kind of improving fundamentals in the back half of the year, there and pretty static state as it relates to our business and consumer once the stimulus impact has been netted out of the first half and going into the back half Cameron do you have anything to add no I think that covers it pretty well ashwin I would only add just.
Couple of points 1 is across the technology enabled businesses as I mentioned previously going to the first of all on your question. We're continuing to see very strong momentum in those businesses as Paul highlighted July sequentially is better than June as a true.
Trend matter. So I think we feel good about how things are continuing to progress on those businesses are poised to continue to see strength in the back half of the year. If you just look at the overall guide from the merchant segment.
That roughly 20% growth in 2021 versus 2020, the back couple of quarters going to have to be around that same level to make the average has worked for the whole year. So that gives you a sense as to how the business is performing again against tougher comps in Q3 and Q4 than.
And then we certainly based on the second quarter. So I think that should give you a little bit of a sense as to the momentum that we have on those businesses to Paul's point around the vertical market businesses in particular, obviously schools once we get back into obviously, a normal school environment on hopefully quasi normal school environment here in August and September those businesses that business.
In particular is poised to see a rebound in the back half of the year as well as active active as being very strong booking trends. Many of those events are occurring in the back half of 2021. So I think we feel very good about how that business is poised to recover to get advanced Mds touch native continue to grow right through the pandemic, obviously, a double digit pace throughout 2012.
And 2021, so those businesses are obviously on a very healthy position overall, but getting a nice tailwind from active and schools in particular in the back half of the year will help the vertical market business continue to recover as an overall matter.
That's on the second thing I had was with regards to AWS.
Obviously, great to see the expansion.
Of what Youre doing with AWS Tony on the.
The Asia business any update any metrics you can provide that can be useful for investor day markers of the progress you are making.
On that.
Yes, it's Jeff I'll go ahead and answer that let me first start with net fan because actually our new announcement today.
Today, It followed a very similar format the issuer announcement almost exactly.
A year ago to today, but the 1 thing I will point out is the net benefit there is primarily a focus on our part as Amazon's part on <unk> distribution and I would say in particular on program management with the scale that we have directed at neo banks Fintech and startup so while it is a similar template.
It's a very targeted initiative is very much focused on BBB and obviously, that's something on September <unk>, and our virtual Investor day that we'll be talking a lot about in terms of your question on how we're doing on the issuers 5 book were really pleased we disclosed again, yet today as we have for really the last year, plus what our LOI pipeline looks like.
Outside of Amazon them with Amazon I think what we said today is we are suddenly 2 letters of intent.
With that our colleagues over at AWS and Thats for the whole spectrum.
By potential issuers again, including Neo banks fin techs and startups as well as traditional financial institutions and to give an update there that will make singled out on in Asia and Asia is in testing.
Already in it live on a data basis, and we expect to be fully live by.
By the end of this by the end of this calendar year and that could give you a sense of progress Ashwin that 'twenty I think is up from 4 at the end of calendar 2020. So we've quintupled the number of LOI that we have with neo banks Fintech startups in financial institutions. They would have less really in a fixed through the end of second quarter, So kind of on a 6 month basis.
We couldnt be more pleased in the fact that we're doing more business with.
With AWS now in the form of <unk> should be.
A recognition not just internally, but externally on how happy you are with how things are progressing.
Okay.
The update at the Investor day. Thank.
Thank you.
Your next question is from David <unk> with Evercore ISI.
Thank you good morning, Jeff Cameron and Paul.
Your merchant results really underscore the strength and the credit card business with credit really roaring back in.
In Q2 closer to the GAAP with debit and debit strength fairly was kind of hallmark of Covid as you look forward.
Think strengthened credit is really here to stay.
For the next year plus.
Yes, David Good morning, it's Cameron I'll sort of kick off on I'll ask Jeff and Paul to chime in if they have anything they'd like to add I think the George to your question is yes, I think credit card account growth is as high as it's been I think since 2010, and obviously on the heels of the pandemic in a more normal operating environment, we clearly see.
Credit outperforming to your point debit clearly outperformed in the midst of the pandemic and by the way a lot of that was prepaid debit as stimulus was funded on those types of accounts. So a lot of the debit growth was prepaid, but certainly coming out of the pandemic getting back to a normal operating environment, we would expect credit to drive growth and really outperform.
And I think we see a lot of tailwind, particularly for our merchant business as a result of that heading in the back half of 2021 into 2022 as a result of that and then of course, we see those same trends in our issuer business I'll, let Paul maybe touch a little bit on the metrics that we're seeing there, but I'd say overall.
We feel good about the growth in credit and obviously as we've talked about throughout the pandemic our book and the merchant side is more skewed towards credit. So that obviously provides a nice tailwind for the merchant business.
Through the coming years, Paul do you want to touch on the share of that so yes. Cameron said, we did have good metrics as it relates to the account growth on our on.
Our issuing business. We also saw very strong transactional growth.
In the issuing business as well kind of commensurate with the visa kind of some of the numbers that you saw on a credit there. So yes, we're seeing very strong cash.
Credit kind of dynamics in that issuing business, which I think underscores the up your question and also Cameron's commentary on it.
Yes, I would just add if you look at our merchant bizarre pure merchant businesses globally as Paul highlighted in his script I mean, they grew 46% in the second quarter, and I think thats versus worldwide credit growth and visa of roughly 35% per se.
Again really nice tailwind I think it really is a result of our differentiated technology enabled strategy outsized growth relative to where we see the market. Overall. So those trends are very positive and obviously something that gives us a lot of confidence in the updated guide that we provided this morning.
I appreciate that just as a follow up Jeff you really underscore gpm's differentiation in your opening remarks I am curious what do you think about Paypal as a new pricing model at physical point of sale credit and debit card transactions with the rollout of that.
Do you see that being a significant competitive threat to <unk> or as Paypal to smile at the physical Pos.
Yes, David Great question, Let me just start by saying Paypal as a good partner of ours was really as we said before on bolt adhesive side and the global side really around the world. So we've got a lot of respect for Paypal, We think there are terrific.
A terrific company as it relates specific.
Specifically to is that all of the physical point of sale. So that opened in Europe for quite some time, David in fact on Paypal did the deal I think it was mostly or all European now they've announced as you're implying some migration United States. So our business is in Europe, let's just use the U K in London as 1 specific example, <unk> been there for some time, yet our business has outperformed for.
Many years throughout that period, both pre post Paypal acquiring I dental and in post as it relates to the United States market, but that market is competitive today with competitive yesterday, it's going to be even more competitive tomorrow that is kind of really pointed out our growth in our U S business just around the same growth as our worldwide acquiring business around.
46% in comparison to visa and Mastercard worldwide growth from like 35%, but for these <unk> 33 for Mastercard, So whether I get on was in your unrealized that was in North America over the last number of years. It certainly hasn't played anything like a day.
In terms of our growth I think we will be talking on next month, David that our virtual investor conferences, the resilience of our business on market share gain some of that as you rightly pointed out was in our prepared remarks, but notwithstanding that coming and going on with many.
New smart competitor, our business has been resilient, Paul pre pandemic and post and he will take you through the math on why do you think that's been interesting is that listen great company, but at the end of the day I don't think Thats more broad vision of our strategy 1 iota.
And David its Cameron just another point to add on top of that if you look at growth in accounts and our point of sale business in North America in the second quarter. It was up a 100% so notwithstanding a competitive market across the point of sale distribution landscape. We continue to see great traction with our point of sales solutions, particularly in restaurant retail.
And obviously across the Baidu platform. So again I think we feel very good about our point of sales system is backed up to compete in the market today on the growth per se.
Understood Congrats on the strong results.
Thanks, David.
Your next question is from David Koning with Baird.
Yeah, Hey, guys congrats.
I guess my first question when we think about kind of normalizing over time, we would normally think 2022 merchant would be 130% to 135% of <unk> 19.
And I guess I'm wondering a is that still possible youre on a nice trajectory and maybe if you could bucket.
Or the parts of the business that that still have a lot of room to come back what have some room to come back and 1 on already on like what percent are already on like a good good traction.
Because I guess, if we know there's a lot to still come back we can kind of get to that 130 to 135. So I guess all of those are kind of the question around just recovery.
Yes, David Cameron, maybe I'll kick off and ask Paul to fill in some of the more explicit detail, but if I step back and kind of think about where we are today. If you look at our pure acquiring businesses globally. They were up roughly 19% in the second quarter versus 2019 levels in the U S that number was 25%.
So again I think we feel from a pure acquiring standpoint, we're on a pretty good trajectory now what still needs to come back to kind of get to 20 to a more normalized rate of growth relative to 2019 or to say it differently, where we would have been absent the pandemic, while Europe is growing relative to 2019, but it certainly <unk>.
Boeing at a pace lower than that which we've seen in the U S market. So Europe grew somewhere in the high single digits versus 2019 for the second quarter. So we still need a little more tailwind from Europe fully recovering.
As you know the UK didn't open up until mid July so as we get to the back half of the year, we're expecting to see a little more tailwind in Europe as it relates to growth.
Particularly relative to 2019 trends and then of course Asia, which is a small part of the business, but it's still lagging relative to 2019 level largely because many markets continue to struggle with the pandemic remain closed and of course cross border activity in Asia.
It is very depressed and continues to be depressed because of the pandemic. So as we think about 2022 I think the U S is on a pretty good trajectory to get back to something reasonably close to what we would have been absent the pandemic given the outsized growth and the momentum we have in that business, we need Europe to continue to improve as the lockdowns.
And when markets begin to reopen it needs to be more cross border travel pick up and then I'd say the same thing's true for Asia, just given where it fits relative to the <unk>.
Pandemic I think the vertical markets are well poised to get back to reasonable levels compared to 2019 as we continue to see again, a recovery in schools and a recovery of inactive in the back half of the year as as those markets. In particular are reopened so Paul I don't know if you'd add anything more to that but I think that gives a pretty good pretty good overview of the merchant.
Average it sums it up good I think and I also just to add on to issuer, So and Paul can comment here, David but we produced a fantastic quarter. This quarter in issuer, but I would say in particular, the non U S businesses Echo a lot of on Cameron said, so we only recently, which is the same lady on the second quarter heading into July and continuing in July.
We've only recently seen kind of a reopening per issuer purposes on a a lot of markets outside the United States that will be a favorable comparison David to answer your question from the first half obviously of next year.
Add to that commercial card so while commercial hard not surprisingly is up versus 'twenty, it's really not up versus 19. So I think it's a pretty good picture, Dave adding into 'twenty 2 on the issuer side as well because you do have those 2 elements of broader reopening outside the United States and commercial card relative to 19, starting normalize that should be favorable elements for the issuer business.
And lastly, I'll say initially we described again today as Ashwin asked but those <unk> start to kick in when you start getting in the back half of 2022, we obviously also had announced true at <unk>.
About a year and a half ago now I think we said at the time that the back half.
<unk> 2022 advantage, we continue to believe so I think youre going to get similar to the comments that can remain on merchant who are going to get a nice tailwind heading into 2022.
On an issue as well.
Thanks, Yes, great momentum with a lot of room to go so which is great to hear.
I guess just my my follow up <unk>. It looks like you paid almost $1 billion per acquisitions in Q2, I know you said $50 million of revs from the back half, which a $100 million run rate. So 10 times revenue is that just growing it just astronomical pace.
Yeah, Hey, David Jeff, So I think youre missing 1 of our assets in there. So we also announced the.
Acquisition of <unk> offer him business.
In <unk>.
<unk> mine in the second quarter, and then obviously today, we announced thank you as well. So I think what we said was the purchase price per Ziegel just to get the math right with that $930 million. There is also about 100 million of tax asset so that NAV down about 825 million day.
So relative to the $100 million, we view with year is about 8 times revenue, having having said that at the end of the day. When you think it is a great business day, Paul alluded to this in his commentary. So if you think about it is already a rule of 40 growth really beyond that so if you think about what we guided to when we did the deal at the time kind of a double digit organic Rev.
<unk> growth rate with margins into the 20% that's how you get to the global already number. So we think very attractive on that basis that we view David closer to 8 times, rather than Europe, the notional Eddie mentioned.
Got you great. Thanks, guys nice job. Thanks.
Thanks, Ed.
Your next question is from Jane <unk> with global payments.
I'm actually with Morgan Stanley.
Hey, Doug and congratulate you on Europe.
Yes.
Yes.
Yes.
Just so everybody is clear.
I wanted to just follow up on the acquisition commentary.
And there has been obviously inflation and valuations and as Jeff said is still looking for things to be accretive et cetera.
And within a reasonable timeframe is that causing you to look further afield or look.
4 acquisitions that are maybe more tangential to what you have done historically and if so where are you seeing opportunities today I think the ones that you've announced thus far.
Vigo and <unk> as well as bank are quite interesting, but just wanted to understand more kind of the mindset.
Jane just yet so no we're not to answer your question is no. We're not looking further afield, we've got plenty.
On a blue Sky in front of us on our existing M&A strategy. We've spent as you referenced on a $1 billion free.
On todays banking announcements on M&A in the last 6 months, we certainly do look at and the economics, obviously, you've worked out just fine in response to today's question too just a second ago. So I think the got a plenty of these pipeline and certainly more for us to do we do balance that of our view of M&A with where the capital markets are on.
Our view of intrinsic value on our share price.
And everything else. So we have bought back about $1 billion by the stock obviously not mutually exclusive we get bowl.
At the same time 1 billion, 5 and a $1 billion free.
Just re up the authorization back to us on in fact, that's on our guidance on.
Obviously, we balance our view as to where we would like to be in terms of growth anything else, but I think it's important to consider that we think we're on a pretty healthy position heading into 2022 and write up 'twenty 1 without more deals. So we think we're kind of where we want to be as a strategy matter I think we feel you've already kind of much. The same so there's plenty of stuff that we look at but I cant think of a deal.
That we didn't do.
Gains because we said Gee, it's too expensive or.
It's not accretive and all those other things we can add more value as a strategic buyer of the thing that we're doing in terms of revenue margin and earnings and we're just not going to do it I don't think its a function of valuation so much the function.
Our view of where we are on strategy and argued with marketers.
That's great color I appreciate it Jeff.
Going back to kind of current market conditions. Cameron you gave really good color on in terms of the different geographies et cetera, I'm, just wondering if youre seeing any.
Fluctuations in activity related to the Delta variant.
And how much you can isolate maybe.
On whether those variances if there are any are coming from.
From regulation and policy versus just underlying consumer behavior, hopefully that makes sense, but I'm trying to figure out where how much policy may be impacting.
Spending trends versus just the Delta brand itself.
Yes, David.
Cameron and I'll comment on that so as you think about the comments we made earlier as it relates to July we did see sequential improvement in July relative to June. So I think we still feel very good about the momentum of the recovery overall to be very clear I don't think we've seen any real impact yet from the delta very and obviously, we're monitoring it very closely.
And it's a fluid environment, but I would say sitting here today based on data that we have through the end of last week the <unk>.
<unk> trends again for July were an improvement over what we saw on June sequentially.
Are the markets around the globe in which we operate and particularly now in markets, where we're seeing a reopening that's more reached the UK Canada for example.
I think they are poised to see stronger volume recoveries as we enter the back half of the year. So look I don't think theres a lot of appetite for more widespread lockdowns, particularly here in the U S. As it relates to the Delta variant.
Markets outside of the U S may react differently, but again for our business those are going to be relatively small impact. We're most focused on the U S is the 75% of our business and I would say, thus far we haven't really seen any discernible impact, but it is something that we continue to monitor very closely.
Through the balance of the year and Thats, what Cameron said James Jeff is that if you at the end of the day.
Ed that the non U S markets, which as Ken alluded to about 25% of the company and also in response to <unk> question. If those reached the level of recovery that the U S market saw that's probably a couple hundred basis points of incremental.
Revenue growth over time that you could see in those as Cameron described we're not there really in the second quarter I mentioned the same thing really on the on the issuer side. So we will see how that plays out over time.
Thank you very much.
Thanks Jane.
Your next question is from team Qin Wang with Jpmorgan.
Yes, just a quick clarification just the 2 points of revenue raise can you break that up between obviously the quarter upside deals and just the cyclical piece I just want to make sure.
I covered that in the non bank here just on <unk>.
I think thats the same playbook.
<unk> I know that did very very well for you just I'm just curious if theres any difference philosophically there yes.
Yes, so maybe I'll take the first 1 and then.
Turn it over to Jeff for the second 1 so if you think about the Cameron for the second 1 if you think about the guidance range.
We commented on the close of video. So we said that's roughly $50 million as it relates to the back half of the year. So that's kind of the first section of the guidance range than the second section would be both the over performance in Q2 as well as continued kind of better performance in the back half.
<unk> underpins the guidance range as it relates to the segments on the on the issuing side as well as merchant so those would be the 2 components.
A little bit of FX headwind relative to the back half versus the first half on a realized basis. We also don't have the same kind of stimulus impact from the first half versus the second half, but those would be the 2 components. The zico of roughly 50 million and then the remaining piece of that is is the performance.
And Tien tsin its Cameron good morning, as it relates to <unk> I think the short answer your question in that exact same playbook that we've executed with Asia.
The joint venture over the last decade, plus now obviously, we continue to be very excited about the Spanish market. It is 1 of the most attractive markets in Europe frankly, it's 1 of the most attractive markets globally, just to give you a little bit of color of that market grew the domestic volume in Spain as a volume matter grew 30% in the second quarter.
And 15% over 2019 again, despite continued obviously restrictions throughout the country as a result of the pandemic. So the underlying secular trends in Spain remain incredibly attractive, which makes the timing for the bank the acquisition, particularly.
Attractive for us as well. Thank you consists of about 100000 predominantly.
Paul the medium sized merchants, although they do venture more into into the watch category as well and I think the interesting thing about the banking portfolio is more skewed towards domestic volume. So again I think it's a really attractive addition to our comments on your joint venture that's going to allow US again to further expand distribution in this very attractive market and gives great cross sell opportunities.
The differentiated technology solutions, we have in the context of your joint venture today. So we're delighted to be able to announce that this morning, and a nice addition to our European business.
Okay.
Great. Thanks.
Thank you.
Your last question is from Ramsey El <unk> with Barclays.
Hi, guys. This is Ben on for Ramsey. Thanks, So much for taking the question I wanted to follow up on something you mentioned at the beginning of the call on the issuer business I think you mentioned some of the newer.
The potential deals are with some kind of like newer entrant fintech and I'm just kind of wondering are those the kind of deals that as you've discussed before you perhaps might not have gotten without the AWS partnership and what sort of capabilities.
Capability today require that maybe different from your traditional issuing business yes.
Yeah sure. So the answer is yes I.
I think a key thesis behind the partnership AWS, just almost a year ago to the day now, let's first really just to modernize the architecture and technology and as we've said in response.
Dash inspection, that's actually gone very well on the second piece was the distribution and so on.
Of those 20, LOI that we have pending with AWS a number of those are with neo banks fin techs and startups and Youre right. I don't think we would have been we would not be an additionally, our today.
Without that and I'd also say more broadly if you back up just our general shift from cloud enabled technologies initially to cloud Native technologies is just selling very well, where the institutions of all sizes, including.
Neil banks and Fintech from startups in like the second thing I'd say and you.
Todd our announcements and the expansion of our AWS relationship today into net fan, but whether it's at the issuing business or the net burn business. We're very focused on program management. So to answer your second question.
I think we need to be more vocal on program management on <unk>.
I think historically.
Most of the revenue the growth that we get in the issuing business is really with.
On a financial institutions, and generally inside United States, North America, and Western Europe larger financial institutions key focal point of ours premium now of course post AWS. Both on net Venezuela issuer is on is on program management that the key part of the relationship with David Yes going forward on the new partnership we announced today, so either book for us to do more.
There and we will share more details with you next month on September 8.
Great and if I could ask just 1 quick follow up on.
Kind of on that spend as we're discussing it any update on the money to pay business and any potential synergies between that and thats been on how that kind of fits on to be the AWS partnership.
Yes, Jeff I'll go ahead, and start and Cameron can I joined too. So we look at 3 legs to the stool on our strategy as a net <unk> versus ongoing Digitization and I think that's been had pre pandemic at pretty good digital footprint and not surprising anyone on this 1 the pandemic has really accelerated that and I would say kind of high 23% of interact.
<unk> today with consumers with NAV and are done online being volume car align spending with the card online and we certainly expect AWS of course to continue to accelerate that given their footprint. The second as I. Just described in response to your first question, which is really <unk> and program management, but I'd be remiss if I didn't mention it also includes <unk>.
Cash to access a parts in our tip solutions. So those are all honestly also in play on BBB and the third leg of this tool is really what the GAAP Atlas generally which is internationalization. So a piece of that is going to pay the second piece, we announced today with bank yet because that also includes a prepay.
Prepaid business the debit business in the west as well and the short answer. Your question is it's dominantly well our thesis on internationalization and given <unk> global payments is the 3 countries, the operating and particularly on the acquiring side as well as the relationships. We have in those markets. A great example is continental Europe with Spain allows us to <unk>.
Equally so stand what was really a U S only business, which it is today or net <unk> per cent of the competitors and really bring it over season now that we're approaching 9 or 10 months post the initial closing on them.
Money to pay JV with kasha.
I can tell you that we are running ahead.
What we expected I think our thesis that we can bring on management our products our technologies those markets has wrong as 1 true that thesis if those markets are under penetrated.
Relative to the United States is also true what we have seen some benefit there are government spending to as we all kind of emerge from the pandemic not just here in the United States that have received so it's really it's really working out better than we hoped and I'm pleased to give on wire, especially with the kind of partners that we have.
The only thing I would add to that is the AWS partnership on the <unk> side. It makes it easier for us obviously bring our technology capabilities to markets like Spain, where we have been delighted to Jeff's point with the performance of money to pays us far and obviously look forward to adding the bank prepaid business into that business for us as well so as we move forward in time.
With AWS it makes it easier to bring technology product capability to markets outside of the U S. As we continue the internationalization strategy from the that's been business.
Okay, great well, thanks, so much for taking the questions and looking forward to see you next month. Thanks.
Thanks, Randy on behalf of global payments. Thank you for joining us on the call. This morning.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.