Q2 2022 Global Payments Inc Earnings and Definitive Agreement to Acquire EVO Payments Inc Call
122 conference call our earnings release, and the slides that accompany this call can be found on the Investor Relations area of our website at Www Dot global payments dotcom.
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 among other matters expected operating and financial results and statements about the proposed transaction between global payments and Evo payments.
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 results to differ materially from our expectations.
Certain risk factors inherent in our business are set forth in filings with the SEC, including our most recent 10-K and subsequent filings we caution you not to place undue reliance on these statements.
<unk> looking statements during this call speak only as the date of this call and we undertake no obligation to update them.
We will be also referring to several non-GAAP financial measures, which we believe are more reflective of our ongoing performance.
For a full reconciliation of the non-GAAP financial measures discussed in this call to the most comparable GAAP measure in accordance with SEC regulations. Please see our press release furnished as an exhibit to our form 8-K filed this morning, and our supplemental materials available on the Investor Relations section of our website.
Joining me on the call are Jeff Sloan, CEO , Cameron Bready, President and COO, and Josh Whipple Senior Executive Vice President and CFO now I'll turn the call over to Jeff.
Thanks, Whitney we welcome Josh level, our new CFO to the call today, Josh has been a senior leader at a company for seven and a half years got it goes through some of the most significant milestones in our history as a trusted partner who has played a key role in building the leading technology enabled software driven payments business worldwide.
The global payments is today.
We also think Paul Todd for his terrific partnership and the critical role. He has played and the successful merger of thesis and global payments over the past three years and his 27 years adhesives, we wish Paul all the best in retirement.
We delivered second quarter adjusted results that were the best in our history across our key financial metrics, despite the self evident incremental headwinds.
Both our merchant and issuer segments exceeded our expectations on a currency neutral basis post the divestiture of our Russian business.
Importantly, our issuer business generated 400 basis points of sequential revenue improvement on a comparable basis exactly as we said it would and our pipeline remains at record levels.
And we achieved these results while executing multiple transactions to better align our businesses with our strategy getting a key new partnerships, extending our lead and deepening our competitive moats.
First we're delighted to announce that we've entered into a definitive agreement to acquire evo payments significantly increasing our target addressable markets enhancing our leadership in integrated payments worldwide, expanding our presence in new geographies further scaling and existing faster growth markets.
Renting our business to business <unk> software and payment solutions.
Specifically <unk> provides us with a new presence in attractive geographies, such as Poland, Germany, Chile and Greece.
And enhances our scale in existing markets, including Mexico, Spain, and the UK.
And of course, the U S and Canada.
For <unk> <unk> brings us key technology partners and integrations, including with many of the largest enterprise ERP solutions.
And it adds leading accounts receivable software capabilities to complement our BTB and accounts payable offerings, which we significantly augmented with our successful acquisition of Ventilatory last fall.
At our Investor Conference last September we announced that <unk> is the fourth our newest pillar of our strategy meaningfully expanding our target addressable markets to include a segment that remains substantially underpenetrated, providing tremendous opportunities for future growth.
As we said then we have the technology and distribution assets, we need to compete effectively and b to B post <unk> merger and already positioned as one of the largest <unk> companies globally at scale.
This includes technology centered on virtual card solutions, a vast commercial card footprint massive distribution partnerships with the world's leading financial institutions data and analytics market, leading payroll technologies and access globally to non card based rails.
Our acquisition of mineral tree.
October provides us with a leading cloud SaaS accounts payable business, which grew 30% in the second quarter and is now operating at EBITDA breakeven ahead of plan.
We've been on the lookout for in accounts receivables business corollary to complete our <unk> go to market offerings. We.
We believe that Evo now provides that missing link.
Cameron will provide more details on the tremendous value creation opportunity in combining <unk> with global payments, but let me start by expressing how delighted I am to welcome Evo team members to global payments.
Transaction is expected to close no later than the first quarter of 2023 subject to regulatory and of course Evo shareholder approvals.
Second we are thrilled to announce silverlake the global leader in technology investing has committed a one $5 billion strategic investment in global payments in the form of convertible unsecured senior notes.
As an expression of their confidence in our long term leadership role in digital payments and sustainability of our growth. This amount is by far the largest commitment and silver lake's long distinguished history.
Silver Lake has an outstanding track record of successful investments in technology, driven companies and we are humbled by their confidence in us as the winner in the digital payments ecosystem over the cycle is.
This new partnership serves as further proof of the distinctiveness of our model wisdom of our strategy and position as a leading driver and beneficiary of innovation in payments a senior partner from Silver Lake will join the global payments Board of directors. We are very proud of the company that we keep.
Third we reached a definitive agreement to sell <unk> consumer portfolio to searchlight capital and Rev worldwide for $1 billion to further align our businesses with our strategy, while simultaneously enhancing our organic growth and margin characteristics.
As we said at the time, we announced the strategic review in February <unk>.
<unk> direct to consumer portfolio has an attractive set of solutions with a favorable profile, but there is limited overlap between its customer base and our traditional corporate clients.
As expected, we will retain that's been <unk> assets, which delivered strong mid teens normalized growth in the second quarter and will be included in our issuer solutions segment, beginning with our third quarter.
We're very proud of all that our value team members in net spend have accomplished as part of global payments and we have every confidence this business is well positioned for the future under new ownership.
We expect this transaction to close by the end of the first quarter of 2023 subject to regulatory approvals.
The completion of these important transactions provides us with heightened confidence in the rate cycle guidance for revenue margin and earnings that we provided at our Investor Conference last September .
Post the acquisition of Evo and <unk> sale merchant solutions will then represent approximately 75% of our adjusted net revenue with issuer solutions, including <unk> B to b assets, comprising roughly 25%.
The future is indeed bright kamran.
Thanks, Jeff and good morning, everyone.
Our acquisition of Evo aligns perfectly with our overarching strategy reinforcing our position as the preeminent payments technology company with extensive scale and unmatched global reach.
Evo furthers, our technology enabled distribution strategy and integrated payments, while significantly enhancing our <unk> software and payment solutions.
The transaction also expands our exposure to additional faster growth geographies overseas and provides greater scale in North America end markets in Europe in which we already operate.
As a combined company, we are uniquely positioned to deliver an unmatched suite of distinctive software and payment solutions to our combined customer base of more than $4 5 million merchant locations and over 500 financial institutions globally.
Today <unk> has over 500 technology partners and integrations globally that complement our over 6000 ISP partners across 70 plus vertical markets.
We see significant opportunity to bring further value to evo has relationships by leveraging our extensive distribution platforms and product portfolio as.
As well as our unique partner integration capabilities.
He will also provide additional avenues for us to distribute our commerce enablement solutions and vertical market software offerings, including our leading point of sale software targeted at the restaurant and retail vertical markets.
For example, we are already bringing our vital Pos solutions to key international markets, where we overlap with vivo, including the UK, Spain and Central Europe later this year.
Additionally, we will be able to capitalize on the distinctive capabilities of our unified commerce platform to provide <unk> enterprise customers with multinational E Commerce and Omnichannel solutions.
Seamlessly blending their physical and virtual requirements across markets and geographies.
With our physical presence in over 40 countries globally and ability to transact in over 170 virtually.
We're uniquely positioned to significantly expand <unk> value proposition to its existing multinational customers.
EBIT was accounts receivable automation software and <unk> payment solutions augment our existing accounts payable automation and other <unk> capabilities further rounding out our full suite of <unk> offerings.
Importantly, Evo brings us extensive proprietary integrations to some of the most widely used ERP environments in the market through its pay fabric platform, including SAP, Microsoft Oracle <unk> and Sage.
These integrations are critical to delivering the frictionless automation necessary to improve process efficiency and cost for buyers and suppliers.
Together with Evo, we have an unparalleled array of products and solutions that address the business spend management needs of buyers suppliers and employers.
Better positioning us to gain share in the <unk> market with a bass Tam in excess of 125 trillion annually.
Finally, EBIT expands our presence in new and attractive geographies with strong secular growth trends, including Poland, Greece, and Chile and increases our scale in a number of our existing markets, including the U S. Mexico, The U K, Ireland, Spain, and the Czech Republic.
Many of which also have strong underlying growth fundamentals.
In total Evo has a presence in 12 countries globally, and Leverages distribution relationships with 15 financial institutions.
Creating additional opportunities for us to cross sell our leading cloud based issuer solutions, which can be delivered around the world through our collaboration with AWS.
Since our merger with pieces, we have demonstrated that there are significant opportunities to deliver differentiated solutions and drive transaction optimization by marrying issuing and acquiring capabilities, particularly in Europe <unk> largest region.
The partnerships, we have achieved with kasha bank and Virgin money our marquee examples.
Putting it altogether the acquisition of Evo is highly complementary to our strategy and significantly increase our scale in our business globally.
As Ive discussed already we see meaningful opportunities to enhance revenue through this partnership further catalyzing the growth prospects and our merchant solutions business worldwide.
Further we also expect substantial cost synergies primarily from aligning our business operations and go to market strategies, streamlining technology infrastructure, eliminating duplicative corporate and operational support structures and realizing scale efficiencies.
Combined we expect to generate run rate EBITDA synergies of at least $125 million within two years post closing of the transaction.
As Jeff noted the acquisition of Evo presents a significant value creation opportunity, while further advancing our strategy to deliver differentiated technology and payment solutions to customers across the most attractive markets worldwide.
We look forward to welcoming evo and its team members to global payments.
With that I will turn the call over to Josh.
Thanks Kamran.
We are pleased with our strong financial performance in the second quarter, which exceeded our expectations. Despite ongoing macro concerns the exit of our Russian business and incremental headwinds from adverse foreign currency exchange rates, specifically, we delivered adjusted net revenue of 2.06 billion and <unk>.
<unk> of 6% from the prior year and 8% growth on a constant currency basis, excluding the net spend consumer assets, which will now be held as available for sale. Adjusted net revenue grew 11% on a constant currency basis.
Adjusted operating income increased 14% on a constant currency basis, and 17% excluding net spend consumer assets.
Adjusted operating margin for the quarter was 43, 8%, a 200 basis point improvement from the second quarter of 2021, or approximately 250 basis points, excluding the impact of acquisitions.
Excluding the net spend consumer assets adjusted operating margin was 45 three.
3%.
The net result was adjusted earnings per share of $2 and 36.
An increase of 16% from the prior year or 19% on a constant currency basis.
Taking a closer look at our performance by segment.
Merchant solutions achieved adjusted net revenue of $1 $43 billion for the second quarter.
And 11% improvement from the prior year.
Or 14% on a constant currency basis ahead of our expectations. Despite our exit from our Russian business in the quarter.
Notably we delivered an adjusted operating margin of 52% in this segment, an increase of 170 basis points year on year.
Our combined U S payments and payroll and integrated business delivered another strong quarter led by our integrated channel, which again reported mid teens growth.
We also continue to see strong momentum in our POS software solutions, which grew roughly 40% this quarter and our HCM and payroll business, which grew 20%.
Our worldwide E Commerce, and Omnichannel business delivered constant currency growth in the mid teens. This quarter well ahead of the trends reported by the networks.
As our unified Commerce platform continues to resonate with customers.
To that end, we're excited that we have now expanded our acquiring relationship with Google across UCP to North America. Following the success of our launch in Asia Pacific late last year.
This quarter, we also signed new Omnichannel partnerships with multinational retailer Aldo and global Hospitality company, Delaware North.
As for our vertical market solution.
We were pleased that the overall portfolio delivered 20% revenue growth compared to the prior year and bookings trends remained strong across the portfolio.
We continued to see strong performance in advanced MD and touch net.
The latter of which produced record new sales for the first half of 2022.
Further xenial continued to realize strong bookings momentum, including increased demand for our kiosks and mobile offerings from.
From foodservice management customers and new wins with the Winnipeg Jets Canadian Life Center, and <unk> University, and the events and stadium vertical.
We also saw local currency growth accelerate across our international businesses this quarter.
With particularly strong results in the U K, Spain and Central Europe .
I'm excited to announce that we recently signed.
Our merchant referral relationship relationship with Virgin money, achieving a significant milestone in our strategic alliance, combining issuing and acquiring capabilities.
Our issuer solutions business delivered $459 million and adjusted net revenue a.
A 6% improvement on a constant currency basis from the second quarter of 2021, consistent with our expectations and long term growth target for this segment.
Our adjusted operating margin of 43, 5% increased 60 basis points excluding.
Excluding the impact of mineral trade.
On a reported basis it was down 40 basis points from the prior year.
Our transaction and account on file revenue growth.
Grew low double digits accelerating from the mid single digit growth achieved in the first quarter.
Notably commercial card volumes increased nearly 35%.
With growth improving throughout the period.
We also converted the GAAP portfolio of approximately $13 million accounts, which was purchased by our long standing partner Barclays late last year.
During the quarter, we signed long term contract extensions with multiple clients, including care for in Brazil. Following its acquisition of the Grupo Big portfolio in the region and more recently, we signed a long term agreement with another market leading retailer in South America.
<unk> to.
To enter the Chilean market.
This will provide further opportunities for our business with today's announcement of our acquisition of Evo.
From a cash flow standpoint.
We delivered $432 million of adjusted free cash flow for the quarter.
And we continue to target converting roughly a 100% of adjusted earnings to adjusted free cash flow for the full year.
We invested $168 million in capital expenditures during the quarter and.
And expect roughly $600 million in capital expenditures for 2022, consistent with our prior outlook.
On the capital allocation front, we repurchased just over $4 5 million of our shares this quarter for approximately $600 million or.
Our balance sheet remains extremely healthy and we ended the period with roughly $2 5 billion of liquidity and.
And leverage of two nine times on a net debt basis.
As Jeff and Cameron discussed in detail, we have entered a definitive agreement to acquire evo payments for $34 per share in cash representing an enterprise value of approximately $4 billion.
Silver Lake will invest $1 5 billion and global payments in the form of privately placed convertible senior notes, which will serve as a source of funding together with our committed bridge facility from our banks.
The convertible note, we will have a cash coupon of 1%.
A seven year term and a conversion price of $140 66.
In addition, as is customary with convertible instruments, we expect to execute a call spread overlay to significantly raise the effective conversion premium.
We are very excited to have silverlake as a new partner and their investment underscores their long term commitment and their strong belief in the opportunity ahead for global payments.
Additionally, we entered into a definitive agreement to sell <unk> consumer assets to searchlight capital and Rev worldwide, four 1 billion.
We also expect the net spend transaction to close by the end of the first quarter of 2023.
Following both of these transactions, we expect our net leverage to be approximately three nine times at close.
We expect our leverage by the end of calendar year 2023 to be back to current levels highlighting the substantial free cash flow generation, we discussed at our Investor Conference last September .
We expect to maintain our current investment grade ratings.
Turning to the outlook of 2022, we remain encouraged by the underlying trends we are seeing in the business and our outlook for the year remains unchanged, excluding impacts from FX and M&A.
On a constant currency basis, we expect full year adjusted net revenue before dispositions to be in a range of $8 four 8 billion.
Eight 5 billion, reflecting growth of 10% to 11% over 2021.
This is consistent with our prior outlook from our May call.
Adjusted earnings per share on a constant currency basis are expected to be in the range of $9 and.
<unk> 53.
To $9 and 75, reflecting growth of 17% to 20% over 2021.
This is also consistent with our prior outlook.
Also we are raising our expectations for adjusted operating margin expansion to up to 150 basis points in.
An increase from the prior outlook of up to 125 basis points.
Okay.
On a reported basis, we now expect foreign currency to.
To be in excess of an incremental 100 basis points headwind for the remainder of 2022.
Bringing the total impact to 200 to 250 basis points for the year.
Additionally, we are now reclassifying net spend consumer assets as held for sale in light of our decision to sell the business.
Therefore, removing it from our outlook for the remainder of the year.
Also effective July one we have moved <unk> core BTB assets to our issuer segment as we look to continue to bolster our leading <unk> businesses.
In combination with incremental adverse FX headwinds.
The reclassification of <unk> consumer assets to held for sale and the exit of our Russian business. We now expect to report adjusted net revenue in a range of $7 9 billion.
To $8 billion for calendar 2022.
We.
To expect to report adjusted EPS in the range of $9 45 to.
To $9 67 for 2022, which includes an anticipated roughly 11.
Impact from incremental adverse foreign currency exchange rates since may.
We are maintaining the same guidance range relative to our original 2022 outlook as we are absorbing additional currency headwinds and the exit from Russia, albeit we expect to be toward the lower end for those reasons.
This adjusted EPS outlook assumes ongoing pandemic recovery and a stable macro economy throughout the remainder of the year.
As our slide presentation today indicates we expect the acquisition of Evo and the sale of <unk> consumer assets to help deliver on the goals that we set forth at.
At our September 2021 Investor Conference.
We raised our cycle guidance, then to double digit topline growth and high teens to 20% adjusted earnings per share growth.
Upon the closing of these two transactions our merchant business will represent 75% of our company.
In issuer solutions inclusive of the net spend BTB assets will represent 25%.
This intentional mix shift will provide us with enhanced confidence in achieving our raised financial targets over the cycle.
At full run rate synergies from the <unk> acquisition, we expect the combined result of.
The purchase of Evo and the disposition of <unk> consumer assets to be roughly neutral to adjusted earnings per share.
In effect, we have swapped <unk> consumer assets for Evo, which is consistent with our strategy and core customer focus.
And we've done so while concurrently bolstering the growth prospects of our issuer business by retaining <unk> attractive <unk> businesses.
And with that I'll turn the call back over to Jeff.
Thanks, Josh we effectively previewed the new global payments at our Investor Conference. This past September .
Those three plus hours 70, plus pages to four key pillars of our go forward strategy were set forth in detail.
Software owned and partner Omnichannel dominance exposure to faster growth markets and <unk> at scale I think it's clear now with today's announcements why we were keen then to raise our cycle guidance.
We will have two primary businesses going forward each of which is growing and attractive rates with enhanced margin characteristics organic and of course inorganic opportunities in each of bound with further runway for ample growth. Upon the closings of these transactions, we expect to derive three quarters of our adjusted net revenue for merchant and one quarter for <unk>.
<unk>, we have multiple levers in each segment to continue to gain share over the cycle, a simpler model more geared toward our corporate customers with enhanced growth and margin prospects.
And what better way evidenced the confidence in our strategy and the durability of our growth prospects.
Honor of Silverlake as part of these plans as we highlighted repeatedly last September global payments is well positioned to maintain and enhance its disruptive path as the partner of choice across our markets.
And most respected global technology Investor agrees.
<unk>.
Thanks, Jack before we begin our question and answer session I would like to ask everyone to limit their questions to one with one follow up to accommodate everyone in the queue. Thank you operator, we will now go to questions.
At this time I would like to remind everyone in order to ask a question press star is in the number one on your telephone keypad.
Well pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Darrin Peller. Your line is open.
Hey, guys good morning, and congratulations on all of these.
Thanks, Eric I look I wanted to start off Hey, guys I just wanted to start strategically when we think about the combination of the businesses that are going forward and really much cleaner without without that and thats been side of the business.
Yeah.
Historically it had been a very software led strategy, where you would grow with software acquisition software acquisitions or partnerships.
I know igo has a great track record internationally with different geographies to GBS.
So can you just touch on what you think the focus of the business is going to be going forward now I mean is it a little of both or do you see more more emphasis being on one versus the other in terms of international reach and <unk> and really dovetailing on that expertise.
Well, Darren as Jeff I'll start and I'll ask Cameron to to comment too. So I would say our outlook on M&A and are targeting our pipeline really hasnt changed we look at it you said vertical market software companies, but we've always look for new geographies and deeper penetration into existing attractive markets.
Concurrently so as we said in our prepared remarks.
Doing that in managing our balance sheet effectively are not mutually exclusive.
The other nice thing about kind of where we are.
Is that we delever fast and offset you closed early in 'twenty three are actually back at the same leverage ratio by December 23 that we are sitting here in August of 'twenty. Two so we have a ton out of financial firepower I would also add that we buyback stock between now and then to see plenty of capability and flexibility to affect our strategies, but no. It doesn't really change our priorities will continue.
Look at <unk>.
Software companies will continue to look at new geographies will continue to look at further penetration of existing geographies. It just so happens the evo fits the bill on many of the things.
I just that I just outlined camera you want Anika, yes, Darrin, it's Cameron I'll just add a few things one if you think about evo through the lens of our strategy I would say first and foremost roughly 40% of the business. Today is technology enabled so very much aligned with our view around driving growth in our business through enablement of technology around the globe with software.
Leader in that overarching strategy as the first point I would make the second is a key element of our strategy is having exposure to faster growth markets around the world that helped to drive topline rates of growth that our superior, but also gives us an opportunity to bring new technologies to those markets to drive again, even better rates of growth.
Markets with strong secular growth trend and clearly clearly EBIT fits the bill from that perspective, as well and then I would say third it does bring our software, particularly in the <unk> space automation software and BW payments capabilities that nicely augment what we already have and allow us to continue to build out a technology enabled distribution strategy around <unk>.
Payments it aligns very nicely with the with the <unk> technology enabled strategy. We've been building for many years. So I think evo in totality really complements many aspects of our strategy today and align very nicely with the business, we've been trying to build over the last decade.
That's really helpful guys just as my follow up I just wanted to hone in on the <unk> strategy. Now. This obviously does give you a lot more assets in connectivity with ERP systems for the <unk>. So if you could just characterize what you see is the real differentiating where youre going to go to market for BBW standpoint, and really what that can contribute to the business medium to longer term.
Great. Thanks again guys.
Yeah, Darrin, it's Geoff Great question, I'll start and I'll ask Cameron to comment again, two so first let me comment on complement Jim and Evo for building, just an absolutely rock solid and terrific business overall, but specifically in light of your question of <unk> business. So we are extremely impressed.
During our diligence with diligence with the team and the culture of Evo, but for these purposes in particular, the BTB assets. So if you back up Darrin the mineral tree, which we closed last October we were looking for an accounts receivable software business to complement the mineral trade accounts payable business, which as I mentioned in my prepared remarks is running ahead of.
Schedule on breakeven I think grew 30% as I said year over year in the quarter. Just ended June so we couldn't be more pleased with that if you think about where we're positioned post tcs now post mineral tree placebo tailored ultimately closes we think we have among the most complete at scale worldwide BTB businesses of anybody out there, but I mean.
Probably something like two thirds 1 billion of revenue coming from <unk>, and we're doing it profitably with commercial card.
Virtual card issuance, where thesis that's $50 million a year I think 30 billion.
Volume pay card and the other thing we said today as we were successful.
Not just divesting net fence consumer assets, but also in retaining <unk> assets, so pay card AWS.
Our parts of those nodes I said effective July one we will have now moved over over to issuer to the issuer issuer segment. So I think Jim in Evo really bring us the missing link as I said, which is we have our own receivables businesses, but we don't have a native integrations in ERP.
Jim This is smartly built over the last period of time and in combination with military and everything else. We have I think positions us distinctively yes.
Yeah, Darrin, it's Karen maybe just a couple of other tactical points and I can't really emphasize enough the value proposition associated with the proprietary ERP integrations and how that will accelerate our <unk> strategy. We're very successful at selling <unk> acceptance today without those integrations with those integrations and the accompanying our software I think are.
Go to market strategy around <unk> payment acceptance is meaningfully accelerated and we're very excited about that.
And this goes back to a couple of my comments back at the Investor Conference. When we are able to integrate fully with our AP automation with money in money out solutions to Jeff's point earlier, we have a comprehensive complete sort of <unk> payment offering we can bring largely to the mid market and going up to the enterprise market I don't think anyone else in the industry can.
Really touch so I think it really does highly complement what it is we're trying to do as a go to market strategy for me to be with the integrations again being a key emphasis of the.
<unk> proposition that EBIT brings the global payments.
That's great guys Congrats again.
Thanks Darren.
Your next question comes from the line of Bryan Keane Your line is open.
Hi, guys good morning.
My question is just why now obviously <unk> been very familiar with each other.
Both of you guys are the Atlanta headquarters and obviously, Jim was a former executive of GPM. So just thinking about the timing of this deal and how it came about the GPM approach Evo.
Yes, Brian it's Jeff I'll start so I would say is it, albeit obviously a lot more to come from gen. When they file their proxy. So I don't want to jump ahead of that but I would just say on my side look I've been trying.
It doesn't mean as long to actually get it over the finish line as I said in the context of the thesis merger, Brian a number of years ago I tried that one for 20 years spanning two different players. So maybe I'm just kind of a laggard at what I do and it takes me a long time to get things over the finish line, but certainly it's not for lack of effort maybe it's for lack of accomplishment, but let's say, we buy we've known as you've said.
Management team agenda particular over at Evo, there, obviously, a customer of ours for a long time have been a global myself 12, and a half years.
And obviously, if a customer that whole duration and still are so couldnt have a better partner than those guys and kind of better leadership team that the <unk> has assembled then we've obviously as Cameron said <unk> done this strategy in the tech enabled side and especially as we just mentioned.
Sponsored Aaron's question the <unk> side, so we've been trying to us it's nice that the stars aligned from Jim's point of view and EBIT point of view in mind and globally I would say as we thought about it.
We think that now is a great time to do this and I'll tell you why first we think.
That are.
Our expectations for what this business is going to do.
The current macroeconomic and FX environment, that's reflected in the terms that we that we announced today and $35 a share we're paying roughly 10 times calendar 'twenty three EBITDA with the synergies fully loaded intuit prior deals that we've done in other people have done in the marketplace are at 11 and 12 times just.
Way up just by way of comparison and look as a strategic buyer.
Virginia and for Us as a strategic transaction or synergies don't vary by the macro economic client climate will get those synergies kind of in any environment. So I am really glad at the end of the day, that's something that certainly a global has been pursuing for many years that we were able to bring it to us.
Felicia and I will just tell you that the two teams have a lease gel well together Allison partners were very long period of time, it couldnt be more delighted with our ability to announce this today.
And Bryan its Cameron I'll, just add one other point to that which is what we're about to reach the third anniversary of our merger with pieces. So the timing is right for us as well, we're ready to take those on as an integration matter. Our teams are excited about the opportunity, particularly what it does to our European business, essentially we will have roughly $1 billion European business now going forward and obviously the <unk>.
<unk> and additional capabilities that brings to us in markets like the U S. Mexico U K, where we're also.
At large businesses today I think the team is delighted to have the opportunity. So the timing works for us well into the execution matter.
No I would say an exciting combination let me just ask one quick follow up on the results on merchant solutions that leverage point of sale software growth up 40% year over year.
Can you talk a little bit about the competitive landscape there.
If you guys are gaining share there because sometimes I don't know if that business was highlighted by mouth, but you guys seem to be doing quite well and the point of sale software.
Yes, Bryan it's Cameron I'll, maybe start and ask Jeff to chime in if you'd like to have anything else I think we have a very competitive market leading offerings in the Pos software space, We're really delighted with the progress we've made in that business about 40% growth rate in the quarter is probably off a $50 to 60 last year. So we continue to scale that business nicely.
With our full suite of kind of retail and restaurant Pos capabilities that stem from again, all the way down to the very small end of the market up to the higher end of the mid market even into the low enterprise.
Faced with the capabilities that we have we also launched this quarter, what we call our retail and restaurants essentials package, which we're really excited about because it basically bring some of the vertical fluency that exist in the upper end of the market that we have with our retail and restaurant product today down to the lower end of the market. So they get the benefit.
It's a vertical is Asia, but a simpler solution that they can grow and scale with over time into our core retail and restaurant offering and I think thats going to drive even additional tailwind in our Pos business going forward. So we think we're very well positioned in the competitive landscape. Obviously, it's a landscape that has a lot of intense.
<unk> and quality products that we have to business on ourselves against but I think our distribution capabilities and scale. We have in the business. The feature functionality, we were able to bring to retail and restaurant customers coupled with the service offerings that we have I think really positions us well to continue to grow nicely in that space and it will be a tailwind for the.
Overall business going forward and the last thing I would say somewhat unique about us is our ability to bring those capabilities to market outside of the U S. I've talked about that in my prepared remarks, but we're bringing a lot of our Pos software solutions into Canada, the UK Central Europe , Spain, and we'll look to do that further in evo markets as well driving further distinct entity.
<unk> in those international markets again, creating more tailwind for growth in our overall Pos opportunities.
Got it congrats on all the announcements.
Thanks, Brian Thanks, Brian .
The next question comes from the line of Dave Koning. Your line is open.
Oh, Yeah, Hey, guys. Thanks, so much congrats and good luck.
Yeah, you're welcome so I guess a couple of numbers questions first of all is the $125 million of synergies does that all fall to the EBIT line and maybe talk to what what revenue and expense synergies kind of are in there.
Yes, David It's Cameron good morning, I'll start there and I'll ask Josh to jump in as well with any other comments he'd like to add so I would say first and foremost, yes, we talked about the EBITDA synergies being a $125 million that will flow through to EBIT theres no sort of acute games being played around DNA.
<unk> EBIT savings as well as EBITDA savings for the business well, if theres a lot of opportunities on the revenue side I talked about this extensively in the script I think overlaying, our vast distribution capabilities with Evo business is very attractive the ability to bring our commerce enablement solutions vertical market software Pos capabilities into <unk>.
Those existing base of customers I think is very attractive cross selling UCP to <unk> enterprise customers to for multinational acquire anything I think is an attractive opportunity.
And of course, egos <unk> solutions, and what that does to our one <unk> strategy and go to market positioning is incredibly attractive as a revenue growth matter and then of course, there's a significant amount of overlap in our businesses. So when we looked at an opportunity like Evo Theres, obviously synergy opportunities and aligning go to market strategies.
And harmonizing, our sales and distribution platforms, clearly technology will be a significant source of synergy benefits as we put the two businesses together the operating environment, the customer service environment, the ability to leverage our captive offshore in the Philippines and some of what we've been able to do from a servicing.
<unk> the gain scale I think all of that drives a significant amount of synergy opportunity in the deal I would say that our levels are at or more attractive even than we've seen in the heartland transaction and the thesis transaction. Historically, so we feel very good about the number and have a lot of confidence in our ability to deliver it over the two year time horizon.
And we outlined in the.
In the call earlier today and are anxious to get started.
Great. Thank you for that and then just a second one on numbers it looked to us like both revenue and EPS guidance, we're raised a bit and I think that seems like it still has to include the net spend numbers and I know you said discontinued ops, but does the guidance still include net spend for the rest of this year.
Yes, so what I would say look on a constant currency basis, Our guide Hasnt changed our expected growth is still 10% to 11% which is consistent with.
Our prior outlook, we expect full year adjusted net revenue before dispositions to be $8 $4 8 billion to $8 25 billion.
Which I, which I commented on in my prepared remarks.
After removing the Russian merchant business as well as the second half figures for P&C consumer.
We estimate that constant currency revenue would be approximately $8 8 billion to $8 $1 5 billion and then further if we adjust to include 200 to 250 basis points of FX headwind for the year, we expect.
<unk> reported revenue to be in the range of seven $9 billion to $8 billion for calendar year, 2022, which I mentioned in my prepared remarks.
You can see in our schedule 10 of our press release, Yes, Davis, Jeff I would just add our reported earnings that we expect to report we essentially kept the original range to be honest, although leached expressed we probably be towards the lower end in light of the things that Josh mentioned, but the way to think about it Dave I think is I think a right from an earnings point of view, because we're getting to the original range that we guided to.
In February Dave and we're absorbing just another 11 sense just from May to today, and there was probably another five or 10 or whatever the math wise in the first quarter Dave.
So I would say the way I look at it on earnings in particular is what you said, which is we're taking actions which is why Dave the margin is up so we've raised for the second quarter in a row our margin expectations. So just lay out the revenue formulation, but certainly from a reported earnings formulation, Dave we're essentially absorbing all the FX, we're absorbing Russia and yet we're still in the same way.
From February .
Yeah, that's clear thanks, so much.
I can tell you as a management team, Dave I view that as raising it but you can have your own conclusion.
Yes, it sounds great. Thanks, guys.
Thanks, Thanks, Ed.
Your next question comes from the line of Ramsey El <unk>. Your line is open.
Hi, Thanks for taking my question today.
I had a question on the merchant segment margins outperformed our model quite a bit in yields did as well maybe you can take both of those things in sequence and talk about the drivers of margin expansion in the quarter. The sustainability of those drivers as well as what we should expect for yields as we move through the back half of the year.
Hey, Ramsey, it's Cameron I'll start and ask Jeff or John to jump in with any other additional commentary. So I would say a couple of things on the margin front. Obviously I think it reflects continued very strong execution in the business I'm really proud of our teams around the globe. We've been able to continue to drive I think higher levels of incremental margin in the business, which has created an.
Overall tailwind I think for margin expansion I think the second thing we've seen is recovery in markets that have slightly lower margin profiles that have been a nice tailwind to margin expansion as well Asia Pacific is a good example of that it grew double digits on a constant currency basis again this quarter, obviously the Asia Pacific.
<unk> continues to struggle with Covid, but we do see some tailwind to growth there, which I think creates some overall tailwind to growth and margin overall.
And I would say lastly to your question around yields I think it continues to be a bit of a mixed conversation as a vertical market businesses continue to recover you will see that the yield has drifted up a little bit that's what we forecasted.
Previously and I think we commented on the fact that we would anticipate that having as we work through 2022. So I think it would be look at the business today, excluding Russia, we grew topline a constant currency basis about 15% volume grew about 15% so that delta between revenue growth and volume was really <unk>.
<unk> showing kind of a better yield environment some of that due to overall mix in the business of it due to vertical markets recovering or continuing to recover to some degree as well.
Got it Super helpful. Thank you and a follow up from me can you comment on what Youre seeing sort of most recently and you're kind of quarter to date volumes and just also give us your thoughts on.
The potential for <unk>.
Recessionary impact on numbers are you seeing any signs of consumer spending weakening and what youre seeing in your own book what is your view there.
Sure Randy I'll start again, its Cameron I think July continues to trend in line with our expectations relatively consistent I would say with what we've seen in the June and May sort of timeframe I think the consumer continues to be in a relatively healthy place.
Like you and I'm sure everyone else on the phone we.
Watch that very very closely.
But we continue to see I would say good volume trends in the business very stable very consistent with what we would expect no real signs sitting here today of any material weakness kind of on the consumer front I think we're still in this period obviously.
There's a lot of activity during the summer months I think there's been a lot of pent up demand for consumers to get out and about and engaged more in experiences and maybe less so in goods.
And we'll see how that trends through the balance of the year given the overall macro environment, we're operating in but I think we continue to be relatively.
I'd say comfortable with how we see volumes progressing through July relative to our expectations. Yes, Ramsey is Jeff I'd say the same thing's true on the issuing side, we continue to see really strong volumes in issuing in July we see really good commercial card I think we actually disclosed in the slide 35% commercial car growth in the second quarter and look for those of us in.
I would say those trends and expectations are very similar to what you heard at a visa Mastercard fiserv.
Last week, so really pleased to Livia, where we already had been on the road. The last couple of months in that in the U S and Canada in the U K twice by the way and in Continental Europe , and let's be honest the airports the restaurants. The hotels. The streets are pack. So you don't need me to tell you that things are in a healthy place.
That's for sure alright, thanks, so much I appreciate your comments.
Thanks, Amit.
Your next question comes from the line of Robert Napoli. Your line is open.
All right. Thank you good morning, congratulations on the acquisition of Evo and <unk> got a good asset.
Together with the cash.
They're testing.
Good to see.
Just on mineral tree I guess, maybe a follow up on the BBB.
The business is called out 30% growth on mineral tree and now that you have the assets as well first of all is that 30% organic.
And what are you seeing.
Have you been able to cross sell mineral tree into your commercial card customer base.
Yes, Bob its Jeff ill start its a great question. So yes, the 30% and military is comparable year over year. So that's an organic revenue comparison.
Comparison as I mentioned my prepared remarks, it's also now with EBITDA breakeven.
We've been able to grow the revenue substantially while significantly improving the profitability. So no surprise to you on your second question that one of our targets as a revenue synergy matter. When we did mineral tree with the cross sell that into what's now placebo, a 505, but pretty though is like 13 hydrated wherever <unk> 50, whatever the math.
Is that is today the pipeline is very deep there. We're very pleased about how the business is executing we actually brought someone in at the end of June .
To whom mineral tree now reports is running all of our <unk> <unk>.
Functionality is that he is terrific and is off to a great start I'd also say, there's a ton of overlap not just an ESI baseband the merchant base without Cameron's businesses. So no surprise, Bob we've been cross selling into things like the enterprise <unk> space, you would imagine that Burger King and those types of folks.
Actually procure a lot you would think about advanced N. D. For example in health care, you think I touch net.
Higher Ed and University those are all really good targets.
For for cross selling so we're very excited about the revenue opportunities in that and that business. Cameron you want to add anything no I think that covers it well the only other comment I would add is just like we see meaningful opportunities in some of our own software businesses, we see a lot of opportunities with our partners as well so we're working to integrate mineral tree into their existing salt.
We're suite of solutions across the 6000 ISP partners that we work with today, so meaningful cross sell opportunities I think when we can marry that with a software as well that's going to open up even more doors for us and provide more opportunity to drive faster rates of growth across the entire BW channel.
Thank you and then the follow up just on the operating margin expansion.
Now much better than in your guidance than what we had expected in an inflationary environment, where it should be tougher to do that.
I know you just called out.
Jeff Great execution, but can you maybe give a little more color on.
How you've been able to expand margins in this environment.
Yes, Bob it's a great question, so I would say in our business and those things are derivatives of revenue growth. So if you look at what we report and what Josh said this morning, if they're growing like for like revenue and I think ex net spend is something like 11% constant currency revenue growth ex <unk> spend a lot of that is going to fall to bottom line.
As our business is all about how we generate incremental rates of revenue growth. So it's not surprising to me that we outperformed we've got double digit kind of core revenue growth. The second half, saying Cameron touched on this a minute ago is our vertical market software businesses, except for <unk>.
While the pandemic, we were kind of coming into a recovery in those businesses as we alluded to in our.
November 1st of all last year, and obviously our February call Bob.
As this year those have now returned to comparative growth. So there are a tailwind in the merchant segment that Cameron just mentioned not a headwind not surprisingly bought software business has come in at a high margin. So our ability to really capitalize on the rates up rebound I think it was something like 20% or thereabout growth in the second quarter for our vertical markets.
Software business Laggard, well you talked about rule of 40 and software will probably if we looked at <unk> and in some cases, we'll Ah 60, so not surprising a lot of that stuff is going to drop to the bottom line.
Yes, Bob This is Kevin the only thing I would add to that is that we've always been highly highly focused on profitable growth in our business. We don't give our solutions away for nothing we believe in the value proposition that we deliver to our customers more and more we're leading with technology, obviously would drive higher margins in the business and better outcomes and I think there is.
Really no better representation of that between the alignment and volume growth, we see in the business and topline revenue growth. Obviously, we continue to focus very heavily on driving profitable growth in the business and margin expansion is one of the core elements that we were highlighting as a as a management team.
Thank you.
Thanks, Bob.
Your next question comes from line of Jamie Friedman Your line is open.
Hi, congratulations on the numbers and the transactions.
I wanted to thanks, Jamie Yeah.
Yes.
It makes a lot of sense.
I'd ask about net spends <unk> exposure.
Jeff You mentioned in your prepared remarks about pay card, but can you remind us what that does and roughly the size of it if you have it.
Yes of course, Jamie So we actually I think Paul said this at the time, we announced in February our strategic reviews, but it's about a 100 $110 million of revenue in fact in the schedule as we produce today I'm going to say its tangible too we actually gave supplemental kind of pro forma.
As to what it would look like and you also see that throughout so you actually see.
What issuer with Peikar to BBB from that's been it looks like and you see what we are selling without it in there so but I will just close it for memory, having looked at the schedule is quite a bit is it something like 100 $110 million Jamie of yearly revenue in that business, it's mostly paye kart, but theres also earned wage access and.
And some banking as a service businesses in that business too and I think as I said in prepared remarks that grew mid teens on a normalized basis in the second quarter presents a normalized that you had some like stimulus effects.
Last year gaming. So you have a little bit of the second quarter. There were small signal is coming from the federal government, but mid.
Mid teens is what it has grown at and it's a natural corollary to the the assets that we have an issuer <unk>, which is to say virtual card commercial card the assets, we have Vietnam and Cameron business in merchant and Heartland with payroll. So it's a very nice correlate to those businesses.
Got it and then.
My second one was about issuer.
Nice acceleration here.
Just wondering what.
What's contemplated for the rest of the year in issuer, if you could get us oriented with that.
Yes, it's Jeff I'll start and I'll turn it over to Josh So as I said my prepared remarks, Jamie right on track with what we expected X mineral trade. It was 4% constant currency growth, which is what we are tracking obviously with mineral tree, we printed six so super happy that where it where it came out.
We think we're in a really good track there are as I said last quarter, we have record pipeline accounts on file and transactions in commercial are all accelerated.
In the in the second quarter and based on what we said about volumes and everything else I think you're going to see that in the third quarter two relative to the second quarter, Josh when you get a little more color on the rest of the year, Yes sure. Jamie. So I think if you think you could go back to the first quarter ex mineral tree, we saw margins expand 50 basis points and then for the second quarter. We also saw margins expand.
60 basis points ex mineral tree and for the back half of the year, we're expecting to see further margin expansion strong operating leverage expense management. So we see that accelerating and then I think it goes back to Jeff's comment around operating leverage we've seen.
A nice very strong trend from the first quarter, the second quarter from a revenue revenue perspective, and we expect that to go ahead and continue into the third and fourth quarter, which will also contribute to margin and Jamie I would just say in terms of outlook for that business and I think Josh is exactly right that we're managing to most of my trips, especially.
Overseas and outside the U S, Canada into Europe , where without pies on the issuing side, Jamie and also obviously with some of the Fintech on the AWS side look I would say our strategy. There is exactly right. The cloud sells AWS cells were worried we first started this to say hey look what's the path for our regulated institutions.
Move to the cloud that might have been two three years ago. When we first started this I can tell you that's not from now so now we have a record pipeline, but kind of the shadow pipeline, which is my view as to what the receptivity and where are we and where we are has really never been never been better. So we are fortunate position to have an abundance of opportunities, we obviously need to rest.
Most of the ground and bring those to fruition.
I think the future for that business, particularly the BB assets and it is really bright.
Thank you both.
Well, thanks, Jamie on behalf of global payments. Thank you for joining us this morning.
Okay.
This concludes today's conference call you may now disconnect.
Okay.